The awkward myth of a revival in the country’s rural economy

National accounts data released last month estimated that the economy has contracted by 7.5% in the second quarter of 2020-21 compared to last year. For many, this was a sign of recovery, given expectations that India’s gross domestic product (GDP) would contract by around 10%. It is, no doubt, an improvement from the 23.9% GDP decline in the first quarter. Much of the euphoria over this so-called recovery was attributed to a revival of the rural and agrarian sectors.

Unfortunately, our quarterly GDP estimates can’t provide any hard evidence of a rural revival, given their dependence on organized corporate-sector data. While we have no rural- urban break-up of growth, the fact that the majority of the unorganized sector is in rural areas makes it even more suspect to say anything on the rural economy. This is corroborated by a preliminary reading of some reliable indicators of the rural economy, suggesting that euphoria over its revival is not based on facts. The two most important of these indicators available on a monthly basis are of rural wages and wholesale prices of agricultural commodities.

Rural wages reflect the income trends not just of casual workers, but also of the rural economy as a whole. Although this series, made available by the labour bureau, also suffered due to the lockdown and could not offer reliable wage data in April, it did provide provisional estimates based on a small number of observations in May. The data June onwards is based on more observations, and is reliable. Full data is available up to September, which coincides with the July-September quarter for which estimates of national income were released.

Immediately after India’s lockdown was lifted, wages increased in both real and nominal terms in May and June. These were also the months when the government released extra funds for the rural employment programme. The trend continued in July, with demand for labour rising. However, the boost was short-lived, with wages declining thereafter until September, by when real wages of general agricultural labour were down 0.3% from a year earlier, while those of non-agricultural workers were down 1.3%. When compared to levels two years ago, too, the real wages of general agricultural labourers and non-agricultural labourers declined 0.2% and 0.8% per annum. The extent of distress is evident from the fact that non-agricultural real wages are lower even compared to their level five years ago. The data also shows a sharp decline in nominal wages for almost all occupations since June. Clearly, the July-September quarter did not see a revival, but a worsening of rural distress.

The second important indicator of rural incomes are the farm-gate prices of agricultural commodities. These reflect farm income trends better than the estimates of area sown in national accounts. The movement of farm-gate prices is available in the wholesale price index (WPI) data. The most recent numbers show that the decline in inflation since April continued until November, when wholesale prices declined 5.5% from a year earlier. Cereal inflation has been negative since August, but the price declines worsened, with November marking the biggest fall. This is true for most cereal crops, including wheat, despite record procurement by the government this rabi season. Wheat prices have declined since August, with November witnessing a 10% fall from a year earlier. Among major cash crops, cotton has seen a steady decline in prices since August 2019. With a majority of farmers growing cereals, the decline in their prices further serves to bust claims of a rural recovery. In fact, rural areas may have actually been witness to a worsening of the distress.

At a time when the rural and the broader economy needed the government to expand public spending, national account estimates suggest a contraction in their numbers in the second quarter, which reconciles with the slowdown in public employment creation during the period in question. This worsening of rural distress may partly explain the anger visible among farmers who have failed to realize remunerative prices for their produce, but it is also a clear pointer that a recovery, if it is indeed taking shape as claimed by the national accounts, is unlikely to be sustainable in the absence of an increase in government spending aimed at raising demand. Increasing government support to the agricultural sector is the real reform needed at this hour, and not reforms that will enable the state to withdraw or dilute the minimum support that is available to the sector.

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