The Rural Economy Can Jump-Start A Revival

Context: Government needs to reverse its neglect and policy missteps as key indicators show rural agri-economy has resilience.

Significance of rural agri-economy

• Agriculture, the consistent driver of economy: Average growth rate in agriculture GVA in last five years, at 4.8%, is significantly higher than GVA growth of economy as a whole, at 3.6%, in last five years.
• Thereby, provided jobs to returning migrants and sustained economy in rural areas.

Complexities associated with recovery prospects

• Methodological issues in GDP estimation: Given the economy has already suffered last year, any recovery numbers for this year will largely be a statistical artefact driven by the low base of last year rather than a real recovery.
• Precarious pre-pandemic state of the economy: Economic growth decelerated to 4% in 2019-20, less than half from the high of 8.3% in 2016-17.
• Policy mishandling: Strict national lockdown in 2020 and less than adequate response from Government in increasing fiscal support to revive demand.
  • Many announcements remained largely on the monetary side without enabling policy framework to help small and medium enterprises and large unorganised sector.
• Challenges in prospects of rural economic recovery: Economic distress in rural areas largely unreported and underestimated.
  • Disproportionate impact of second wave in rural areas could result in loss of livelihood and sharp rise in indebtedness from non-institutional sources.
  • Policy neglect of rural distress:
    • Unlike last year, Government has not increased allocation this year for National Rural Employment Guarantee Scheme (NREGS), resulting in person-days generation in May 2021 at 65% compared to May 2020.
    • While the free food-grain scheme has been extended this year as well, it does not include pulses as was provided last year.
    • There has not been any cash transfer to vulnerable groups, unlike last year.
  • Economic implications: Rural income and job losses have caused the weak demand for agricultural commodities, registering a fall in wholesale prices.
• Looming inflation threat: Triggers multifaceted impacts like further reducing purchasing power, shift to trade against agriculture putting agri-incomes under strain, rise in input costs (Diesel, fertiliser) etc.

Way forward: Proactive intervention is required from the  Government to protect the rural population by speeding up vaccination and providing fiscal support, both in terms of direct income support to revive demand and through various subsidies and protection from rising inflation in input prices.