The increase in tractor sales may have been a result of large-scale loan waivers which benefited the rural rich and those with access to institutional credit but it is difficult to conclude that it suggests a sign of an overall revival in the rural economy. Photo: Mint
The increase in tractor sales may have been a result of large-scale loan waivers which benefited the rural rich and those with access to institutional credit but it is difficult to conclude that it suggests a sign of an overall revival in the rural economy. Photo: Mint

India bearing the cost of ignoring rural distress

In the last three years, wages of agricultural labourers have increased only by 0.5% per year while those of non-agricultural workers have declined by 0.25% per year, the worst so far in 30 years

The agrarian economy continues to be plagued by falling output prices, declining incomes and increased variation in agricultural production pointing to a situation of uncertainty and vulnerability among most rural residents. This has created an unprecedented demand deflation in rural areas with a decline in prices for most of food items, including the ones that have seen stagnant production or decline in production. The demand deflation is primarily a result of slow growth or stagnation in farmer’s incomes but is also a result of decline in the incomes of wage workers who are net consumers of food. Together, these two groups account for two-third of all rural households.

The data on rural wages is now available up to January 2018 and these suggest a decline in real terms for both agricultural as well as non-agricultural labourers. Following the back-to-back droughts of 2014 and 2015 when real wages of casual workers declined sharply, wages rate growth had recovered after July 2016 with normal monsoon in 2016. However, this was short-lived and the twin impacts of demonetization and the goods and services tax (GST) contributed to a worsening of the rural economy leading to a return of the trend of deceleration in wage rates since April 2017.

Real wages of agricultural workers on a year-on-year (y-o-y) basis have declined since December 2017; for non-agricultural workers they have been declining since November 2017. So is the case of construction workers, another representative category of rural workers, where wages have been declining in real terms since November 2017.

In the last three years, wages of agricultural labourers have increased only by 0.5% per year while those of non-agricultural workers have declined by 0.25% per year, the worst so far in 30 years.

However, trends in tractor sales and fast moving consumer goods in recent months suggest an upward movement and this has been interpreted as revival of demand in the rural economy.

The increase in tractor sales may have been a result of large-scale loan waivers which benefited the rural rich and those with access to institutional credit but it is difficult to conclude that it suggests a sign of an overall revival in the rural economy.

The reality appears to be more complex than these numbers suggest. The decline in agricultural as well as non-agricultural wages is a sure sign of continued distress in the rural economy, notwithstanding the signs of “green shoots" reported by the high frequency sales data.

However, these two contradictory trends also suggest worsening inequality in rural areas and increasing vulnerability of most rural poor.

Both these trends are confirmed by the growing unrest in rural areas. While some of it has taken the form of agitations by farmers and other workers, it has also been reflected in the increasing intensity of agitations along caste lines. It was already visible among the dominant rural agrarian communities of Jats, Marathas and Patels but is now also reflected in the assertion of the Dalit groups which was obvious in the case of the 2 April strike called by these groups. These are not engineered by political parties but reflect the unrest due to declining employment, wages and incomes.

With less than a year to go for the general elections of 2019, the next 10 months or so will be a challenge for the government not just to ensure that the rural economy is back on track but also that the unrest caused by the distress does not spill over to other sectors of the economy.

Most of these trends could have been reversed had the government used the windfall gains of low petroleum prices to boost rural demand and for channelizing the revenue earned for creating rural infrastructure.

However, not only did the government fritter away the opportunity to strengthen the rural economy, it ended up reducing the real investment in agriculture in the first three years of this government. Expenditure cuts in the name of fiscal prudence further compounded the rural distress. The situation is purely a result of the government’s own acts of omissions and commissions.

Now that it is faced with a fragile and restless rural economy, it finds itself in a situation where its hands are tied by the rising fiscal deficit, rising current account deficit, rising inflation and declining employment opportunity.

But even with these, the fiscal cost of reviving rural economy may be less than the cost of ignoring rural distress in a highly charged crucial national election.

Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi

Close