Budget 2025: Empowering Rural India to Drive Economic Growth

As India prepares for Budget 2025, there is a growing expectation that Finance Minister Nirmala Sitharaman will turn her focus towards rural India Bharat as the country looks to strengthen its economic foundations. In recent years, rural consumption has emerged as a key driver of the Indian economy, with increased demand across various sectors, including FMCG, automobiles, financial services, and housing.

This shift has positioned rural India not just as an agricultural powerhouse, but also as a rapidly growing consumption market. The increasing purchasing power of rural households is evident, and addressing the specific needs of this demographic could significantly contribute to India’s overall economic growth.

Over the past year, rural consumption has consistently outpaced urban spending growth for the first time since the pandemic, with sectors such as FMCG, e-commerce, and automobiles seeing a marked increase in demand. This development underscores the vast potential of rural India, and the government’s response will be pivotal in ensuring that the momentum is sustained.

Rural consumption has been fueled in part by various government schemes, such as PM-KISAN and MGNREGA, which have provided financial support to rural households. These programs have helped boost liquidity in rural areas, allowing for increased spending on both essential and discretionary items.

Last year, during her full budget speech, Sitharaman had allocated a substantial Rs 2.66 lakh crore for rural development, including rural infrastructure. Given the rising significance of rural consumption, expectations for this year’s Budget 2025 are high. Stakeholders, including agricultural representatives and economic experts, are calling for policies that further enhance the financial health of rural India. One key area for attention is the provision of affordable credit, which could empower farmers and rural entrepreneurs to invest in better livelihoods and productive ventures.

Rumki Majumdar, an economist at Deloitte India, has emphasized the importance of several policy measures that could drive greater rural development. These include investing in digital innovations in farming techniques, improving seed quality and resilience, enhancing financial access for farmers, expanding storage infrastructure, and prioritizing agricultural research. These steps would not only increase agricultural productivity but also make rural areas more resilient to market fluctuations and environmental challenges.

In 2024, rural areas saw a notable surge in demand for automobiles, including two-wheelers and even SUVs, marking a shift in consumer behavior. This demand reflects a growing aspiration among rural households to invest in durable goods, and further policy measures could help incentivize manufacturers to produce affordable, energy-efficient vehicles that cater to this market. Similarly, rural areas have experienced an uptick in the demand for consumer durables, a trend that could be further bolstered through fiscal incentives for rural entrepreneurs and small businesses.

The question remains whether Budget 2025 will address these aspirations. Experts believe that the government's focus should include increasing the affordability of basic necessities, particularly in the face of rising inflation in rural areas. The growing costs of food, fuel, and essential commodities have eroded disposable incomes in rural households, posing a significant challenge to the economic wellbeing of many families. In response, Budget 2025 could introduce measures to control inflation and provide relief to the rural middle class, which forms a substantial portion of India’s population. Rahul Kakkad, a tax partner at EY India, noted that offering relief through enhanced subsidies for essential goods or direct transfers could be an effective way to address the financial concerns of rural consumers. Moreover, measures to reduce input costs for farmers such as extending subsidies on fertilizers, seeds, and electricity—could further alleviate financial pressures and promote sustainable farming practices.

In the interim Budget 2024, the government allocated Rs 1.78 lakh crore for rural development, which marked a 4% increase from the revised estimates of 2023-24. A significant portion of these funds was earmarked for agriculture, rural housing, and employment schemes. These efforts were designed to create a safety net for farmers and laborers, enabling them to continue spending on essential and non-essential goods. This shift in rural consumption was particularly evident in sectors like FMCG and automobiles, where rural spending surpassed urban growth for the first time in years.

As part of ongoing discussions surrounding Budget 2025, farmer representatives and agricultural stakeholders have voiced their concerns about rising input costs and inflation. One of the most pressing demands has been the increase in the annual PM-KISAN installment from Rs 6,000 to Rs 12,000 to help farmers cope with the escalating costs of living and farming. The ongoing pressure of inflation has been further exacerbated by the rising costs of food and fuel, which have put a strain on household budgets. To address these issues, experts suggest that the government could expand its subsidy schemes and incentivize private investments in the agricultural supply chain to reduce food inflation.

Rural infrastructure is also expected to be a key focus area in Budget 2025. Last year, the government allocated Rs 70,125 crore for the Pradhan Mantri Gram Sadak Yojana (PMGSY), aimed at improving road connectivity in rural areas. This flagship rural road development scheme received an increased outlay, reflecting the government's commitment to improving rural infrastructure. Continuing investments in road networks, broadband, and electrification could help integrate rural India more effectively into the formal economy, facilitating access to markets, services, and economic opportunities. Additionally, expanding digital banking services in rural areas and increasing the reach of financial institutions could provide greater financial inclusion and support consumption growth.

The government can consider increasing the scope of schemes such as the Kisan Credit Card, which has been successful in extending formal credit to farmers. However, most rural households still depend on informal lenders at high interest rates, which severely limits their capacity to invest or avail affordable financial services. Vishal Sharma, the Co-founder and CEO of AdvaRisk, has highlighted the need to raise the KCC loan limit, which has remained stagnant despite rising farming costs.

The rise of rural consumption, particularly in smaller towns and villages, represents a fundamental shift in the Indian economy, one that has the potential to reshape the country’s growth trajectory. Budget 2025 holds the key to ensuring that rural India remains an active and prosperous contributor to the nation’s economy. By addressing inflation, improving infrastructure, expanding credit access, and encouraging sustainable agricultural practices, the upcoming Budget can support the continued rise of Bharat as a major engine of economic growth. With rural India increasingly becoming a focal point of India’s consumption story, the government’s response in Budget 2025 will be crucial in driving this structural shift forward.