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Budget: Eye on rural India - Views on News from Equitymaster
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  • Feb 28, 2002

    Budget: Eye on rural India

    The 2002-03 budget may have hit the salaried class right in the gut, but it sure has given the agricultural sector and the rural economy, a few things to smile. With agriculture accounting for roughly 25-26% of the GDP, and over 60% of populace dependent on it, this sector continues to have a commanding presence in the nation's scheme of things.

    This year's budget was significant for the rural community on two fronts. On one, the government announced significant measures to improve the infrastructure condition, by continuing to increase outlays for rural electrification and road development (allocation of Rs 25 bn for the Pradhan Mantri Gram Sadak Yojana). These will improve the business conditions in rural areas going forward. Also, in order to help farmers get easier access to credit, the FM announced that funds for RIDF VIII will be enhanced from Rs 50 bn to Rs 55 bn next year, while the rate of interest will be reduced from 10.5% to 8.5%. Henceforth, it will be fixed at the prevailing bank rate plus 2%. Assistance to the states from RIDF will be linked to reforms in the agriculture and rural sectors.

    The other significant development is the signal to end subsidies gradually but surely. Also fertilizer de-control is on the cards. Fertiliser issue price has been raised by 5%. It's a good sign and would probably bring in some activity into the stagnant fertiliser industry.

    The other key measures initiated in Budget 2002-03 are:

    • Amendment of the Milk and Milk Products Control Order (MMPO) to remove restrictions on new milk processing capacity, while continuing to regulate health and safety conditions.

    • Removal of small-scale industry reservations related to various agricultural equipment items.

    • Decanalization of the export of agricultural commodities and phasing out of remaining export controls.

    • Expansion of futures and forward trading to cover all agricultural commodities.

    • Group of Ministers (GOM) to be set up to propose legislative and other changes for preparing a modern integrated food law and related regulations.

    • Additional allocations in respect of centrally sponsored schemes would be linked to decontrol and deregulation of the agricultural sector by the States.

    • Additional allocation of Rs 700 m to Credit Linked Subsidy Scheme for construction of cold storages and rural godown schemes in 2002-03.

    • Under the scheme of micro credit through Self Help Groups a target of 125,000 additional self-help groups set.

    • Special One Time Settlement scheme for small and marginal farmers will be announced by RBI to cover loans upto Rs. 50,000.

    • A new Corporation for Agriculture Insurance to be promoted by the existing public sector general insurance companies.

    • Allocation for the Accelerated Irrigation Benefit Programme (AIBP) increased from Rs 20 bn this year to Rs 28 bn in 2002-03.

    • Allocation for agriculture research enhanced to Rs 7.8 bn from Rs 6.8 bn.

    Rural Employment

    • Jai Prakash Rozgar Guarantee Yojana (JPRGY) to be launched to provide employment guarantee to the unemployed in the most distressed districts of the country.

    • Wardha Institute started by Mahatma Gandhi in 1935 to be upgraded as a National Institute to be called Mahatma Gandhi Institute for Rural Industrialisation.

    • Rural local bodies, cooperatives and NGOs will be assisted to set up rural produce marketing centres and sub-centres at the district and block levels and to upgrade village "haats".

    • Insurance cover through a Master Policy for houses constructed by the poor under the Indira Awas Yojana (IAY) in disaster prone areas will be provided.

      Management of Food Economy

    • Number of steps taken by the Government to reduce high food stocks, like increased allocations for BPL families; launching of a major food for work programme under the SGRY; allocation of 30 lakh tonnes of free foodgrains to States for relief works in areas affected by natural calamities; open market sales of 30 lakh tonnes during 2001-02 compared to 5.5 lakh tonnes in 2000-2001; and enhanced incentives for export of food grains.

    All this is expected to put the rural economy back on growth track. This is also likely to encourage private investments in setting up distribution and supply chains even in the rural hinterland. Penetration levels of consumer product companies are going to rise, thereby aiding volume growth. But all this is a long term view. But atleast a beginning has been made.



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