Rural India contributes more than half of net value added in manufacturing
The recent elections in Gujarat have highlighted the rural-urban divide. Lots of well-meaning advice has been proffered on the need for the government to alleviate farm distress. But while it’s certainly true that many farmers are in trouble, the rural community has progressed well beyond relying on farming alone.
The national accounts data shows that, apart from farming, there are several other sectors of the economy where net value added is higher in rural India than in urban. Perhaps the most important fact the data highlights is that 51.2% of total net value added in the manufacturing sector is from rural India. The data is from 2011-12, as the national accounts do not give the numbers for subsequent years, but it’s very likely that the trend is for the rural share in manufacturing to be going up. The accompanying chart shows the percentage of net value added in rural India as a percentage of total net value added. Of the total net value added in the economy, 47.7% comes from rural India.
Another sector where rural India contributed a larger share of net value added is mining, with its share at 53.4%.
Sectors with substantial rural shares in net value added include road transport, at 47.9%; construction, with 46.9%; storage, at 39.5%; real estate, ownership of dwelling and professional services—38.9%; electricity, gas, water supply and other utility services—33.2% and “other services”—31.2%.
Indeed, the sectors where rural net value added is less than a fifth of the total are just a handful—air and water transport, services incidental to transport, railways, communication and broadcasting, public administration and defence and financial services.
What this means is that merely hiking farm prices isn’t enough. Few people in rural India make a living from farming alone and the poorer the farmer, the more supplementary sources he needs to make a living. A revival in the manufacturing sector, where more than half of value added comes from rural India, is therefore equally important. Similarly, rural construction, in roads and irrigation and real estate will also help increase incomes in India’s villages. Improvement in cold storages will not only help farmers get better prices but also lead to more employment.
Most of the manufacturing and other businesses in rural areas are small and in the informal economy. The disruption unleashed on them, first through demonetization and now through the goods and services tax, has very likely hit them hard. Helping these businesses too must therefore be part of the government’s effort to ease rural distress.