How do economists foresee India’s rural economy?

India’s rural economy has witnessed tremendous transition in the 21st century. Mohd Mustaquim puts the views of India’s eminent economists how do they foresee the rural economy?

How do economists foresee India’s rural economy?

Today, India is one of the fastest growing economies in the world. The growth in its gross domestic products (GDP) has been 7 to 8 percent over the decade. However, rural India where 68 percent of country’s population reside, could not maintain the pace with national GDP growth.

The GDP growth rate in 1980-81 was 6.7 percent, in 1990-91, its was 5.5 percent, in 2000-01, it was 3.8 percent, in 2010-11, 10.3 percent and in 2017-18, 6.7 percent. On the other hand, agriculture sector which provides livelihoods to 53 percent population in the country, its growth has seen a decline in the same period. The growth in 1980-81 was 14.4 percent; in 1990-91, it was 4.3 percent and in 2000-01 -0.6 percent. In the next decade, agriculture registered a revival and the growth in 2010-11 was 6.5 percent, in 2017-18, it again fell to around 3.4 percent. The declining pace in agriculture growth rate resulted into declining contribution to national GDP which is currently hovering around 15 percent.

In such as scenario, when agriculture’s contribution to national GDP is declining, the big question is, can agriculture sustain the 53 percent population of the country with merely 15 percent of country’s GDP. Is there any need to bring big transformation into agriculture sector and rural economy?   

At an event organised by PHD Chamber of Commerce and Industry recently, speaking on sustainable rural growth, Jaimini Bhagwati, RBI Chair Professor at Indian Council for Research on International Economic Relations (ICRIER) said, “With 15 percent contribution to India’s GDP, agriculture provides livelihood to over half of country’s population. How could agriculture sustain this huge population? It will be tough for political leadership to say this, but there is a need to take this huge population, mainly small and marginal farmers out from agriculture, provide them alternate source of employment, consolidate this landholding and apply scientific approach, only then agriculture as well as rural economy can see a sustainable growth.”

The 53 percent of India’s population who are dependent on agriculture, around 65 percent of them are marginal farmers who cultivate in less than one hectare farmland while 18.5 percent of them are small farmers, cultivating on one to two hectare of land. It will be a gigantic task for any government to take them out from agriculture and provide them alternate employment opportunities.

On the need of an immediate attention on rural India, Anil Khaitan, President, PHD Chamber said, “Rural India where two third of India live, today still struggling for basic amenities like healthcare, education and skilling. If we do not invest in rural India, how would the country grow? Any government comes to power, it has to focus on MSMEs (Micro, Small and Medium Enterprises) and agriculture sectors.”

However, there are silver linings to an extent. Following the Chinese model, small industrial clusters can be promoted at the village level which would generate employment at the village doorstep. The southern Indian state, Tamil Nadu has achieved a big success in replicating this model. This will further boost the manufacturing sector and contribute big share into exports. Knowing the fact that India is, today, a leading exporter of agriculture produce sourced from the villages, along with micro and small enterprises, agro-based industries can be the good option in these industrial clusters. For this, the political leadership at the Centre and states need to have strong will with long term vision. It will not happen overnight.

Food processing sector has potential to give a turnaround to the rural economy. According to PHD Chamber’s recent report, the food processing industry is one of the largest industries in India and ranks 5th in terms of production, consumption, and exports. As per the estimates for FY15, the sector stood at US$258 billion. During FY11 to FY16, India’s exports of processed food and related products including animal products, grew at a compound annual growth (CAGR) of around 12 percent.

Citing the boost in rural infrastructure development, some economists are optimist with the rural growth. Highlighting the transformation going on in rural India, Prof. NR Bhanumurthy, National Institute of Public Finance and Policy (NIPFP) said, “The tremendous growth in rural expenditure by the Government has transformed the rural infrastructure such as rural housing, PMGSY (Pradhan Mantri Gram Sadak Yojana), financial inclusion scheme like Jan Dhan Yojana. All these programmes are going to contribute substantially to India’s GDP. The next big contributor to India’s GDP is going to be rural India in the coming years.”

Propelled by the Government, doubling farmers’ income can give a big boost to the rural economy. Is doubling farmers’ income possible with current agriculture growth rate? Prof. Bhanumurthy added, “The government is talking about doubling farmers’ income by 2022. The big question is, how would it be possible with three or four percent agriculture growth rate? I think, there is a big disconnect in PMO and in NITI Aayog.”  

Economists are of the opinion that rural India where 68 percent of India’s population live, needs to be given special push. Although the GDP is growing at 7-8 percent, but is largely derived by the corporate sector. The contribution of rural India in national growth can only come though massive investment in rural infrastructure development. DK Aggarwal, Vice President, PHD Chamber talked about the growth potential in service sector in rural India. He says, “To increase farmers’ income, there has to be focus on poultry and fisheries. Service sector contributes 54 percent to India’s GDP while in rural India, its contribution to rural economy is just 27 percent. And thus, there is a huge potential of growth in service sector in India’s hinterlands. It will bring rapid growth to the rural economy.”

For this, Aggarwal emphasises on investment on skill development in rural India which could make the rural youth capable to get jobs.

Talks, talks and talks! It is important how the policy-makers in the country takes all these talks forward. Secretary, Department of Economic Affairs, Ministry of Finance, Subhash C Garg says, “Since the dependence of 50 percent of India’s populace is on agriculture, it needs a transition and therefore, required policy steps would follow and particularly to benefit to rural economy as with recent policy pronouncements such Ujjawala Yojana, health protection and electrification of rural landscape though yet to be 100 percent electrified, have definitely benefited the economy in the countryside and with many more policy measures, the lot of agriculture in rural India would fall for better.

Whenever, nay talk on country’s economic development takes place, the reference is taken from national GDP. However, the answer of the this pertinent question on whether the GDP growth is inclusive for the entire country or it is limited to some elites? Without rural growth, the country’s growth story cannot be completed so while giving a reference of GDP in India’s growth, it has to be inclusive. For this, the political leadership needs to put a long term planning in place with keeping all political differences at bay.

The Changing Face of Rural India