Indian rural economy in focus: Will it be the great Atlas
Economy Insights

Indian rural economy in focus: Will it be the great Atlas

The Greek God Atlas held the World on its shoulders; the rural economy of India, it seems, is holding the economy of India on its shoulders, unscathed by the impact of pandemic. As the surge of COVID-19 cases impacted the urban economy, the village economy of India actually did better than last year for a number of reasons and we will see whether this will be enough to act as a wedge against the drop that ensues in all other sections of the economy outside of agricultural and rural spend or consumption.

First of all the reasons why agriculture and the rural economy did far better than last year YTD September has to be seen in the backdrop of following things:

l Exceptional harvest: The harvests for the last four seasonal crops (rabi 2019, kharif 2019, rabi 2020 and kharif 2020) have been exceptionally good. This is really a great result boosting the entire rural economy with direct and indirect benefits. In the first two months of the monsoon, 83 per cent of the area (88.21 million hectares) for sowing was covered already, which corroborates to the ebbing demand for work for National Rural Employment Guarantee Act (MNREGA) as is seen in the shrinking data of demand for work (records of registration done) from the peaks of June to July.

l Demand for rural work in MNREGA data: The registrations for MNREGA zoomed from April 2020 to June and tapered off in July. But just to compare this lower number for July against 2019, it was higher by a whopping 70 per cent, largely due to displacements from urban areas combined with job losses. About 31.5 million people registered in July 20 which was 28 per cent lower than June 2020.

l MNREGA allocation increased to Rs 1,015 billion for FY21 from the initial allocation of Rs 615. This was also followed with actual disbursements done speedily, 50 per cent of the allocation is already spent as per MNREGA website.

But the sequential decline for the demand for rural jobs continued from July into September, July: 31.5 million, August: 20.5 million and September: 20.0 million. This would mean two things, that other sources of employment, than what is on offer at Rs 170 per day work wage, has been made available by the rural economy (kharif demand for labour is gone by August) or the migrant worker overload had subsided with reverse migration. Evidence of both these factors must be sought for testing this hypothesis. Pradhan Mantri Kisan Samman Nidhi (PMKSN), a programme that got front loaded with advancement of spend is this area, perhaps has some of the answers.

Let us now look at the entire contribution of the agricultural economy on the overall economy of India. This as we know is measured as percentage of the gross value added and this has been projected at 17.3 per cent of India’s GDP for FY21 (this was 14.3 per cent in FY20), with the better prospects of agricultural growth over 2019. Furthermore, the contribution of agriculture to gene set variation analysis (GSVA) growth is expected to increase to 14.4 per cent in FY21 (FY20: 8.6 per cent), despite the COVID-19 induced contraction in the industrial and services sectors, as per the latest report by India Ratings. The contribution of rural economy into the overall scheme of things would remain low with these outcomes.

However, there are great regional and state wise disparities. There are five States—Andhra Pradesh, Madhya Pradesh, Rajasthan, Uttar Pradesh, Punjab and West Bengal—whose GSVA numbers are significantly higher, and their contribution in FY20 real GSVA was 32.7 per cent.

So while many states have shown rather lower trajectories of growth, these five states have shown exceptional growth rates by virtue of a mix of things from harvest, faster deployment of funds against the demand for work and quicker implementation in the PMKSN scheme.

Now we will see the actual kharif output increase as projected for FY2021. It is going to be 144.52 million tonne as against 143.38 million tonne in FY2020 and the increase in the minimum support prices is slated to be only Rs 52 per quintal on the major kharif crop paddy. Thus in value terms the kharif crop will not add significantly to the GSVA. The last bit is to see the daily wage increase in rural economy, which shows a very modest increase of 0.4 per cent for FY2021 as per National Statistical Office and CEIC report.

In sum, the rural economy benefitted enormously from a good monsoon and harvest and its direct and indirect impact will have positive spillover effects. MNREGA and PMKSN have also contributed to the uptick in the GSVA of several States with the disparities. The overall agricultural output in tonnage and value terms, coupled with the wage increase do not show a significant contribution that the rural economy can command in terms of influencing the overall GSVA for the entire economy.


Procyon Mukherjee is an ex-Chief Procurement Officer at LafargeHolcim India. The ideas presented are his personal and have no connection to the beliefs of the company where he works.

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