The clumsy myth of a revival of the country’s rural economy

National accounts data released last month estimates the economy contracted 7.5% in the second quarter of 2020-21 from a year ago. For many, this was a sign of recovery, given that India’s gross domestic product (GDP) was expected to contract by around 10%. This is undoubtedly an improvement from the 23.9% decline in GDP in the first quarter. Much of the euphoria over this so-called recovery has been attributed to a revival of the rural and agrarian sectors.

Unfortunately, our quarterly GDP estimates cannot provide any hard evidence of rural revival, given their reliance on organized data from the corporate sector. Although we don’t have a rural-urban break in growth, the fact that the majority of the unorganized sector is in rural areas makes it even more suspect to say anything about the rural economy. This is supported by a preliminary reading of some reliable indicators of the rural economy, suggesting that the euphoria about its revival is not based on facts. The two most important of these indicators available on a monthly basis are rural wages and wholesale prices of agricultural products.

Rural wages reflect income trends not only of casual workers, but also of the rural economy as a whole. Although this series, made available by the labor office, also suffered from the lockdown and could not offer reliable wage data in April, it provided tentative estimates based on a small number of observations in May. Data from June are based on more observations and are reliable. Full data is available through September, which coincides with the July-September quarter for which national income estimates were released.

Immediately after India’s lockdown was lifted, wages rose in real and nominal terms in May and June. These are also the months when the government releases additional funds for the rural employment programme. The trend continued in July, with demand for labor increasing. However, the boost was short-lived, with wages declining thereafter until September, when real wages for general farm labor fell 0.3% from the previous year. previous year, while those of non-agricultural workers fell by 1.3%. Also compared to levels two years ago, real wages for general farm workers and non-farm workers have declined by 0.2% and 0.8% annually. The extent of the distress is evident from the fact that real non-farm wages are lower even than their level five years ago. The data also shows a sharp decline in nominal wages for almost all occupations since June. Clearly, the July-September quarter did not experience a revival, but an aggravation of rural distress.

The second important indicator of rural incomes is the producer price of agricultural products. These reflect the evolution of farm incomes better than the estimates of sown areas in the national accounts. The evolution of farm gate prices is available in the Wholesale Price Index (WPI) data. The most recent figures show that the decline in inflation since April continued until November, when wholesale prices fell 5.5% from a year earlier. Cereals inflation has been negative since August, but the decline in prices has worsened, with November marking the largest drop. This is true for most cereal crops, including wheat, despite record government purchases this rabi season. Wheat prices have been falling since August, with November registering a 10% drop from a year earlier. Among the major cash crops, cotton has seen a steady decline in prices since August 2019. With a majority of farmers growing cereals, their lower prices serve to derail claims of a rural recovery. In fact, rural areas may have witnessed worsening distress.

At a time when the rural economy and the wider economy needed the government to increase public spending, national accounts estimates suggest a contraction in their numbers in the second quarter, which is consistent with the slowdown in creation government jobs during the period in question. This worsening of rural distress may partly explain the visible anger of farmers who have failed to achieve remunerative prices for their produce, but it is also a clear indicator that a recovery, if indeed shaping up as the national accounts claim, is unlikely to be sustainable in the absence of increased government spending aimed at increasing demand. Increasing government support to the agricultural sector is the real reform needed at this time, not reforms that will allow the state to withdraw or dilute the minimum support available to the sector.

Himanshu is Associate Professor at Jawaharlal Nehru University and Visiting Scholar at Center for Human Sciences, New Delhi

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