Polls push growth

The much-hyped growth witnessed in rural India despite the economic slowdown that affected urban India — impacted by the global financial crisis, is really the result of “a political business cycle engineered by the functioning of a democracy”.
The government, in an election year tends to spend more in rural areas that are their vote banks than they do in the first three years of the government. In a research paper, God, Government and Growth, the Noble group has shown how the government’s support price for various crops jumped to as much as 94 per cent in one case, and in the case of the national rural employment guarantee scheme (NREGS), the 2009 budgeted amount of Rs 14,400 crore more than doubled to Rs 30,000 crore. This is a way of transferring money to rural India, which helps increase its purchasing power. In this context, the rural sector is unlikely to be a runaway growth story in the forseeable future, says the report. Mr Dipankar Mitra, analyst at Noble, says, “The government’s heightened activism in rural India recently through a debt waiver of $14 billion write-off and the $6 billion being spent annually on the NREGS is prone to the election cycle.”

He says this expenditure “may not wane” but the next government that comes could go slow on the programme, after the first year.

The present government, that came into power in 2004 increased rural spending from Rs 18,200 crore in 2005 to Rs 42,400 crore in the 2009 Budget and revised this figure by nearly 60 per cent to Rs 67,200 crore.

The minimum support price (MSP) is another handy tool to transfer funds to rural India.The MSP price for paddy jumped 32 per cent in 2009 from 11 per cent in 2008 and that of sesamum from one per cent to 74 per cent and nigreseed from 2 per cent to 94 per cent.