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Business News/ Opinion / Online-views/  Mint index of rural distress shows deepening crisis in villages
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Mint index of rural distress shows deepening crisis in villages

If the IMD forecast of below normal monsoon comes true, the Mint index of rural distress is likely to rise to its decadal high

The increasing trend in rural distress since June 2014 and the possibility that it may worsen further should ring alarm bells for the BJP, which faces a big test in the Assembly elections of the largely rural state of Bihar later this year. Photo: Indranil Bhoumik/MintPremium
The increasing trend in rural distress since June 2014 and the possibility that it may worsen further should ring alarm bells for the BJP, which faces a big test in the Assembly elections of the largely rural state of Bihar later this year. Photo: Indranil Bhoumik/Mint

Indian farmers are trapped in a new cycle of distress, and the first monsoon forecast by the India Meteorological Department (IMD) released on Wednesday indicates the rains could play truant for the second year in a row.

A Mint index of rural distress—based on the growth of farm output, rural wages and tractor sales—has been rising over the past few quarters, and is a hair’s breadth away from its four-year peak. If the prediction of below-normal monsoon comes true, the Mint index of rural distress is likely to rise to its decadal high.

Rural Distress Index

Rural distress index seems to peak in drought years. The index, which can take values between 0-1, is an average of normalized values of its three sub-components. The greater it is, higher is the level of distress.

The index captures more than just a fall in agricultural production, which is only one aspect of the rural economy in India. The index provides equal weightage to fall in farm wage growth, which affects the purchasing power of agricultural labourers, and fall in tractor sales growth, a proxy for rural sentiment and demand.

The rise in rural distress is worrying because roughly two-thirds of Indians live in villages. Although agriculture contributes only 14% to gross domestic product (GDP), it still provides employment to nearly half of India’s workforce. A rise in rural distress is, therefore, bad news for firms that depend on rural demand as well as for political parties that depend on rural votes.

The Mint rural distress index has been calculated by using year-on-year growth figures of agricultural GDP, real rural wages and tractor sales. The growth rates for each of the components have been normalized to a scale of 0-1 by using the following formula: Normalized value = (Maximum value - Value for reported quarter)/ (Maximum value - Minimum value).

The procedure means that values tend to zero in on periods when growth figures are higher and vice-versa. A value of one would indicate the highest level of distress over a given period. The index is an average of the three normalized values. Therefore, lower the agricultural output growth, lower the growth in tractor sales, and lower the growth in real wages, higher will be the index value.

The Mint index of rural distress seems to peak during drought years. It was at its highest in the quarters ended June 2003 and December 2009, which correspond to droughts of 2002-03 and 2009-10.

A prolonged period of distress can be politically dangerous, as recent history seems to suggest. Several commentators have argued that one of the reasons for the shock defeat of the Bharatiya Janata Party (BJP)-led government in 2004 was its failure to gauge the discontent in rural areas. The strong deceleration in real rural wage growth since early 2012 could have contributed to the Congress party’s defeat in the 2014 elections, as an earlier Plain Facts piece argued.

The increasing trend in rural distress since June 2014 and the possibility that it may worsen further should ring alarm bells for the BJP, which faces a big test in the assembly elections of the largely rural state of Bihar later this year.

The Mint index of rural distress is a proprietary index of this newspaper, and is updated quarterly.

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Published: 23 Apr 2015, 09:18 AM IST
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