Rural Revitalisation: The rural road to $5-trillion GDP

By PK Joshi & Arabinda K Padhee

India is aiming to become a $5-trillion economy by 2024-25. To get there, India needs to grow at 9% per year in real terms from FY20 to FY25. Atmanirbhar Bharat is also one of our aims. To reboot the economy, the government announced a package of Rs 20 lakh crore. Rural revitalisation is a promising area for achieving the twin objectives of becoming a $5-trillion economy as well as Atmanirbhar Bharat. Rural economy contributes 25-30% to the GDP. Traditionally, agriculture used to be the main source of income and employment in rural areas, but that place is being taken by the non-farm sector. Rural revitalisation requires a transformative approach that envisions making rural areas a better place to live and work. We propose five promising areas to revitalise rural areas.

1. The role of agriculture will continue to be important for achieving food security, increasing income and generating employment opportunities. However, we need to ensure that we promote a modern agriculture that is driven by technology and markets.

2. Growth in rural areas should be driven by agro-based industrialisation, which may gradually shift to the non-farm sector. It will require investment in post-harvest rural activities, such as agro-processing, packaging, cold chains, cold storage and transport. It will also require creating an enabling and favourable regulatory environment to stimulate private sector investment in rural areas. The latest agri-laws and public investments in terms of the Agriculture Infrastructure Fund are welcome steps. This calls for creating clusters for specific commodities and developing appropriate supply chains. We propose to develop agro-based ‘special economic zones’ in rural areas to leverage economies of scale and increase income and employment opportunities.

3. A strong linkage between farm and non-farm sectors needs to be developed for augmenting income and creating jobs in rural areas. Farm-sector driven industrialisation may be evolved from production to processing and marketing. Such a linkage will help the farm sector to produce market-driven commodities, reduce transportation costs, receive remunerative prices at farm gate, and minimise farm waste. Amul is an excellent example of farm-led processing, branding and marketing of milk for various dairy products. Such a model should be replicated for other agricultural commodities in different parts of the country. Collectivising farmers through FPOs or farmer interest groups would also offset scale disadvantages for small and marginal farmers and raise bargaining powers to enhance their incomes.

4. The role of MSMEs will be very critical in developing rural industrialisation. Their share in national gross value added is about 32%. They provide employment to about 111 million workers. The share of MSME-related products in exports was about 48% during 2018-19. The government is gearing to increase their contribution in the gross value added to 50%, and in exports to 75%. It projects to generate jobs for about 150 million workers. Such overwhelming targets will require huge investment to create necessary infrastructure; effective institutions for enabling MSMEs to have access to technologies, finance and markets; and vocational education and skill development in manufacturing and business planning.

5. The role of rural-urban linkages will be a key driver in rural transformation. Strengthening rural-urban linkages, from farms to small towns to megacities, will benefit rural labour, production, distribution, markets, services, consumption and environmental sustainability. New market opportunities created by growing urban areas and new technologies will promote local, regional and global value chains.

The conditions for success of these proposals will rely on several factors. We list five key areas:

1. We need to go back to the concept given by former President APJ Abdul Kalam, i.e. Provision of Urban Amenities in Rural Areas (PURA). It calls for urban infrastructure and services to be developed in rural hubs to create economic opportunities outside of urban areas. These include better road network, education, health, drinking water, power, sanitation and social safety net. These are measurably poor in rural areas compared to urban areas. An IFPRI study on prioritisation of investment opportunities also suggested that investment in education and health in rural areas significantly contribute in reducing poverty and increasing agricultural growth.

2. Create an enabling business environment by simplifying regulatory requirements, and reforming land and labour laws. The government has launched initiatives such as Make in India, Start-Up India, MUDRA Bank, Skill India, etc. We need to identify areas for developing rural hubs based on resources, markets and infrastructure. Cooperation of state governments in implementation will be important.

3. The private player can play an important role in rural industrialisation. The role of the government should be creating an enabling business environment—road, rail, air and water infrastructure; assured power supply; simplifying tax compliance; single-window clearance for construction and starting a business; easy access to credit; and stable policies. The private sector will invest where business environment is more favourable. Often, these will be either in cities or nearby cities. The private sector may not come forward in underdeveloped and marginal areas. The government may offer incentives in these areas, and launch programmes under PPP mode. In such areas, several promising projects may not be viable due to lack of basic facilities and infrastructure. In such cases, key components may be identified for meeting the ‘viability gaps’ through government funding. Tax holidays to incentivise private sector investment in underdeveloped and marginal areas will also help.

4. There is a need to harness the power of ICT. It offers tools for improving access to technologies, services and finance. ICT tools also can lead to effective governance, monitoring and programme implementation. Tech start-ups may play a meaningful role in bridging the digital gap.

5. Lack of coordination, weak governance and poor implementation of various schemes has meant we have failed to realise their expected outcomes and impact. Ground-level problems could be addressed by delegating the policy decisions to decentralised governance units and institutions.

As per RBI’s latest projections, India’s GDP may contract by 9.5% in the current fiscal. But with some conditionality as to how the pandemic plays out in the coming months, many experts have predicted a V-shaped recovery. During the lockdown, the agricultural sector showed its resilience and growth potential.

Agriculture coupled with the non-farm sector, as we have argued, could lead to faster growth. Rural revitalisation will not only accomplish the desired goals, but also reduce poverty and improve the quality of life in rural areas.

Joshi is ex-director of South Asia Office of IFPRI, and Padhee is country director, India, ICRISAT. Views are personal