Rural revival: Is it premature to celebrate?

As the Indian economy is estimated to slow down to 6.5% in 2024-25, economists have banked on one factor to give a fillip to growth: rural India. However, rising job demand under the MGNREGS is sending distressed signals. Job demand rose to the highest in seven months in January. While it moderated slightly in February and March, it is still above 20 million, according to data from the rural development ministry. Between November and March, over 124 million people demanded jobs under the scheme, a 5.4% increase compared to the year-ago period. During the same period, employment provided under the scheme increased by 8% as the government rushed to meet the high demand.

“An increased demand for jobs (under MGNREGS) is a sign that the rural economy is not as good as it is made to feel," said Rajendran Narayanan, associate professor of economics at Azim Premji University. Since the wage rate under the scheme is lower than the market rate, it was a signal of distress that “people were willing to work at such low wages".

Mixed signals

After remaining sluggish for much of the post-covid period, the rural economy started showing signs of recovery in 2024 as declining inflation and robust agricultural activity improved the purchasing power. This was reflected in sales of fast-moving consumer goods, with sales growth in the rural economy not only rising from the previous year, but also outstripping urban areas. “Improved agricultural output, government schemes, and the festive season bolstered rural consumption," said Roosevelt Dsouza, customer success head (FMCG) at NielsenIQ India.

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However, a slowing urban economy may also be a factor behind higher rural job demand. A slowdown in the urban economy leads to a spillover effect with reverse migration, which is migrant labourers returning to rural areas in search of jobs.“When migrant labourers find it difficult to sustain themselves in cities, they are forced to find employment in the agriculture sector and even under the MGNREGS. This ends up over-burdening rural areas," said Debopam Chaudhuri, chief economist at Piramal Enterprises.

Several other factors also influence the job demand under the MGNREGS. First, the seasonal pattern of people turning to the scheme when agricultural jobs are scarce and second, a slowdown in private capex leading to labourers opting for low-wage work under the MGNREGS. Data shows job demand under the MGNREGS usually spikes between March and June as they are relatively leaner months of agriculture. If the seasonal trends hold, the MGNREGS may see more job demand in the coming months.

Also Read: Mint Primer | Private consumption returns, boosted by rural demand

Uncertain outlook

Timely and abundant rainfall in 2024 led to a healthy crop output in the last fiscal year, with wheat and oilseeds seeing higher production. Robust agricultural activity translated into a 4.6% growth in the agriculture, forestry and fishing GVA, nearly double the previous year's 2.7% growth. However, an uncertain outlook for 2025-26 may reverse the progress seen in the previous year.

 

The year 2025 is expected to be one of the hottest years on record, with the India Meteorological Department (IMD) forecasting above-normal maximum temperatures in most parts of the country and above-normal number of heatwave days in most parts of east and central India. This is in line with the forecast for global temperatures. This year’s January and February global surface temperatures were 1.33°C and 1.26°C above the 20th-century average, respectively, making them amongst the warmest on record, showed data from the National Centers for Environmental Information, a US government agency.

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The rural economy is hinged on agricultural activity, which employs nearly 60% of the rural labour force. Experts said a hotter-than-usual January-March period may have already impacted rabi crop yield this year. With the agricultural sector vulnerable to climate change, weather shocks, and uneven and low rainfall, its growth has become particularly uncertain amid the prediction of high temperatures. The good news is that the IMD has ruled out El Nino this year, which keeps the hopes of a normal monsoon intact. A continuation of robust agricultural activity will be needed to sustain rural growth.