Accessibility links

India Pledges to Boost Rural Spending

  • Anjana Pasricha

Activists of Trinamool Congress party hold banners and shout slogan during a protest march against the government's decision to withdraw high denomination notes from circulation, in Kolkata, India, Nov. 28, 2016.

India has pledged to spend billions of dollars to boost the rural economy and ease the plight of poor people who were worst hit by the currency ban imposed last year to clamp down on untaxed money.

Unveiling the country’s annual budget Wednesday, Finance Minister Arun Jaitley expressed optimism about India’s growth prospects, calling it a bright spot in the world economic landscape. But he cautioned that “signs of retreat from globalization” and rising oil prices have the potential to affect emerging economies, including India.

Jaitley announced a 24 percent hike in rural and farm spending as part of a commitment by Prime Minister Narendra Modi to double farm incomes over five years.

Farmers will get more access to credit and more money will be spent on irrigation, electricity and roads. Spending on a rural works program that guarantees 100 days of work to one member of a rural family will be increased substantially to $7 billion.

The government hopes the measures will lift 10 million people out of poverty by 2019.

The emphasis on rural welfare was widely expected in the budget, which was announced days before India begins to hold a series of crucial regional polls.

Many in Modi’s party fear the controversial scrapping of high denomination currency notes last November, which disrupted the economy as it created massive cash shortages, will lead to loss of support in the elections. Poor people were the worst hit as they scrambled to get the new currency or even lost jobs.

Jaitley said the worst of the cash crunch is over, and its effect will not spill into the next fiscal year when growth is expected to rebound to seven percent.

An activist of Congress party holds banned 500 and 1000 rupee notes during a protest against the government's decision to withdraw high denomination notes from circulation, in front of Reserve Bank of India. in Hyderabad, Nov. 28, 2016.
An activist of Congress party holds banned 500 and 1000 rupee notes during a protest against the government's decision to withdraw high denomination notes from circulation, in front of Reserve Bank of India. in Hyderabad, Nov. 28, 2016.


The radical currency ban is aimed at cracking down on “black money” - money not paid in taxes - and cleaning up an economy where tax evasion is widespread.

Jaitley called demonetization a bold and decisive measure. “It has a strong potential to generate long-term benefits in terms of reduced corruption, greater digitization of our economy, increased flow of financial savings, all of which will lead to higher GDP growth and tax revenues,” he told parliament.

Pointing out that the number of Indians who buy cars or travel overseas is far higher than the number who pay income tax, the minister said "we are largely a tax non-compliant society. When too many evade tax, the burden of their share falls on those who are honest and tax compliant."

Less than two percent people in India pay income tax.

With an eye on increasing that number, the government said it plans to halve the income tax to be paid by people earning $3700 to $7400 per year. It also plans to lower taxes on small and medium sized companies.

However the domestic industry was disappointed that taxes had not been lowered for big corporations – a longstanding demand of big businessmen who say that the higher tax rates in India compared to most Asian countries make them less competitive.

XS
SM
MD
LG