Wake up to the continuing distress in rural India

The distress in India’s rural economy is also the primary reason for the demand deficit in the economy, given the large size of the rural economy
The distress in India’s rural economy is also the primary reason for the demand deficit in the economy, given the large size of the rural economy


Overall employment has risen but we cannot deny the reality of rural distress as revealed by a closer look at data from surveys and our rural jobs guarantee scheme in their proper context

Last month, in a column in Mint, Chief Economic Advisor (CEA) V. Anantha Nageswaran along with Deeksha Bisht provided a reassessment of claims of rural distress in India. Their primary concern arose from the trends and patterns emerging from recently-released data on employment from the Periodic Labour Force Surveys (PLFS). A preliminary reading of the data of the last four years corroborates evidence from other sources of a deepening of rural distress. While overall employment has indeed increased, the sectors and population groups which have seen an increase in employment suggest that a large part of the employment growth may be distress-driven. Of the total increase in employment of 82 million between 2017-18 and 2020-21, more than 60% was among women workers, and more than half was in agriculture, reversing a trend seen since 2004-05. A break-up by age groups also indicates that a significant increase was recorded among younger age cohorts along with the elderly, who, like many women, were likely forced to move into the labour market to supplement household incomes during times of distress. Most of these indicators are showing trends and patterns which are similar to what was observed during the last period of severe distress in India’s rural economy, between 1999-00 and 2004-05. Much of this increase can be traced to self-employment, with a decline in the share of regular and wage workers, a sign of distress that is also noted by Nageswaran and Bisht.

Further confirmation of rural distress is the steady increase in demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), a sure sign of economic distress. Nageswaran and Bisht are right in pointing out that a larger share of work is now undertaken on the private land of individuals, mostly from vulnerable groups. While it has certainly created assets and helped raise productivity, it is not as smart a choice for households as often portrayed to be. It is still employment of last resort for the majority of workers who are unable to find jobs elsewhere. The strongest evidence of this is the difference between MGNREGA payouts and private market wages. In almost every state, wages under MGNREGA are lower than the corresponding market pay, with MGNREGA wages in many states at two-thirds of the corresponding market wages. In some states, the scheme pays even less, relatively. Only in case of extreme distress, thus, do households opt for working at wages that are lower than market rates.

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Perhaps the best indicator of rural distress are the wage estimates from the labour bureau. Wages have long been known as the strongest proxy for rural poverty. While they are strongly correlated with poverty, these are also overall indicators of rural productivity. The most recent data on wages available is for June 2022. These numbers suggest a real decline in wages in agricultural occupations in the last year by 0.7%. The decline compared to two years ago is 2.7% per annum. The situation on non-agricultural wages is worse, with real wages declining by 2.3% compared to last year, and a decline of 4.5% per annum during the last two years. In fact, real wages in non-farm occupations have declined at 1.1% per annum in the last five years. These are also confirmed by data on real incomes from employment available in PLFS surveys. Real income from employment between 2018-19 and 2020-21 has increased at only 2.7% per annum, despite an increase in number of days worked in rural areas, whereas it has declined in real terms at 4.2% per annum in urban areas.

While this distress has been a result of several factors, including the economy’s slowdown since 2016-17 and the subsequent disruption in economic activity on account of the pandemic, it is also due to a continued neglect of the rural economy for almost a decade now.

The distress in India’s rural economy is also the primary reason for the demand deficit in the economy, given the large size of the rural economy. No doubt, the past two years have seen enlarged central spending on MGNREGA, which has provided some relief. An increase in foodgrain entitlement through the Prime Minister Garib Kalyan Anna Yojana (PMGKAY) and Public Distribution System has also contributed to lessening distress in the rural economy. However, despite the increase in fund flows through employment and food schemes, the situation in rural areas continues to be distressful.

While a recovery in economic activity is likely to take longer than expected, given the estimates of GDP growth for the first quarter of 2022-23 released last month, more effort will be needed to strengthen existing mechanisms of alleviating rural distress. This will not only require enhancing the budget allocation for MGNREGA, which has been a lifeline for millions, but also increase wages under MGNREGA to bring them at par with market wages. At the same time, given the inflationary spell in food and overall price buoyancy, the government will also need to extend the PMGKAY beyond September. Rural distress is not just real, but also the biggest challenge for our economy. Apart from protecting our large population dependent on the rural economy from inflation and uncertain incomes, we need broad-based demand for an economic revival. A recognition of the gravity of rural distress is the first step in this direction.

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

Elsewhere in Mint

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