Faltering rural economy needs budget focus

During covid-19 lockdowns, rural areas were a silver lining, with agriculture extending support to India’s GDP. The government raised its spending under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to create jobs for those who had returned from cities. Even as the overall economy recovered, rural India continued facing challenges. High inflation was a nationwide problem this year, but higher food prices made it even worse for rural India. Rural retail inflation exceeded the urban one for the entire year. Worse, wage growth did not keep pace.

Ever since inflation breached the Reserve Bank of India’s medium-term target of 4% in October 2019, real wage growth has been negative in all but 10 months, a Mint analysis showed. “The government must take up responsibility and spend more in the rural economy, to inject demand. There is no other way of doing it," said Himanshu, associate professor at Jawaharlal Nehru University.

Even as demand recovers, it is not broad-based, with rural demand faltering for fast-moving consumer goods and entry-level two-wheelers. Rural areas saw a decline in volume growth of FMCG goods in the September-ended quarter at 3.6%, in contrast with urban markets’ volume, which grew 1.2%, according to NielsenIQ.

Agricultural Stress

The fallout of high rural inflation was seen on farmers, who apart from battling challenges of inconsistent rainfall, also saw their costs rise. The cost of cultivation has risen by 14% in the kharif season this year, led by a 70% increase in machine labour costs, according to a report by Motilal Oswal Financial Services.

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However, prices of key kharif crops have not risen in tandem with cultivation costs. Prices of key foodgrain have gone up by 5.8% year-on-year this kharif harvest season, while inflation has stayed above 6% across for most parts of the year, thereby clouding farm profitability. “Any fall in prices on the arrival of the new produce will lead to lesser realizations for farmers," the report said. “Considering the fall in crop prices and the higher cultivation cost, farm profitability for key Kharif crops will be muted."

 

Back in 2019, the Centre had announced a ₹6,000/year income-support scheme for farmers, PM-KISAN. However, the beneficiaries of the scheme fell 67% to 38.7 million in three years, media reports said. Moreover, economists say the scheme only transfers money to landed farmers whereas landless labourers and casual workers are the most deprived. Schemes such as PM-KISAN must be reevaluated as they didn’t succeed in covering the poorest of the poor, said Avinash Kishore, senior research fellow at International Food Policy Research Institute.

More Budgetary Support

The government has been allocating lesser money towards MNREGS even as it has been overshooting its targets. The government allocated ₹73,000 crore in 2021-22 but ended up spending ₹98,000 crore. For the current financial year, the government once again budgeted ₹73,000 crore but has now sought Parliament approval for an additional ₹16,400 crore under supplementary demand for grants despite falling demand for jobs under the scheme.