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Bharat may not fully ease India's pain: here's why

N Madhavan | Updated on July 03, 2020 Published on July 02, 2020

It will, to an extent, but a lot of factors could derail the rural sector’s strong show and the government should guard against it

Independent India is in the midst of its fourth recession. The three earlier economic contractions in 1957-58, 1965-66 and 1979-80 were caused due to monsoon failure and its fallout on agriculture. Those were the days when the share of agriculture in overall GDP was high (57 per cent in FY58 and 40 per cent in FY80). The present recession is unique in the sense that it has been caused by the collapse of the manufacturing and services sectors. In fact, agriculture appears to be the saving grace this time.

Good rains last year, bountiful rabi harvest, significantly high storage levels in all reservoirs, record sowing of kharif crop, prediction of yet another normal monsoon and very little disruption due to coronavirus compared to urban areas have ensured that rural India is primed for a strong growth.

That apart, the bulk of the cash-based stimulus that the government has announced to mitigate the impact of the virus is targeted at the rural sector. It has enhanced its allocation for MGNREGA, the rural employment guarantee scheme, by ₹40,000 crore over and above the ₹61,000 crore that has been already budgeted. And between March 24 (when the lockdown was imposed) and June 1, it has released ₹17,793 crore to 8.89 crore rural families under the PM-Kisan scheme.

Signs of revival

Green shoots of a rural revival are already visible. Fertiliser sales are up by 98 per cent in May on the back of a 100 per cent jump in kharif sowing, at 316 lakh hectares. In fact, fertiliser is the only core sector that registered a positive growth in May. Demand for two-wheelers and tractors has risen sharply and so have sales of FMCG products. CRISIL expects agri GDP to grow at 2.5 per cent while non-agri GDP is expected to shrink by as much as 6 per cent.

This nascent rural revival has emboldened some, both within and outside the government, to portray it as a panacea for India’s present economic crisis and a trigger for a speedy recovery. There is a need to be more nuanced here. Unlike in the 1950s or 1970s, the share of agriculture in the overall GDP is low and just 15 per cent.

Also, if one looks at the urban-rural divide of GDP, it is roughly 50:50. Thus a strong growth in the agriculture sector will, at best, ease the overall economic pain. It should not be forgotten that rural and urban economies are interlinked. After all, much of the demand for rural products come from towns and cities. Also, urban India provides the jobs for the rural folks. Migrants, who were till recently boosting rural income by wiring money to their families, are presently back in their villages without work.

What one can say with certainty is that Bharat has the potential to ease India’s economic pain. The extent to which it will depends on a lot of factors. Both government and the private sector have a role to play in maximising this effect.

Supply-side issues

While conditions are ripe for agriculture, what could come in the way are the supply-side factors — availability of quality inputs. The government must ensure availability of quality seeds (there have been media reports of their non-availability), fertilisers, pesticides and, most importantly, credit. Banks should drop their reticence to lend and aggressively fund the farm sector.

Also, in India, a bumper crop does not necessarily translate into good income for farmers. Many a times, it has resulted in absolute misery. Glut in the market causes prices to crash, forcing farmers to resort to a fire sale or even worse, simply destroy their produce (if the cost of transportation is lower than realisation). The government has tried avoid this situation by announcing minimum support price (MSP) for as many as 23 notified crops and taking the responsibility of procuring some of them. But that has had only a marginal impact as procurement is neither wide nor deep.

Not all farmers are covered under the procurement and it is not extended to all crops (it is done efficiently for paddy and wheat). Those farmers who are left out of procurement face a double whammy. The stock that is procured by the government enters the market and further depresses their price. This year cotton farmers are facing that prospect. Cotton Corporation of India has procured a record one crore bales of cotton. This will eventually enter the market and depress the prices for 70 per cent of the cotton farmers who are not part of the public procurement.

While public procurement is not a bad policy, the government should find a way to dispose the acquired stock without distorting the market. Also, procurement should be expanded significantly to crops like bajra, urad, tur, jowar, ragi, etc. These are the crops the government is promoting as part of its crop diversification strategy to wean farmers away from paddy and wheat.

The recent reforms that facilitates one country-one market and contract farming will help, but not immediately. If growers are not assured reasonable price for their produce this season, rural consumption will suffer.

Govt schemes

Then there is the issue of implementing schemes such as MGNREGA and Pradhan Mantri Awas Yojana. The former has the potential to gainfully employ thousands of migrants who have returned home while the latter can give a fillip to rural housing and consequently boost demand for cement, steel apart from consumer durables such as fans, television sets, etc. The rural housing scheme has slowed down (just 2.6 lakh in the first quarter due to the lockdown) and should be speeded up. The target this year should exceed by far the 16.8 lakh units that were built last year.

That apart, efforts should be made to enhance rural consumption by ensuring credit availability (credit penetration in two-wheeler sales is just 35 per cent) and offering attractive schemes for consumers. Consumption in rural India should be maximised as consumer confidence is in pits in the metros and cities.

Most importantly, the government should ensure that coronavirus is contained quickly in the urban centres. With the approach of festival season, a lot of people will head to their villages. Rampant infection in rural India is the last thing the country needs today.

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Published on July 02, 2020
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