India budget focuses on rural areas ahead of election

India unveiled a union budget on Thursday that the government claimed is aimed at helping the rural economy and farmers.

With hikes in rural spending, Prime Minister Narendra Modi aims to rally support of his rural voters ahead of the 2019 general elections.

The government is struggling to create enough new jobs to absorb all the one million people who join the workforce every month. Upon assuming office, Prime Minister Modi had promised to create 250 million jobs over the next decade.

Modi is facing criticism for disrupting business activity through his shock cash squeeze in 2016 and disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST).

In Parliament on Thursday, India's Finance Minister Arun Jaitley sought to assure politicians that "India has shown remarkable capability to adjust to structural reforms".

Jaitley said the government will increase spending on rural and health infrastructure.

"We are not only focussing on 'Ease of Doing Business' but also ‘Ease of Living," he said.

The government also announced it would reduce corporate tax to 25 percent for companies who have reported turnover of up to 2.5bn rupees.

No change in personal income tax has been announced.

"India is already the seventh largest economy in the world, and will become the fifth largest economy very soon," Jaitley said.

Highlights of India's 2018/2019 budget

• The government estimates 7.2 percent to 7.5 percent GDP growth in second half of current fiscal year
• GDP growth for 2017/18 estimated at 6.7 percent
• Faster GDP growth could ease pressure on the Central Bank to lower borrowing costs
• The government projects 2018/19 fiscal deficit (Fiscal deficit is the difference between the government's expenditures and its revenues, excluding the money it's borrowed) at 3.3 percent of GDP
• Maintains 2017/18 fiscal deficit estimate at 3.5 percent of GDP

Speaking to Al Jazeera, economist and former adviser to the Indian Finance Ministry, Mohan Guruswamy said: "The budget does not address any real issues. It's smart packaging ahead of next year's elections. The GDP figures are over-estimated. GDP is not going to grow more than 6.5 percent this year.

"With growth returning to Western nations; Europe, US and China are all returning to growth - oil offtake and prices will go up. When oil prices go up, in turn, trade deficit will widen.

"This is an election year. Modi is trying to placate as many people as he can. This is a fiscally-prudent budget. But the options are limited. If all else fails, they will return to flag-waving nationalism," he added referring to the groundswell of religious nationalism in India following the coronation of Prime Minister Modi in 2014,” Guruswamy said.

However, economist Prasenjit Bose, told Al Jazeera that "The revenue estimates in the budget are "unrealistic" and the expenditure claims are "misleading".

"There's a lot of rhetoric on expenditure which is not backed up by actual outlay," Bose said.

"The government has missed the fiscal deficit target, showing it was way off the mark. The estimate of GST (a new unified sales tax) collection for next fiscal year is supposed to increase by 3 trillion rupees. I am really sceptical about this. I don't see that kind of a jump in revenue collection happening for the central government," he added.

Agriculture

Finance Minister Arun Jaitley on Thursday announced that the minimum support price (the government's assured purchase prices) of all farm produce will be increased to at least 1.5 times that of the production cost.

Higher prices for their produce has been the mainstay of vocal protests by farmers groups in recent months. Thousands of farmers had protested in Delhi in November, demanding better prices for their crops and relief from high debts.

"There is hardly any increase in rural spending in the aggregate - all talk no money," according to economist Jayati Ghosh.

The budget allocated 10 trillion rupees to 11 trillion rupees credit for "agricultural activities".

The government reiterated that it "seeks to double farmers' income by 2022" and will give 100 percent tax deduction for the first five years to companies registered as farmer producer companies with a turnover of 1 billion rupees and above, the Finance Minister said.

India produced over 275 million tonnes of food grains and 300 million tonnes of fruits and vegetables in 2016-17.

Infrastructure

The budget allocates 5.97 trillion rupees on infrastructure and extra budgetary allocation in 2018/19.

Last year's budget allocated 3.96 trillion rupees for infrastructure.

The government announced it aims to spend ($225bn) on creation of rural infrastructure.

Health and education

Government estimates 1.38 trillion rupees expenditure on health, education and social security for 2018/19.

In an ambitious move, the government announced it would launch a national health protection scheme to protect 100 million families that will provide coverage of up to 500,000 rupees per family per year.

India's under-served poor have limited access to quality healthcare, a vast majority of Indians depend on the state for affordable medical services.

Last year, the government set a target of raising annual health spending to 2.5 percent of India’s GDP by 2025, from 1.15 percent now - one of the lowest proportions in the world.

"A mere 11.5 percent increase in budgetary allocations for health is disappointing and discouraging especially with the announcement of schemes that require large sums of money. The budgetary allocations are clearly mismatched with the stated policies goals despite the political commitment to increase investments in health," Poonam Muttreja, Executive Director at Population Foundation of India, told Al Jazeera.

"The continuing trend in lower budgetary allocations for health reinforce the fact that, while there is the intention and attempt to improve the health status in the country, the financial commitment continues to be missing for translating these goals into action," she added.

A UNICEF report in 2015 had said around 1.2 million children in India died of preventable diseases before turning five.

"Am not convinced that this is a good response to the niggardly spending on health, among the lowest in the world. We know from the US experience that private health insurance is a bad idea. If this is like the earlier health scheme RSBY in India, there is some evidence that it benefited insurance companies and private hospitals more than the poor," Reetika Khera, Economic Professor at Indian Institute of Technology in Delhi told Al Jazeera.

The government also announced it will invest 1 trillion rupees in development of premium education infrastructure over next four years.

Defence

The budget for Defence in 2018/2019 will be 2.83 trillion rupees. Last year's budget had estimated defence expenditure, excluding pensions, at 2.74 trillion rupees

The government will bring in an industry-friendly defence production policy in 2018/19, the Finance Minister said in his budget speech on Thursday.

New Delhi is in the midst of a whopping $250bn military modernisation programme.

The Narendra Modi government’s much-hyped push to expand the domestic defence industry is aimed at ending India's status as the world's largest arms importer.