Prime Minister Narendra Modi will recalibrate budget priorities in 2016 to focus on social initiatives, such as the country's first major crop insurance scheme, while capping previously prioritised infrastructure spending , officials say.
Modi splurged on roads and railways this year in a strategy to spur economic growth. But it came partly at the expense of federal programmes for farmers and the poor, suffering through back-to-back drought years.
In the first confirmation of a shift in strategy, a senior government source with knowledge of deliberations for Modi's second full budget said New Delhi would focus more on the social sector following what he described as a "shocking" defeat in last month's state elections in largely rural Bihar.
It was unlikely more money would be freed up for infrastructure when the budget is unveiled in February, he said, because the government is trying to keep spending on track to lower the fiscal deficit.
Commitments to raise government salaries, military pensions and to infuse capital into state banks reeling under bad loans have left little room for additional spending. What money is left, sources say, will be earmarked for the social sector - especially rural districts that house three-fifths of voters.
The renewed focus on social-welfare programmes precedes crucial state elections in heartland farming states such as West Bengal next year and Uttar Pradesh in 2017.
In what could be the first major scheme for farmers since Modi took office in 2014, the government is planning to launch a fresh version of the national crop insurance programme next summer. It would cover the majority of India's 263 million farmers, a farm ministry source said on condition of anonymity.
Indian farmers rarely take out crop insurance unless it's needed to secure a bank loan. Existing insurance plans, based mainly on crop yields, cover 10 per cent of farmers. Many farmers barely make a living from small and marginal plots and cannot afford the premiums. The premiums tend to be based on the crop yields of more prosperous farmers who use higher quality seeds, fertilizers and equipment.
Under the plan being considered, a portion of premiums to be paid by farmers would be linked to their capacity to pay, the first source said.
To attract more growers, the government could lower the share of the premium farmers pay to up to 30 per cent from 50 per cent earlier, the agriculture ministry source said. The proposed plan would also limit government support to insurers so that the overall hit to the budget stays low.
State and federal governments spend about $373 million a year on premiums, while total payouts have been less than $700 million in recent years. The farm ministry source expects only a marginal increase in the total premiums the government pays.
"The prime minister is constantly trying to find new schemes and formulate policies to help the villagers," said a Modi aide who declined to be named. "But the truth is that we are still trying to identify the right strategy ... it's a work in progress."
Funding for roads and bridges more than doubled in this year's budget and is now higher than the sum allocated to education. At the same time, funding was halved for a scheme that gives millions of poor children free food, and allocations to make clean water available in rural areas were drastically cut.