Speaking at the 67th United Nations (UN) general assembly earlier this week, senior opposition leader L.K. Advani showered praise on the rural development initiatives of the government, and held up one of the United Progressive Alliance (UPA) flagship programmes, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), as the key driver of rural prosperity and social inclusion in India.
At a time when narrow partisan politics is disrupting routine legislative business in India, Advani’s UN speech might be a gesture of statesmanship. BJP spokesperson Prakash Javadekar suggested as much, arguing that the party preferred to confine its differences with the government to the nation’s shores, according to an 11 October report by The Indian Express.
But motives aside, it is worthwhile questioning whether Advani’s comments have merit. After all, even statesmen owe some allegiance to truth.
The UPA government’s rule has indeed coincided with a faster rise in rural incomes benefiting deprived castes and classes more than earlier. Favourable government policies have helped cushion the impact of inflation on the rural poor. However, Advani may have overstated the case for the employment guarantee programme by linking the rise in rural prosperity to MGNREGA.
The impressive rise in real farm wages (adjusted for inflation) over the past few years is perhaps the biggest indicator of wider rural inclusion since it directly benefits landless labourers, widely considered to be the bottom of the pyramid, as they have the lowest incomes and often belong to the most deprived castes. A recent analysis of trends in real farm wages over the past decade by Ashok Gulati and Anjan K. Jena of the Committee of Agricultural Costs and Prices shows that real wages grew at 6.8% per annum between 2007 and 2011, after stagnating in the previous five years.
Consumption expenditure numbers corroborate the rural inclusion story. Research by Sukhdeo Thorat and Amaresh Dubey of Jawaharlal Nehru University based on the latest National Sample Survey data shows that the rate of annual decline in rural poverty in the period 2005-10 at 4.4% was double the rate of decline in 1993-05, and was more evenly spread among caste and religious groups in the recent period. The decline in poverty among scheduled tribes, for instance, was higher than the national average in 2005-10. In the same period, consumption expenditure of rural labourers grew faster than the rural average.
The reasons for the rise in rural fortunes require further research but economists identify three key factors that have pushed up rural wages: faster economic growth that led to a boom in sectors such as construction and raised demand for rural labour, a sustained rise in global commodity prices in the previous decade and higher minimum support prices paid by the government, which trickled down to labourers. MGNREGA also contributed, in the handful of states where it works well, by setting the floor for rural wages. But given that annual spending on the programme accounts for less than 1% of India’s annual gross domestic product (GDP), its impact on raising national wages can only be marginal.
It is plausible that the UPA’s strategy to increase rural spend has helped drive a more inclusive growth in rural India over the past few years. But the problem with the strategy is its inherent unsustainability, given its focus on short-term measures rather than on much-needed reforms to raise rural productivity.
After the disaster of the BJP’s ‘India Shining’ campaign, the UPA correctly identified mitigating rural discontent as a key priority. Yet, it failed to develop a strategy to raise agri-productivity, which would have ensured that the rural gains are self-sustaining. Most of the ‘radical’ solutions it advocated, ranging from the employment guarantee program to farm loan waivers were aimed at providing temporary relief rather than addressing the structural problems of Indian agriculture. Subsidies, which again have little impact on long-term productivity, continue to dominate state expenses in agriculture. Public investments in agriculture: in water-management projects or in research and extension networks account for only a fifth of public spending, with subsidies accounting for the rest.
With economic growth slowing, global commodity prices stagnating and a mounting fiscal deficit limiting the possibility of raising farm support prices extensively, the risks to rural incomes have spiked sharply. The neglect of structural problems may finally come to bite the UPA government, with the return of rural discontent.
Rather than bask in the glory of Advani’s praise, the UPA would do well to prepare for the rural Indian dream turning into a nightmare.