Gift this article
New Delhi: The rural economy is distressed. Inflation has been pinching hard, and real wages have fallen—both resulting in sluggish spending. As the Centre readies its next Union Budget, economists say this problem needs urgent focus.
New Delhi: The rural economy is distressed. Inflation has been pinching hard, and real wages have fallen—both resulting in sluggish spending. As the Centre readies its next Union Budget, economists say this problem needs urgent 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.
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.
You might also like
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.
Moreover, MGNREGS wages have been lower than market wage rates, and consistently below the average rural wages, data shows. MGNREGS wage rate was ₹226 in September 2022, while the average wage rate for men for all rural occupations was ₹384. Historically, MGNREGS wage rate has averaged about ₹150 lower than the prevalent rural wage rate. “Raising wages under MGNREGS, which are currently lower than the private market wages, can actually be an efficient driver of raising overall incomes in the rural economy," said Himanshu.
The overall allocation for the rural development ministry has also been low. The actual spending overshot Budget targets in four of the past five years, with a 10% decline in FY22 from last year’s revised estimates.
Now it is set for a sharp revision, with the government having sought expenditure ₹45,000 crore, including the funding for MGNREGS, over and above the budgeted ₹1.38 trillion. With rural distress being severe this year, a proper policy response in the Budget can be achieved through better budgetary allocations to support agriculture, increase wages under MNREGA to improve disposable incomes.
Elsewhere in Mint
In Opinion, Anurag Beher says covid memories tell us we can be better versions of usual selves. Aashi Gupta, Vani S. Kulkarni & Raghav Gaiha write on the link between religiosity and well-being. Rajiv Sabharwal says India will be best served by a multi-engine credit delivery system. Long Story narrates the hope and despair in covid-ridden China.
Catch all the Business News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Get the latest financial, economic and market news, instantly.
{{^adFree}}
{{/adFree}}