NEW DELHI: The government is working on a two-pronged Budget that will further structural reform to lift growth while putting in place a package that will seek to address rural stress through broader social security measures and changes in agricultural policy.

The Budget, which will be presented by Finance Minister Arun Jaitley on February 29, will also focus on credit issues and greater access to equity funds. “The Budget is going to provide a momentum to the market side of the economy and also focus on the pro-poor side of the economy,” said a senior finance ministry official, outlining the twin thrust areas.

Though the economy is forecast to grow 7.6% in the current fiscal, it’s riding only on urban demand and government capital spending, with little contribution from the rural economy, the jobs-intensive construction sector and exports. After two successive bad monsoons, the Budget will seek to alleviate rural stress through more social initiatives and an emphasis on irrigation to de-risk agriculture. The Pradhan Mantri Jan Dhan Yojana financial inclusion platform is going to be loaded with more initiatives to reach out to the poor. “We are going to be doing some significant things on the social security and universal social security side,” said the official cited above. The government has already rolled out a host of welfare schemes such as the Atal Pension Yojana but it’s seeking to put an ambitious social security and health insurance plan in place.

“The idea is to marry these ideas to ensure there is a complete bouquet available,” the official said. The Food Security Act will be backed with more funds and an intent to move to direct benefit transfers could also be announced. This means subsidy payments go directly into bank accounts of beneficiaries to minimise leakage.

A bigger direct benefit transfer through cash distribution of fertiliser subsidies is also on the cards. Loans under the MUDRA umbrella lending scheme will be given priority to encourage rural entrepreneurship to create more nonfarm jobs. Farm infrastructure will be given a boost with more spending on irrigation and better rural roads. As reported by ET, the government will leverage National Bank for Agriculture and Rural Development (Nabard) to fund irrigation through tax-free bonds in view of fiscal constraints. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is likely to be tweaked to help strengthen the country’s irrigation system.


On the markets side, there is likely to be a comprehensive package to incentivise financial savings, in particular equity, amid a growing realisation that lack of this had led to over-reliance on debt and consequently the problem of excess leverage. The government is also looking at overhauling or phasing out the Rajiv Gandhi Equity Savings Scheme, which hasn’t been too successful and is instead devising a new mechanism to draw investors to the stock market.

“We are looking at ways to incentivise investment in equities,” said another official, who said the RGESS was too complicated. The scheme seeks to attract firsttime investors in equities through additional tax incentives to the extent of a maximum Rs 25,000 (50% of a maximum Rs 50,000 than can be invested). So far, only 20,193 such accounts have been opened. The government is looking at various ways of making mutual funds more attractive, including the introduction of new mechanisms.

The government is looking at how systematic investment plans could be made more attractive to encourage the flow of savings into equities. Equity-linked savings schemes get a tax benefit within the overall 80C basket. RGESS also gives tax incentives to first-time investors but has failed to gain traction. “The idea is look at holistic and simple solutions,” the official said.


The Budget is expected to provide further measures to address the bad loans that have crippled public sector banks. The lenders have reported poor results in the December quarter after being pushed to set aside money against bad loans.

The Budget is expected to begin the process of finding a solution to the problem. Greater capital allocation and more powers to bank managements to deal with stressed assets are likely.