Union finance minister Pranab Mukherjee will soon begin confabulations with industry leaders and sectoral experts on the formulation of Budget 2011-12. Like Manmohan Singh and P Chidambaram in the past, will he deliver an historic budget? Singh as finance minister in 1992 launched the Indian economy's liberalisation by encouraging foreign investment and slashing import duties, which was to put an end to the 'Hindu' rate of economic growth. Chidambaram as finance minister in 1997 announced substantial reduction in income and corporate taxes, leading to buoyant tax collection in future years. Mukherjee in 2011 can present a path-breaking budget by focussing on the rural economy and agriculture sector, which can set India on a permanent high growth trajectory of over 10% in the foreseeable future.
While the reforms and budgets of the last two decades have produced a vibrant urban economy, their impact on the rural economy has been minimal. Past budgets have seen farmers being pampered with sops and subsidies that have created an extreme dependence on the government among people living in rural areas. Except for the mode of production linked to the farmer, government is the biggest provider of services and buyer of goods produced in the rural economy.
Schools, hospitals and most other essential services in rural India are mostly government-run and, with the introduction of the Mahatma Gandhi Rural Employment Guarantee scheme five years ago, the government has become the employer of the first resort. The farmer also gets from the government free electricity and subsidised credit and fertilisers for production of crops. Most commodities thus produced are procured by the government through the minimum support price (MSP) mechanism.
The rural economy needs an impetus to get out of this rut. The upcoming budget provides Mukherjee an opportunity to lay out a vision for transitioning the rural economy and agriculture sector into the market economy.
