Declining rural funding by states

It is generally agreed that global economic turmoil has led to a sharp decline in overseas demand for goods and services and a near saturation of our domestic urban segment. But what about the rural market? The general perception is the government is pumping in enough resources to the rural areas which gets reflected in rising purchasing power. But rural prosperity, though evident, is confined to a few segments. Even today, around 70% of the countryside is left behind in the nation���s march towards prosperity. And this could be attributed largely to lacklustre government spending in rural areas: the combined total investment in the rural area by both the Centre and states has remained more or less stagnant at around 1% of GDP since the ���90s.

The fact that rural development remains largely neglected becomes evident when the analysis is extended to the states. Available figures show that investment by state governments in the countryside ��� including public expenditure in agriculture, rural electrification, roads, housing, sanitation, schools, medical centres and ancillary units ��� has declined for a majority of states since the nineties. In fact, the cumulative expenditure of states in rural development as a percentage of total expenditure has dropped from almost 7% in 1992-93 to 4% at present. Most states spend as little as 1-5% of their total expenditure on rural development. The exceptions are Madhya Pradesh (8%), Chhattisgarh (8%) and Bihar (7%).

No doubt, there are cases where there is apparently no close correspondence between fund allocation and rural prosperity. For example, rural Bihar suffers from economic deprivation despite higher state allocation. In contrast, Punjab is a front ranker in rural prosperity despite government neglect. Perhaps, this could be attributed to the preponderance of non-farm rural employment (60%), greater urbanisation, high minimum support price paid to farmers and well established rural infrastructure.

In Bihar, a higher proportion of state government funds have not made a visible impact in terms of rural uplift. This is because around 80% of population continues to depend on low productivity agriculture for its livelihood. Nearly 40% of gross cropped area is still un-irrigated and rural infrastructure is in deplorable condition.

A major reason why the impact of government spending in the villages may not be clearly visible is that most of the increase in rural spending is through allocations by the Centre while the contribution of the states, which could make a difference, is declining on account of its preoccupation to meet the fiscal deficit targets. This is borne out from the fact that states��� expenditure, which accounted for nearly 95% of total rural spending in the nineties has dropped to around 60% at present, while the Centre���s share has gone up from 0.5% to 2.5% during this period. However, the centrally sponsored schemes have proved unequal to ameliorate the plight of the rural populace. The leakages in delivery mechanism and poor accountability at the state level have prevented funds from reaching the targeted beneficiary.

Secondly, not only is rural funding inadequate but the amount disbursed is also spent inefficiently. For example, around 75% of amount allocated for agriculture is spent on subsidies with only 25% made available for productive investments despite the latter providing higher returns. Besides, not much is being done to promote rural industrialisation. More than 50% of the villages are yet to be covered by Khadi and Village Industries Commission and the paucity of basic infrastructure like transport, communications and electricity is a major deterrent to the growth of rural SME clusters.

Additional funds are desperately required for improving connectivity in the countryside. Connectivity enhances the value of every other rural investment since it empowers people through improved mobility and access. The green revolution in Punjab hinged not only on R&D but on rural roads too. And the inadequacy of incremental funds for further development and maintenance would erode the advantage so far enjoyed by the state. Perhaps, infrastructure development in rural India ��� notably irrigation, cold chains, roads, mandis, etc ��� could be contemplated through annuity-based public-private-partnership model. Priority should also be given to enhance public spending on social infrastructure.

All this shows that augmenting fund allocation for public investment in the rural area is more a necessity than an option for promoting inclusive economic growth. This would put more money in the hands of the under-privileged. No doubt, money is being allocated for rural rejuvenation. However, the enhanced fund allocation by the Centre alone is not sufficient. It is the contribution and commitment of states, which by supplementing the initiatives of the Centre could help in rural uplift and make it possible for industry to realise the full potential of the rural marketplace by bringing many more buyers within its fold.

(The author is senior economist, PHD Chamber of Commerce and Industry)