Growing interest: Likely budget pressures on social sector to boost rural demand

The Union Budget for fiscal year 2025, to be presented on July 23, is expected to see increased allocations for social sector programmes including health, education and rural development, with a focus on boosting rural demand and providing relief to vulnerable sections of society.

“Rural India needs more attention, which can be reflected in the allocation of budget funds for social programmes,” said a senior government official, requesting anonymity.

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A comfortable fiscal position following the Reserve Bank of India’s dividend payment of Rs 2.1 trillion may also help the government increase funds for such programmes.

Rating agency ICRA said in its report that there is a possibility of raising the planned budget expenditure target compared to the interim budget to introduce a new scheme or increase spending on some existing schemes.

ICRA estimates the government’s expenditure at Rs 37-37.1 trillion, Rs 50,000-60,000 crore more than the interim budget, implying an annual increase of 6.0-6.3 per cent.

“The additional funds are likely to be used for non-interest and subsidy purposes and will be focused on the rural economy, given the weak rural demand due to the fallout from an insufficient and uneven monsoon in 2023,” the report said.

In the social sector, education could receive additional funds to address pressing issues such as quality of education. “The range of individual expenditure on education varies from zero to about Rs 2 lakh per year in wealthier groups. This shows the huge inequality in education,” said Amitabh Kundu, a sociologist.

Besides, the Mahatma Gandhi National Rural Employment Generation Scheme (MGNREGS) is expected to see an increase, but in line with the budget. The allocation for the rural employment guarantee scheme remained unchanged at Rs 86,000 crore in the interim budget of FY25 as against the FY24 RE.

“The focus would be more on growth and jobs. There is no immediate threat to the government and they would prefer a growth agenda,” Kundu said.

The Bharatiya Janata Party in its election manifesto promised to cover all senior citizens above 70 years under the Ayushman Bharat scheme, which may be expanded from Rs 7,000 crore in the interim budget. The Pradhan Mantri Awas Yojana (Gramin) may also get more budgetary allocation to help the poor and boost demand in rural areas.

However, several social sector programmes such as the Swachh Bharat Mission, which aims to make India open defecation free, and the Jal Shakti Mission, which aims to provide efficient access to drinking water to all rural households, have reached or are close to saturation levels and, therefore, the allocation of funds is not expected to increase significantly.

To boost consumption, the government could take steps to increase direct benefit transfers. The government is also considering increasing the allocation for PM KISAN Samman Nidhi in the upcoming budget.

Elara Capital had recently reported that the government is likely to increase fiscal outlays through increased transfers to farmers under PM Kisan and other fiscal outlays in the form of higher allocation under MGNREGA.

In February, the central government significantly reduced allocations for 26 of the 37 major social programmes, which include ‘core’ and ‘fundamental’ programmes, as part of its focused efforts towards aggressive fiscal consolidation in fiscal year 2024. These programmes collectively saw a decline of 6 per cent in the overall revised estimate (RE) to around Rs 4.41 trillion in fiscal year 2024 as against the Budget Estimate (BE) of Rs 4.69 trillion.

The cuts in funding for key social programmes came as Finance Minister Nirmala Sitharaman revised her budget deficit estimate for fiscal 2024 to 5.8% of gross domestic product (GDP), from an initial target of 5.9%, and set an ambitious target of 5.1% for fiscal 2025.

Among the schemes that saw a decline in the interim budget for fiscal year 2025 as compared to the budget for fiscal year 2024 were the Crop Insurance Scheme (-2.7 per cent), Pradhan Mantri Annadata Aay Sanrakshan Yojna (-21 per cent), Prime Minister’s Initiative for Development of North-East Region (-6.6 per cent), Special North-East Infrastructure Development Scheme (-4.4 per cent), Guarantee Emergency Credit Line for eligible SME borrowers (-27.4 per cent) and Prime Minister’s Employment Generation Scheme (-22.2 per cent).