The Not So Green Shoots of Rural Revival

Context: The recent rural rebound and its role in reviving the entire economy are overstated.

Significant Strengths of Agricultural Sector

• Less impact of COVID-19: as compared to the urban areas.

• The saving grace for Indian Economy: 
• In FY21, agricultural gross domestic product (GDP) is expected to grow at 2.5 to 3%, even while the Gross Domestic Product (GDP) for the overall economy may contract by 5 to 8%
• Likely to have a bumper crop in both Kharif and Rabi seasons due to normal monsoon.

• Fast recovery: In June and July, rural recovery outpaced that of urban areas, 

• This is reflected in the increased demand for fast-moving consumer goods, tractors and two-wheelers.

Measures were taken by the Government and RBI

• Free food and cash transfers.
• A rise in Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) funds disbursal.
• Front loading of PM-Kisan.
• Reforms in the agricultural sector relating to the Essential Commodities Act and Agricultural Marketing and Contract Farming (APMC).

Challenges to the rural economy

• Declining non-farm incomes and employment: Rural revival may not be sustainable for a long period due to low rural wages and falling incomes.
• Only 23 % of the income for rural households is from agriculture. -  NABARD Survey.
• About 2/3 of the rural incomes is now generated in non-agricultural activities. – The Reserve Bank of India.
• The unemployment rate in rural areas rose from 8.4% in March to 22.9% in April, 22.5% in May and 10.5% in June – Centre for Monitoring Indian Economy.
• Inadequacy of measure taken: measures may not be enough to offset the reduction in remittances and low growth in rural wages
• Rising fear of pandemic spread in Tier 2 and Tier 3 towns and rural areas.
• Low Farm Incomes: due to bumper harvest in the current year and continuation of supply chain problems.

Way Forward: To revive the rural economy

• Raise Farmers’ income:
• A revival of supply chains to ensure higher prices.
• Bring clarity on reforms in agriculture including Centre-State coordination.
• Promote agriculture exports with consistent long-term policy.
• Expand relief measures: 
• Make sure no one is excluded including the migrant workers.
• Raise the amount of cash transfers and the number of days under MGNREGA.
• Minimum basic income for the poor and vulnerable in the post-COVID period.
• Investment in Infrastructure: 
• Go beyond farming and invest in warehousing, logistics, processing and retailing.
• During 2004-05 and 2011-12, construction played an important role in raising the wages of rural workers.
• Revive rural Micro, Small and Medium Enterprises: 
• Around 51 per cent of micro, small and medium enterprises (MSMEs) are in rural areas
• There are also opportunities in the space vacated by China. India can’t become self-reliant without dynamic MSMEs.
• Strengthen agricultural -non-agricultural linkages and rural-urban connections: 
• The solution for agriculture lies in labour absorption by non- agriculture.
• Urban fiscal stimulus, solving the twin balance sheet problems of the corporate sector and banks would help rural India because of rural-urban linkages.

Conclusion: the above measures will help create demand and revive the entire economy as it would enhance the purchasing power of a large section of the population whose marginal propensity to consume is high.