India pledges billions for farmers in 'populist' budget

India’s government pledged billions of dollars to help struggling farmers and boost the rural economy as it unveiled its annual budget on Monday, with an eye on kickstarting growth and boosting its flagging popularity, AFP reports.

India is now the world's fastest-growing major economy, but two years of drought and a failure to create jobs for a burgeoning young population has left millions of rural Indians struggling and led to deadly protests in recent weeks.

The government came to power nearly two years ago promising to transform India's economic fortunes, but has been hampered by the global economic slowdown and a failure to push much-needed reforms through parliament.

Finance Minister Arun Jaitley acknowledged the challenges as he presented the budget in parliament, but said he had a "vision to transform India".

"We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor and the vulnerable," he said.

"We have a dream to see a more prosperous India and a vision to transform India."

Jaitley pledged to spend 359 billion rupees ($5.2 billion) on doubling the income of India's estimated 120 million farmers over the next five years through measures including a crop insurance scheme and better access to markets.

India also plans to raise credit available to farmers to 9 trillion rupees for 2016-2017, and has pledged to ensure all the country's villages would have electricity within two years.

It will increase spending on the National Rural Employment Guarantee Scheme, which guarantees 100 days of employment on public works each year for any household that requests it.

- Stalled reforms -
 

Analyst Samir Saran said the ruling Bharatiya Janata Party (BJP) was "responding to the political reality" ahead of crucial state elections this year and next.

"The BJP has to lay greater emphasis on social policy, it has to deliver a more populist budget," said Saran, a senior fellow at the Observer Research Foundation think tank.

"The government is also responding to the fact that farmers have suffered two bad monsoons and there is great stress in the rural sector."

The BJP needs to perform well in those elections in order to push stalled economic reforms through the national parliament, where it lacks a majority.

These include Prime Minister Narendra Modi's flagship plan to introduce a national Goods and Services Tax (GST) to replace myriad complex state and national levies seen as deterring much-needed investment.

India is seen as a relative bright spot in the world economy, but feeble global demand has caused its exports to shrink for 14 months in a row and investment remains weak.

On Friday the government forecast gross domestic product (GDP) would expand between 7.0 percent and 7.75 percent in the next financial year, marking little change from this year's levels.

The main Sensex index on the Bombay Stock Exchange fell 300 points during Jaitley's presentation of the budget, which included a hefty 23 percent pay rise for millions of civil servants and a pension scheme for retired soldiers.

The two schemes will add billions of dollars to the government's spending bill over the next year, but Jaitley said it would stick to its ambitious target to cut the fiscal deficit to 3.5 percent of GDP in 2016-2017.

He also pledged to spend 2.21 trillion rupees on improvements to its creaking roads and other infrastructure seen as key to attracting investment for manufacturing.

The government will also inject 250 billion rupees into India's ailing public sector banks, which are weighed down by bad loans.

Despite a major push to boost manufacturing, farming remains by far the biggest employer in India and the sector is struggling after two years of weak monsoon rains.

This month the Jats, traditionally a farming caste, sparked riots in northern India to press their demands for better access to government jobs and education. They say they are struggling to make a living in farming.

The BJP performed poorly in elections in the impoverished eastern state of Bihar last year and faces polls in other major farming states this year and next.

By Emily Ford