Rural economy is not just agri, MGNREGA jobs; diversified policy needed to make economy resilient

Agriculture is only 18 per cent of GDP while the overall rural economy comprises 47 per cent of India’s economy.

The optimism may be overblown that Indian farm sector’s resilience against coronavirus and government’s rural jobs support will cushion the country’s economy from a deep impact this year. The government spending on agriculture and rural economy, sale of tractors, and support through MGNREGA have all been positive, but it is probably still a case of over-optimism, Sreejith Balasubramanian, Economist — Fund Management, IDFC AMC, said in a report this week.

RBI Governor Shaktikanta Das recently said that rural indicators have shown a sharp revival, which can lift the demand, if sustained. However, the rural economy needs a more diversified approach to make an impact, Sreejith Balasubramanian said. Agriculture is only 18 per cent of GDP while the overall rural economy comprises 47 per cent of India’s economy.

After the coronavirus pandemic hit India and forced the businesses and industries across the country to a standstill, the country witnessed a massive migration of labourers from urban areas to rural parts. With this over-supply, the nominal wage growth which was already weak for both agri and non-agri sectors, took a further hit. Amid a prolonged slowdown, the real wage growth was already negative since late-2019 as construction activity had slowed down.

One size does not fit all

The IDFC report suggested that a ‘one-size-fits-all’ solution will not work and a policy defining the tradeoffs, separately focussing on agri & non-agri; agri-land-owners & agri-wage-labourers; short-term & long-term; adequacy of measures; etc, is the need of the hour. The skewed focus on one area alone is believed to be a cause of economic imbalances through over-allocation of resources.

Meanwhile, as the government focuses on the agriculture sector and MGNREGA, it is important to look at the wider picture of their contribution to the rural economy. Farming employs only one-third, and MGNREGA absorbs less than 4 per cent of the rural population. On the other hand, 33 per cent is self-employed including farming, and 27 per cent is engaged as casual wage labour in public works outside the ambit of MGNREGA. In addition, 17 per cent rural workforce have a regular salary, and only 3.7 per cent workforce is engaged in wage labour under MGNREGA.