Rural slowdown: The causes, concerns and way out

Economic slowdown and declining demand for goods and services have affected every second person in the country. It has adversely impacted the rural India. MART organised a roundtable to cope up the slowdown. R&M reports... 

Rural slowdown: The causes, concerns and way out

Economic slowdown and declining demand for goods and services have affected every second person in the country. It has adversely impacted the rural India which contributes around 45 percent to India’s gross domestic products (GDP). In order to discuss the economic slowdown, its causes and way outs, MART, a leading marketing management and consulting firm in association with School of Government & Public Affairs, Xavier University, Bhubaneswar organised a roundtable ‘Strategizing for Declining Rural Demand Amidst The Economic Slowdown’ in New Delhi recently. The roundtable saw a representation from India’s leading corporates, government officials and development professionals, academia, and media.

Setting the tone of the roundtable, Pankaj Mishra, Partner, MART presented a survey report, showing declining sales of various sectors in the country. According to the study, farm income has been on decline for the last three years and farmers are finding it hard to cope with uncertainty in profitability, leading them to question the very viability of their proposition. They believe that even farm labourer is in a better position than them. Credit provided for purchasing farm inputs through Kisan Credit Cards (KCC) are exhausting. Farmer families with additional support of a regular salary or a skill are better placed to cope with the unpredictability of their farming income.

The survey reveals that transport, automobile, durables and leisure sectors have been highly impacted due the economic slowdown. Whereas, housing and fast moving consumer goods (FMCG) facing medium impact and no-compromising sectors like healthcare and education are facing the least impact of the slowdown.

Highlighting the causes of economic slowdown, Pradeep Kashyap, founder, MART said, “Wage rates in rural India has been declining since 2014. Before 2013, the rural wage rate were growing at 8 to 9 percent, in 2013-14, it was 13 percent, thereafter, it was declined to 1 percent per year. Furthermore, wages under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is almost 50 percent of the minimum wages of the states. Second impact is the job loss due to demonetisation as cash driven MSME sector faced tremendous cash crunch. Many small business got destroyed. When an entrepreneur shuts his business, you cannot create another entrepreneur overnight.”

“Big number of MSME units due to the pollution norms in the cities have now shifted to the small towns and rural areas. After, shutting down of small businesses due to cash crunch, there were big number of job losses in the rural areas. All agriculture trade is done in cash. When farmers brought their produce to mandis, traders had no cash. The whole cycle of agri trade got disturbed. Economic slowdown is actually a self-inflicted problem,” Kashyap added.

Addressing the roundtable, SK Pattnayak, former secretary, Union Ministry of Agriculture & Farmers Welfare called the PM Kisan Nidhi a well motivated move from the government, but facing implementation challenges of low enrolment of farmers, which needs to be rectified expeditiously by the states or by the farmers themselves. He also pressed the need to put in place a robust real-time monitoring system for the scheme as well as multitude of concurrent ongoing schemes to reach benefit to the rural community. He said agriculture cannot be seen in isolation of financial system and the proposed loan melas would provide a fillip to the rural sector.

Dr Amar Patnaik, Dean, School of Government & Public Affairs, Xavier University, Bhubaneswar and MP, Rajya Sabha drew parallel of PM Kisan Samman Nidhi and Odisha government’s Kalia scheme. According to him, the benefit of PM Kisan only reaches to the landholders, many of them may not be doing farming. On the other hand, benefit of Kalia scheme is transferred to all in the farming activity – farmers, share-croppers as well as farm labourers. That should happen with PM Kisan Nidhi too.

As long term solutions for improving the rural incomes, he suggested for developing crop insurance products which offer genuine support to the farmers in case of crop failure and claim ratios close to life insurance, reworking the minimum support price (MSP) formula to include the opportunity cost of land, for retaining continued interest of farmers in agriculture and building of rural infrastructure.

Arun Maira, former member of Planning Commission pointed that benefits of growth are not trickling down to the rural economy due to structural problems at the government, economic activities and at environment level. The solution to these complex systemic problems lay in creating solutions built around the local system. Sufficient economic activity needs to be created at the local level where the local producer meets the local demand- as symbolised by Mahatma Gandhi’s Charkha.

He emphasised that the long term solution lay in developing community enterprise system at the village level- but the challenge lay in defining what will be the geographical boundary and what will be the basket of production in the system, resolution of which needs to be developed by asking people at the local level their needs and challenges, rather than superimposing our beliefs and language.

Making a point from the industry, Kamal Kumar, Sr. General Manager, Dhanuka Agritech highlighted the enviable position of India as a world leader of foodgrains, and yet the ironical lag in productivity levels of Indian agriculture vis-a-vis the world averages, as well as the wide disparities across the country itself. He suggested that there was a need for re-balancing the crop patterns in the country, with a likely intervention from the government on what can be produced where- such as growing paddy in water deficit Punjab and Haryana needs to be prohibited.

Benjamin Mathew of MART said, new innovations need to be shared in terms of product categories and incomes have to be put in the hands of people. Non banking financial companies (NBFCs) have provided formal finance to the system but with changes in stock market, money circulation comes down. He said once MGNREGA was 2 percent of GDP, today it is only 0.25 percent.

To push the demand in the rural markets, there is a need to grow the sustainable and long term economic activities which make the people self-reliant. Rs 6,000 per annum subsidy under PM Kisan Samman Nidhi will not be helpful in coping up the rural distress. The stagnating rural wages need to grow. Last year, Rs 65,000 crore were spent in MGNREA,this year the spending is around Rs 32,000 crore. The government should boost the MGNREGA spending to bring in money into the pockets of the rural masses. This will help generate demand in the market. Thereby, the economy will see a boost.  

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