NEW DELHI: Rural India is set to get a boost, as Finance Minister Arun Jaitley announced a 24% increase in spending for rural, agricultural and allied sectors, including investment in jobs and infrastructure.
In his budget speech, the minister also stated his intention to lift 10m households out of poverty over the next few years and to achieve 100% electrification of villages by May 2018.
"My approach in preparing the budget is to spend more on rural areas, infrastructure and poverty alleviation with fiscal prudence," he said.
Economic growth in rural areas has slowed after several poor monsoon seasons. Observers also noted that the decisions were in part a reaction to the hardships rural India has experienced in the wake of the government's demonetisation policy and the need to reassure the electorate ahead of state elections in Uttar Pradesh and Punjab, where farming plays a vital role in the economy.
The extra investment, coupled with reduced tax rates for low earners, is expected to lift consumer spending in rural areas.
"This will lead to improvement in consumption but not significant in pushing consumption," said J Suresh, CEO of apparel manufacturer Arvind Brands.
"There will be impact in the value end of the market with people upgrading from unbranded product consumption to branded products," he told the Economic Times.
One sector that is not expecting to benefit, however, is jewellery. The budget also imposed an upper limit of Rs 300,000 on cash transactions, which will likely hit rural sales where consumers lack access to banking facilities and digital payment options.
Rural India accounts for 60% of the country's gold consumption and sales in January this year were 30% down on January 2016.
In his budget speech, the minister also stated his intention to lift 10m households out of poverty over the next few years and to achieve 100% electrification of villages by May 2018.
"My approach in preparing the budget is to spend more on rural areas, infrastructure and poverty alleviation with fiscal prudence," he said.
Economic growth in rural areas has slowed after several poor monsoon seasons. Observers also noted that the decisions were in part a reaction to the hardships rural India has experienced in the wake of the government's demonetisation policy and the need to reassure the electorate ahead of state elections in Uttar Pradesh and Punjab, where farming plays a vital role in the economy.
The extra investment, coupled with reduced tax rates for low earners, is expected to lift consumer spending in rural areas.
"This will lead to improvement in consumption but not significant in pushing consumption," said J Suresh, CEO of apparel manufacturer Arvind Brands.
"There will be impact in the value end of the market with people upgrading from unbranded product consumption to branded products," he told the Economic Times.
One sector that is not expecting to benefit, however, is jewellery. The budget also imposed an upper limit of Rs 300,000 on cash transactions, which will likely hit rural sales where consumers lack access to banking facilities and digital payment options.
Rural India accounts for 60% of the country's gold consumption and sales in January this year were 30% down on January 2016.
Data sourced from Business Standard, First Post, Economic Times; additional content by Warc staff
