Big Changes Needed for Rural India: Focus on Research and Development Over Subsidies
A report by the Indian Council for Research on International Economic Relations (ICRIER) highlights that over 50% of India’s Union Budget for the rural and agrarian sector in FY25 is allocated to food and fertilizer subsidies. Despite a significant investment of Rs. 6.2 trillion, the focus remains on welfare measures, which have not effectively addressed low rural incomes.
The Union Budget document for 2024-25 shows that the central government has allocated Rs. 6.2 trillion for the agriculture sector, which constitutes 13% of the overall budget of Rs. 48.2 trillion in FY25. Out of this, the food subsidy allocation accounts for 30% of the entire agrarian budget, amounting to Rs. 2,05,250 crores. The fertilizer subsidy accounts for 24% of the agriculture budget, with an allocation of Rs. 1,64,000 crores.
The report, authored by agriculture economist Ashok Gulati and Purvi Thangraj, points out that welfare measures like food, fertilizer subsidies, and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) account for Rs. 4.55 trillion, or over 73% of the total agriculture budget expenditure. The report suggests that while these initiatives aim to improve living conditions, they have not effectively addressed the underlying issue of low rural incomes, which currently average less than Rs. 20,000 per month for rural families.
According to agriculture economist Gulati, every rupee spent on agricultural research and development yields much better returns (11.2) compared to returns on every rupee spent on fertilizer subsidy (0.88), power subsidy (0.79), education (0.97), or on roads (1.10). This makes a compelling argument for rationalizing these subsidies and investing their savings in developmental expenditures like agricultural R&D.
The report also highlights that the persistent low-income levels among agricultural households hinder the demand for non-agricultural products, stifling potential growth in the manufacturing sector. To catalyze a manufacturing revolution and create sustainable jobs, it is imperative to augment rural incomes. This can be achieved through bold reforms that prioritize agricultural research and development (R&D), irrigation, and skill development over traditional welfare schemes.
The experts argue that rationalizing subsidies and redirecting funds towards more productive investments is essential. For instance, enhancing agricultural R&D can lead to climate-smart practices that improve crop yields and resilience. Additionally, investing in rural infrastructure can facilitate better market access for farmers, ultimately boosting their incomes.
The report noted that the vision of ‘Viksit Bharat@2047’ hinges on transforming the rural-agrarian economy into a robust engine of growth. This transformation requires a strategic shift in policymaking, focusing on sustainable farming practices that benefit both farmers and the environment. Without these critical reforms, the goal of a prosperous and inclusive rural India may remain elusive, perpetuating the cycle of low demand and limited job creation in the manufacturing sector. The time for action is now, as the future of rural India depends on it.
‘The realization of the vision of ‘Viksit Bharat@2047′ hinges greatly on how the rural-agrarian economy performs. Rural India comprises 64% of the population,’ said the report.
Doubts Revealed
Rural India -: Rural India refers to the parts of India that are outside the cities and towns. These areas are usually villages where people mostly work in farming and other traditional jobs.
Research and Development -: Research and Development, often called R&D, is the work done to create new products or improve existing ones. It involves studying and experimenting to find better ways to do things.
Subsidies -: Subsidies are financial help given by the government to make things cheaper for people. For example, the government might give money to make food or fertilizers cheaper for farmers.
Indian Council for Research on International Economic Relations (ICRIER) -: ICRIER is a group of experts in India who study and give advice on economic issues. They help the government and businesses understand how to improve the economy.
Union Budget -: The Union Budget is the government’s plan for how it will spend money for the whole country. It includes details on where the money will come from and how it will be used.
FY25 -: FY25 stands for Fiscal Year 2025. A fiscal year is a 12-month period used for budgeting and financial purposes. FY25 means the year from April 2024 to March 2025.
Food and fertilizer subsidies -: These are types of subsidies where the government helps to make food and fertilizers cheaper. This is done to help farmers and people who might not have enough money to buy these things at full price.
Rs. 6.2 trillion -: Rs. 6.2 trillion is a very large amount of money. In Indian currency, ‘Rs.’ stands for Rupees, and a trillion is a number with twelve zeros (1,000,000,000,000).
Welfare measures -: Welfare measures are actions taken by the government to help people who are in need. This can include things like free food, healthcare, and financial support.
Agricultural research and development -: This means studying and creating new ways to improve farming. It can include finding better seeds, new farming techniques, or ways to protect crops from pests.
Manufacturing sector -: The manufacturing sector is the part of the economy that makes products in factories. This can include making clothes, cars, electronics, and many other things.
