India's difficult balancing act

How do you maintain India's impressive growth while ensuring that the country's rural poor get a sha

When Indian Finance Minister, P. Chidambaram, stood up in Parliament on 29 February to read out India's annual Union budget he did so in the knowledge it could be his last chance to address a fundamental problem.

For this is the Congress-led coalition United Progressive Alliance (UPA) government's last budget ahead of the 2009 general election. It is crucially important for Chidambaram to be able to pull off the tricky balancing act of maintaining high-level growth on the one hand, and attempting to gain electoral support through populist give-aways on the other.

It's people like Ramesh Prasad whom the minister has to appease. Ramesh is a labourer in New Delhi. He makes between 100 – 150 rupees (£1.25 – 1.85) a day and is struggling to cope. His two biggest problems are rising prices of essential goods like food and fuel, and the competition caused by the influx of people like him who have moved from rural areas into the city to seek employment. “There's nothing for them in the villages. And when they come here, they can't even afford food,” he says sadly.

For the last three years, India's economy has been growing at over nine percent a year and the urban middle class has been reaping the benefits. At the same time, almost 80 per cent of the billion-plus population survives on 20 rupees (25p) or less a day.

Most of the economy's growth has come from the booming services sector, while agriculture is barely expanding with growth between two or three per cent.

About two-thirds of India's population depends on agriculture either directly or indirectly, and the government has been repeatedly criticised for not taking enough measures to tackle the what is being called “an agrarian crisis”. The Economic Survey on February 28 has warned the government that any slowdown in the already fluctuating agricultural sector is not only detrimental for the people that depend on it, but will also hurt the economy's growth.

This is why the budget is widely seen as the last chance for the Congress Party to redeem itself in the eyes of rural voters after being defeated in a number of provincial elections last year – including Uttar Pradesh, the country's largest and most politically important state. “I didn't vote for the Congress,” says Pappu, a landless tiller whose income depends completely on agriculture. “They have done nothing for me”.

Chidambaram is expected to announce higher budgetary allocations for sensitive areas like agriculture, education and health. And, following a spate of farmer suicides across the country last year thanks to an inability to repay loans, sources say the chances of a loan waiver for small farmers is almost a certainty.

Both Ramesh and Pappu are sceptical. They say that the government announces new plans for them every year, but nothing changes. “Prices keep rising, and we can't keep up anymore, “ says Ramesh. “Every government promises us that life will get better – it never does.”