Opinions vary on whether rural India is shining or not and to what extent, but there seems to be a consensus that rural areas are suffering less compared with their urban counterparts.
To a certain extent and in the given context, this assertion may hold true. However, the real question is whether this is a result of deliberate actions by the incumbent government that claims to be representing the aam aadmi (common man) or just pure coincidence. In other words, is the revival sustainable?
Rural areas have certainly benefited from the good monsoons in the last four years, which led to a significant increase in agricultural production during the tenure of United Progressive Alliance (UPA). But this was a matter of chance. The forecasts for farm growth this year have already been revised downward to under 3%. Other than the gift from the rain god, the rural sector also benefited from some well-intentioned policy measures such as increased spending on agriculture and an excellent safety net in the form of the National Rural Employment Guarantee Act (NREGA).
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However, despite these interventions, the rural areas saw some real crisis, primarily in the form of food inflation and declining food security. Moreover, though agriculture was growing at close to 4% a year, it was significantly less than the national average of at least 8% and around 10% in the non-farm sector. This means that, compared with their misery during the pre-UPA period, they were better off, but still worse off compared with their urban counterparts.
Even during the period when rural areas were shining, their per capita income was growing slower than urban areas, and the gap between rural and urban incomes was increasing. But all these hardly matter when you are already in the pit, which was the case during the pre-UPA period and reflected in farmer suicides and almost negligible farm growth rate.
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While rural areas seem to be still growing, the glow of urban areas has faded in the context of the financial crisis. How is it that the rural areas continue to shine despite the severe setback of the financial crisis? This is related more to electoral politics than any deliberate policy response to the crisis. The rural areas have managed to survive largely due to fiscal expenditures targeted towards these, which have been made not to avoid the suffering transmitted by the crisis but to gain maximum mileage during elections.
It must be noted that most of the expenditure targeted at rural areas was taken up even before the crisis unfolded in September.
Election-fed: Most of the expenditure targeted at rural areas was taken up even before the financial crisis unfolded in September. Madhu Kapparath / Mint
While the government was boldly claiming that India is insulated from the crisis, that this was not to be became amply clear as events started unfolding since then. Not only has industrial output decelerated sharply, export earnings have also declined significantly. Large-scale job losses have been reported by the government’s survey, not only in export-related sectors but elsewhere, too.
The stimulus, in two tranches, was definitely not targeting unorganized sector workers or rural areas. But they survive because this happened to be an election year and most of the fiscal incentives and expenditures to rural areas were already committed even before the crisis set in.
The largest of these was of course the farm loan waiver amounting to Rs65,000 crore announced in the 2008 budget by the UPA. That the finance minister waited for his last year in term to time this scheme in an election year speaks volumes about the intentions of the government that was oblivious to the miseries of farmers committing suicide for four years.
The second major relief was in the form of NREGA, under which Rs25,000 crore was available for rural areas. But here again, the government realized the demand for NREGA only during the second supplementary grant of demands placed by the finance minister.
These measures were further supported by the increase in minimum support price (MSP) for both rice and wheat. Unlike previous years, this was also supported by higher procurement, which was almost double the average procurement in the previous two years. This was again timed to maximize political gains, with the result that food stocks with the government are way above buffer requirements.
The real beneficiary was again the farmer. Further, the increased pay scales as part of the Sixth Pay Commission benefited a small section of regular workers in rural areas. Again, an estimated Rs10,000 crore is expected to be spent, directly or indirectly, by political parties during the elections, a large part in the form of cash payments.
But are these benefits sustainable? It appears unlikely. There will definitely be no loan waiver in the near future despite poll promises; nor will the procurement fervour continue; and there won’t be a pay commission for some years.
As for a good monsoon, no guesses, but going by trends, the period of successive spells of good monsoons must be coming to an end. Will the rural areas continue to shine? Only time will tell. In the current times of financial crisis, it is definitely good to have elections as a fiscal stimulus.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi. Farm Truths looks at issues in agriculture and runs on alternate Wednesdays. Respond to this column at firstname.lastname@example.org