60 Percent of Budget Funds Targeted for Rural Economy in Second Half of FY25

 New Delhi: The government is likely to focus on spending a major chunk of funds in the rural sector in the second half of this fiscal (FY2024-25). Gearing up, the government plans to spend about 60 per cent unspent funds for the sector which have been allocated in the last budget in July, aiming that rural demand and government spending will be key drivers of India's economic growth, a top government source said on Friday.

The rural sector contributes a significant amount to India’s GDP, and is home to up to 70 per cent of the country’s population with the economic activities and financial systems in rural areas, including agricultural trade, farm businesses, rural resource management, job availability, housing access, and rural wages among others.

Keeping massive job creation in view, the ministry of rural development, which works to enhance employment opportunities, ensure social security for the vulnerable, and facilitate infrastructure development for economic growth in rural areas, has been allocated a total of over Rs 1.8 lakh crore for the sector. The department of rural development has been allocated Rs 1,77,566 crore, 4 per cent up from the revised estimates of FY24, while the department of land resources has been allocated Rs 2,667 crore, a 41 per cent increase over the revised estimates of FY24.

“I think the rural sector has a broader scope than agricultural economics in particular, which focuses on food systems. In the first half of this fiscal, the government has already spent over 40-45 per cent of funds for the sector, while 55-60 per cent of the funds are still left to be spent in various schemes. After reviewing the sector, the ministry has decided to speed up spending in the next half of the current fiscal,” the source said.

“The rural economy has the potential to create decent jobs, eradicate poverty, ensure food security, and achieve social justice. As per the government’s plan, rural economic development is a strategy to improve the economic prospects of rural areas. This can boost the rural economy, if the government gets involved in building infrastructure, creating jobs, and enhancing the quality of life for the sector,” the source added.

A recent report by ICICI Bank has also forecasted an anticipated surge in the rural economy, propelled by the government’s sustained focus on infrastructure development and welfare expenditures, which are also projected to contribute positively to this economic growth.

“We expect rural demand and government spending to be drivers of growth in H2FY25. More importantly, consumer non-durables too reported an expansion of 2 per cent driven by rural demand. a strong performance in consumer durables, with demand remaining resilient amid an improving economic outlook. It noted that production of consumer durables, such as home appliances and electronics, saw a year-on-year increase of 6.5 per cent in September,” the report noted.

Despite some signs of a slowdown in industrial growth, the report’s outlook remains optimistic, as rural demand and government expenditure are expected to drive growth in the coming months. This trend will be essential to monitor as it could significantly shape the economic trajectory for the remainder of FY25.

As per the government data, in Q2FY25, industrial out or IIP grew by 2.6 per cent year-on-year (Y-o-Y), a substantial slowdown from last quarter’s 6.9 per cent Y-o-Y, while in Q2FY24, the number was a healthy 7.8 percent Y-o-Y. Over the first half of FY25, IIP growth stands at 4 per cent compared to 6.2 per cent in the same period last year, reflecting a slowing pace in industrial production.

“On a broader scale, India’s manufacturing sector also exhibited growth, with 19 out of 23 sub-sectors showing expansion, up from just 12 in the previous month. Strong performance was observed in segments such as electrical equipment, transport equipment, furniture, and rubber and plastics, pointing to a widespread recovery in manufacturing,” the report said.