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Mint Primer: How falling rural incomes will hurt festive demand

The Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) promises 100 days of work in a year to every rural family.
The Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) promises 100 days of work in a year to every rural family.

Summary

Rising dependence on a safety net scheme is a sign of distress.

NEW DELHI : Following an uneven monsoon, demand for work under the national rural jobs scheme has soared, while farm revenues have been hit by crop losses and export curbs. Will a dent to rural incomes take the sheen off festive season demand? Mint explores.

What’s up with the rural jobs scheme?

The Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) promises 100 days of work in a year to every rural family. Between July and September, demand for these jobs was 15% higher than last year (2022-23), and 29% higher when compared with the pre-pandemic year (2019-20). Millions of rural families chasing low-paying jobs means a short supply of regular jobs, or a likely hit to household earnings. Rising dependence on a safety net scheme is a sign of distress. Demand for MGNREGS jobs hit record highs after the covid-19 lockdown was announced in March 2020.

What about farm incomes in rural areas?

Retail prices of cereals, pulses and vegetables in August were higher by 12%, 13% and 26%, respectively, year-on-year. But this does not mean farmers are earning more. Prices are on a rise following repeated crop losses due to freak weather—damage to wheat due to heat wave and untimely rains, and lower anticipated rice harvest due to deficit rains. Prices of pulses are rising due to less area planted by farmers and a coming shortage due to drought in major growing states. Tomato prices shot up in July and August due to lower production and damage due to excess rains—but only a handful of lucky farmers benefited.

Graphic: Mint
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Graphic: Mint

How has been the impact of the monsoon?

The south-west monsoon, a lifeline for rural India, recorded a deficit of 6% compared to the 50-year-average. But the spread of monsoon over time and across regions was uneven. Several states were hit by a drought while others battled floods and extreme rains. The extent of crop damage can be gauged once the kharif harvest hits the market in October.

Have trade decisions hit rural incomes?

The Centre has curbed the export of cereals and onions, and cut import duties on edible oil and pulses to check consumer prices. These, and steps like stock limits and open market sales from government stocks at harvest time, depressed farm gate prices. A recent report said that in 2023, wheat farmers lost 40,000 crore due to pro-consumer policies, and rice growers may face the same in October. Oilseed farmers were hit by output loss, yet cannot expect higher prices as the market is flooded with cheap imported oils.

Will these factors impact rural demand?

The hit to incomes can impact sales of packaged consumer goods, consumer durables, small cars and two-wheelers in the festive season. One needs to watch out for untimely rains during this month’s kharif harvest. Consumer sentiment in rural India will also depend on how the winter crop pans out. A silver lining is that ahead of state and general elections, a boost in spending by political parties and government—via cash transfer schemes and cooking fuel subsidies—can help plug a part of the income losses.

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