Rural Economy in 2016

Archives

The rural economy is an important segment of the ecosystem as it accounts 70% of employment and 50% of GDP with agricultural being the main driver followed by services and manufacturing. It is largely unorganised and thus those working or consuming in rural India are in different category of economic agents driven by different factors.

The rural economy is complex as it is dominated by cash in terms of transactions. While there has been some intrusion of use of ATM, debit and credit cards, the dependence of technology driven payment system is limited. Hence, here is a look out of Indian economy in 2016 and what to expect in final two quarters of current fiscal.

Rural economy in 2016

After having increase in rural wages, the aftermath of recession which has occurred worldwide, India has witnessed a decrease in wage level over a long period of time. A report on NREGA outcomes speaks in terms of the fact that the number of work days received by an average NREGA family in India has been 49 which is far lower than what it should be optimally, particularly in the recent period when there is a crisis and number of states have been declared drought hit. So, in case of performance of rural economy in next quarters is to improve, the government has no option but to go ahead with large scale employment expansion through its flagship employment programmes. There should be some method by which there can be employment being created for the rural population in those specific areas in itself from where they hail so that urban migration intensity is also lowered.

The same report says that NREGA has contributed towards creation of minor irrigation works, checkdams etc. which has helped in enhancing the irrigated areas under cultivation within India, in that background the whole rural economy has to be looked at.

Performance of agriculture

Agriculture has not done reasonably well in last three quarters. In first two quarters, there have been spillovers of previous drought years. It had hit the farmers very severely where incidences of indebtedness also increased. In last four years, there was a growth regime of 1.5%-4% but in last two years, agriculture witnessed negative growth at 0.2% in 2014-15 and 2015-16 it was 1.2% for lack of rain. Due to this, several farmers committed suicides. This year was a recovery year as there was good rainfall. In current monsoon season, the kharif season was better as rainfall was well distributed and harvest was also good. And rabi season is expected to be better as there was good moisture in the soil. However, if monsoons helped, government almost brought farmers once again in a critical fix as during this period, the farming community got hit by demonetisation.

Farmer’s costs:

1. Labour- Farmers gets benefit on fertilisers and seeds. But labour has to be still paid in new currency. Labour during the farming season is 50% of the cost. So if an average of 4000 rs spent per acre, the maximum cost will be incurred on labour.
2. Seed- He will use last year’s seeds but the productivity is bound to go down this year as its storage may not have been as per desired standards to maintain its nutrients. Hence, Rabi crop, inspite of the statistics about the higher sowing area, is going to be poor.

Now due to demonetisation, farmers have been giving away crops at throwaway prices. Whatever they had harvested- fruits and vegetables- they are not getting good price. Some farmers can’t cover even the labour cost. Thus, under this kind of situation, things are not good as expected this year.

Nothing new though

Condition of farmer is poor, even in a normal year. Average income in agricultural household is Rs. 3000 from crop farming. With such income, hardly a family of 5 can survive. Hence is it is always known that none of the marginal farmers save anything as whatever they earn, they spend on day to day consumption.

Unless the approach of farming changes drastically, by way of integrated farming or technological breakthrough which reduces the cost of production of farmers and farmers improve their income, the farmers’ income will not be doubled by 2022 as envisaged by PM.

Money drought

It is a reality that money is not available in rural area. The banks don’t have sufficient new currency. The farmers had access to seeds and fertilisers from government agencies and could buy diesel from old currency. But for day to day expenses, they have to suffer because of lack of money.

A NSSO situation survey assessment of farmers clearly speaks that the proportion of credit which is accrued to marginal farmers from institutional system- banks and cooperatives – is less than 15%. Thus, the dependence of marginal famers on money lenders and other sorts of mechanisms to finance their process of cultivation that is something that the government has to address urgently.

Government has to bring solution to provide currency to rural area. The rural banking system has not turned out to be a successful system, especially the cooperative system as it is captured by top political people which sees lot of corruption. New initiatives for providing finances to the rural areas is needed. Mobile banking can also be introduced as telecom sector has penetrated even in rural hinterland.

Budget expectations/suggestions

Last year’s budget focus was on agriculture. But this year, there is going to be much higher requirement to look at schemes systems that can replace the income that has been lost because of demonetisation.

Immediate actions that government can take

• Give short term, interest free loans upto Rs. 50000 or Rs. 1 lakh to farmers.
• The banks have lot of deposits, then part of money can be given as debt waiver or loan waiver.
• For all small and marginal farmers, government should make a policy on a war footing where dairy, poultry, fishery and horticulture sector should be made priority for additional income.

Providing long term growth stimulus

• The aspect for agriculture in budget should be improved, investments should be improved. NABARD should have interest intervention for long term credit as long term credit has seen a declining trend in last few years.
• Unless it is increased in long term institutional credit, the private investment will not improve. The rise in private investment is possible only when institutions are encouraged to lend money at low reasonable rate of interest and increase the amount of money spent.
• Also, Long term loan should be there as per need of crop. For example, a farmer doing horticulture needs more time to pay back the loan and interest.
• The agro-processing sector should also be encouraged on small scale in every area as per the raw material available. Quality of product, quality of packing and marketing should be available with rural people.
• Some special training programmes at village level not at district or block levels should be given. The trainers should give training in regional languages and they should be qualitative.
• Irrigation is important to increase the productivity. But the Micro irrigation subsidy is misused by the complete industrial sector. Hence, proper checks should be maintained while disbursing the subsidy.

Strengthen insurance sector

• The old experience is not well especially with crop insurance policy. The farmers have not got their crop damages paid inspite of paying premium to the companies. Hence in the present condition, the proper implementation should be done for every field and for every farmer because they are paying a premium and thus have the right to get proper compensation from insurance policy.
• The Fasal Bima Yojana is a good scheme but the way it is implemented has serious issues with some state governments.
• As a result, many farmers are not going to be benefited by it in this Rabi season. Hence, the central government needs to chip in.
• The governments have not yet found good agencies to implement it. Many private agencies say that such premium rates are not sustainable and thus they want more subsidy.
• This gives rise to a contradictory position where on one hand they say farm subsidy should be reduced and at same time they say that intermediaries should be subsidised to support the farmers.
• This is not going to help the farmers and hence there has to be clear cut vision to help farmers.

E-marketing expanded

• E-marketing is good for national market integration which can help farmers to some extent.
• But the progress has been very slow where only about 35 wholesale markets have been brought into foray that too with limited infrastructure for certain commodities. There are 6700 regulatory markets and target for 2018 is only 585 wholesale markets to be covered. Thus, the government needs to speed up the process.
• If the things are done in usual way, it will not yield any result or improvement in conditions of farmers in rural areas.

Increase farm productivity

• To say that marginal farmers are less productive or plots have extremely low productivity is to actually dismiss off the issue of how productivity of marginal farms can be increased.
• The farm inputs have become expensive. So, if mechanisms of cooperative institutions are built up at grassroots level, then some amount of sharing of common facilities like tractors, setting up micro irrigation facilities and some sort of credit intermediation can be made little bit more liberal which ultimately increases the accessibility to credit and accessibility to public inputs.
• This will generate favourable environment in rural economy.

Imports need to be reduced

• MSMEs are largely dependent on cash. But these industries are shrinking countrywide.
• The reason is bilateral trade policies that governments have entered into which has allowed the imports of small items from china into India.
• This has decimated small scale industries across country. For example, apples are imported from china and they are cheaper than Kashmiri apples. Imported oranges are cheaper than Nagpur oranges.
• Thus, small scale industry cannot be expected to survive against a large scale manufacturing industry.
• This shows the step-motherly treatment of MSMEs. They are necessary elements of rural economy but when it comes to supporting them at policy framework level, not much is done.

Conclusion

It is known for years that the marginal farmer is the important constituent in the system whose concerns ought to be addressed in the larger national interest. Thus, there is a need for action to be taken on the desired and critical areas. It is now high time that agricultural sector is not treated as a subsidy driven sector. Instead, it should be seen with a growth prospectus and given appropriate stimulus.

Connecting the dots:

• Evaluate the status of rural economy in 2016. What can be probable measures to stimulate its growth?