Tepid Rural Demand & Budget 2020

“The heart of India lies in its villages” – Mahatma Gandhi

We all would be well aware that the remarkable average GDP growth rate of ~8% achieved by India in the last decade and a half, has been driven by domestic consumption. The aspirational Indian consumer who has shown a very high propensity to spend on goods, services and technology has propelled the economy to a higher growth path. But now it’s faltering. 

The first image that comes up in the minds of people when rural income is discussed is agriculture. Although true, given that agriculture still employs around 50% of the working population of the country, there are other avenues which contribute to the income of rural households.

Over the years, especially in the past decade, there has been a strategy of cosmetic policy making with respect to the agriculture sector. The governments have tried, with little intent, to address the issues of agricultural products pricing with short term patch-up schemes like MSP and bulk buying of produce by state governments. Coupled with this, the continuous irregular monsoon of the past 2-3 years has also affected the RoI with farmers not even being able to recover their costs. 

The forewarning has been there for a long time, given that in the country, 10 farmers committing suicide every day. 

The propensity to spend being much higher among the rural population, the same is clearly visible in the numbers pouring in from the industry. Tractor sales have been down 15% in the April-Sept quarter. Sales of Two-wheeler, which is the first aspirational item for the rural population, is down ~20% in the same period. 

Given that the budget 2020-21 is round the corner, we should focus on the following factors-

• The sources of income for the rural population need to be diversified
• The image of agriculture as a loss-making proposition needs to change. 
• Opportunities for education and skill development need to be created

 Diversified sources of income

The dependency on agriculture needs to decrease so that the stress on a primary occupation which generates ~15% of the GDP while employing about 50% of the working population, decreases. The other avenues of entrepreneurship in the villages can be encouraged, especially with penetration of internet reaching commendable levels.

 Profit generation through farming

The laws and policies need to be farmer-friendly at all times and the profession should be protected at all costs. There has to be implementation of latest technologies from Germany and Japan in order to increase yield and reduce the manual workforce. The land-holding patterns need to further improve whereby the landless labours need to be identified and targeted schemes to improve their income levels should be launched.

 Skill Development / Educational Opportunities

The rural population is currently forced to send their kids to cities for better quality education, especially for high school and graduation. This puts a burden on the already shallow pockets that they have. The quality and quantity of schools need to improve so that the basic level of education is imparted without any excess burden to the farmer’s family income. The youth of rural India who is engaged in farming can be trained in various vocational skills and encouraged to set up MSME ventures so that the problem of seasonal unemployment or under-employment is addressed.

Other than the mentioned points, if any subsidy or assistance is given in terms of DBT (Direct benefit Transfers), it will increase the purchasing power of the rural population. Identification of the targeted beneficiary is very important for such schemes as there can be leakage of subsidy to the unintended section of the population.

To be very honest, there can be no band-aide or quick-fix solution to the problem created over several decades due to indifference of the policy-makers, but a step in the right direction will bear results sooner than expected. 

A resurgent rural India will act as an engine of growth for the whole of the country and India may not have to look abroad either for investment or for demand.