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Why rural India isn’t slowing

Why rural India isn’t slowing
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First Published: Mon, Mar 23 2009. 12 50 AM IST

Village voice: A man talks on a cellphone at Khirni village, Rajasthan. DoT says phone connections in rural India grew 400% between ’04 and ’07. Harikrishna Katragadda / Mint
Village voice: A man talks on a cellphone at Khirni village, Rajasthan. DoT says phone connections in rural India grew 400% between ’04 and ’07. Harikrishna Katragadda / Mint
Updated: Mon, Mar 23 2009. 12 50 AM IST
New Delhi: Last year, Reliance Industries Ltd’s (RIL) plan to acquire land to set up its special economic zone in Jhajjar and Gurgaon in Haryana ran into the barrier of escalating land prices. Farmers wanted Rs1 crore an acre for their land, more than double the Rs38 lakh RIL was offering. It was the same story in most parts of the country as the push for industrialization led to a scramble for scarce land.
Village voice: A man talks on a cellphone at Khirni village, Rajasthan. DoT says phone connections in rural India grew 400% between ’04 and ’07. Harikrishna Katragadda / Mint
Besides highlighting the industry-agriculture conflict, the scenario also captured one of India’s most compelling stories in this millennium. One that has, in a sharp break from the past, led to a steady economic empowerment of the rural population, particularly those who live close to rapidly transforming industrial hubs and cities.
It is actually the outcome of an interesting constellation of circumstances, rather than the fulfilment of an economic strategy.
The United Progressive Alliance, or UPA, has reordered government spending. It is no longer spending only on programmes that deliver the final product to the beneficiary—whether in the form of subsidized food, electricity or building a dam to provide irrigation water to farmers—but has added a new dimension wherein funds are transferred to the beneficiary. This, in effect, gives the beneficiaries the freedom to spend the money and mitigates leakages.
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At the same time, improved rural connectivity, both in terms of roads as well as telephony, has allowed farmers to not only get better value for their produce domestically, but also to explore new export markets.
Sales in domestic markets have also risen steadily as a result of the government gradually pushing up the so-called minimum support price (MSP) for paddy, or unhusked rice, and wheat, while a depreciating rupee, particularly in the last one year, has ensured better realization on exports.
MSP is the floor price the government guarantees to farmers and which exceeds the cost of production. So, if there is a glut of produce in the market and prices fall, at the least, the farmer is guaranteed MSP.
Since prices of industrial goods have not moved in tandem with agricultural products, it clearly means that the terms of trade—or the exchange value between industrial and agricultural goods—have moved in favour of agriculture. Also, input costs have risen only marginally, ensuring that the surplus accruing to the farmer is that much more. As a result, this transfer of wealth is not a one-off push, instead it is the outcome of a combination of factors, some of which are enduring.
Significantly, while some of these impulses are less important on account of the fallout of the global meltdown, government spending, export growth and the shift in terms of trade have endured. No surprises, then, that while India reels from the global economic slowdown, Bharat is shining.
It is logical, therefore, that Indian industry, led by consumer goods companies, is making a determined thrust to target the rural customer.
Redefining rural India
Whether by design or accident, the Congress-led UPA has effected a radical shift in the spending structure of the government.
Conventionally, this has followed the pattern of pumping money through an established delivery vehicle to reach a product or service to an intended beneficiary. All this changed when the government launched its National Rural Employment Guarantee Scheme (NREGS) in 2006, which promised at least 100 days of work in a year to one member of a poor rural family; this was in addition to the existing spending. In the 2008-09 Union Budget, the programme was extended to all 596 districts.
Four out of five jobs created under this scheme are in the area of water conservation, land development and drought-proofing. So not only has it provided an alternative and steady source of rural employment, it has also helped improve rural infrastructure. Including the money earmarked in the vote-on-account moved in Parliament for 2008-09, the spending on this programme is estimated at Rs66,800 crore.
While NREGS ensures year-long employment, Indian agriculture has also been at the receiving end of a clutch of positive imperatives. Between 2004-05 and 2007-08, MSPs were raised by the UPA for common paddy by 33% and for wheat by 56.3%, while inflation between these two periods rose by around 17%.
Second, the global commodities boom has ensured new agricultural export markets that strangely seem insulated, even after the onset of a global recession. According to the latest disaggregated data put out by the commerce ministry, exports of “agriculture and allied products” rose by 33.19% to $10.23 billion (Rs51,252 crore now) for the eight months ended November. All this while, most leading export sectors had already begun to signal a reversal, with some sectors such as textiles, handicrafts and marine products contracting by double digits.
Subsidy benefits
Third, farmers have hardly seen an increase in input costs, with the exception of higher wages for labourers, in the last one year, ensuring that their surpluses are maximized. When international oil prices spiked, the cost of fertilizers, too, rose; however, the government absorbed the cost differential in its fertilizer subsidy programme and ensured a fixed cost to the farmer. Further, in most states, electricity and water are subsidized by the state governments.
Fourth, rural areas, some more than others, are now significantly more connected to the rest of India. The emergence of wireless phones has permitted firms to leapfrog over the slower, more capital-intensive landlines and reach out to more people in a cost-effective manner. Since wireless phones were permitted in rural India in 2003, department of telecommunications (DoT) data shows the number of phones per 100 people went up from 1.55 in 2004 to 8.35 in December 2007—an increase of at least 400%.
Two successive governments have pushed very hard with their respective rural roads programmes. Up until 2003-04, when the Bharatiya Janata Party-led National Democratic Alliance demitted office, about 5.1 million km of rural roads had been constructed. In the four years since, the UPA has built an additional 11 million km. According to data put out by the Planning Commission, only a little more than one-third of the habitations in the country are now not connected by all-weather roads.
And finally, several thousand farmers across the country benefited from the record Rs65,318 crore farm loan waiver carried out by the UPA last year. Clearing their outstanding debts at a time when the farm cycle was in the middle of an upswing has provided significant surpluses in some household budgets.
Sure, this is not the universal story of the Indian farmer. But it is clear that purchasing power has been significantly enhanced in some segments of the rural populace, providing them with the wherewithal to articulate a demand, among other things, for consumer goods.
The outlook
It is, therefore, not surprising that rural India has been far more resilient in the face of the abrupt turnaround in the economy than the rest of India.
Anecdotally, we do know that a large chunk of this newly earned wealth was directed towards the consumption of consumer durables and in raising the standard of living; profit margins of consumer durable companies in the last few quarters reflect this new reality. At the same time, it is very likely that it has accentuated inequalities. The haves are richer, but the have-nots are not necessarily much better off. It will be interesting to see how this tension plays out in the general election poised to start from 16 April.
However, the new-found prosperity, too, will be an unexplained variable in assessing the political mood in rural India. Those who have benefited will not necessarily rally around an election manifesto that emphasizes job losses in the face of growing economic uncertainty.
If, indeed, the rural India story is true, then political parties will have to revisit their election strategies. For companies, though, the Bharat Shining story could not have come at a more opportune moment.
Tomorrow, girl power: The mother of all rural marketing schemes; watches, cars and goodies galore for rural consumers; more tips from a rural expert.
Graphics by Ahmed Raza Khan , Jayachandran / Mint
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First Published: Mon, Mar 23 2009. 12 50 AM IST
More Topics: RIL | UPA | Rural | India | Farmers |