Reduction of Rural Expenditure by States

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Abhishek Jain, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur


The appalled conditions of the Indian farmers, in the case of draughts, is not hidden from anyone in India. But according to Reserve Bank of India’s (RBI), Analysis of the state budget, 14 out of 31 states have reduced their rural spending in absolute terms when compared to the previous year. Rural expenditure constitutes of the expenditure on agriculture and allied activities, rural development, special area programmes, and irrigation and flood control.

One apparent reason for the same can be a reduction in central funds to the states. After the implementation of 14th Finance Commission , it was recommended that the share of the states should be increased by 10%. But in spite of this recommendation, 7 states experienced a net decrease of net recipients and rest of the majority saw a deceleration in the growth of their central funds. Reason being that the central government introduced some cutbacks ensuring that the have enough money for implementing their own  schemes. The data also revealed that consolidated state revenue from  the central transfers has come down by 0.3 percent of GDP in 2015-16.

But the numbers indicates that the rural cutbacks by the states are much more impactful than the deacceleration of funds by the central government. The criticality of the issue was raised by Finance Secretary,Ratan Watal last week where he said “States are requested to align their focus to the thrust provided in the Union Budget to promote investment and growth in the rural sector…It is imperative to step up capital expenditure at the state level also” while addressing the second conference of state  finance secretaries in Delhi.




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