The rural economy needs a new deal

Three catastrophic global events – the coronavirus pandemic, the Russian-Ukrainian war and the climate crisis – have made visible the sources of precarious resilience and fragility in India’s rural economy. Today, as India grapples with rising food inflation and slowing rural demand, policymakers must grapple with the dilemmas posed by the resilience and fragility of the rural economy to craft a sustainable policy response. , which goes beyond ad hoc export bans.

Amid the pandemic-induced economic crisis, the rural economy was a site of resilience. In 2020-2021, agriculture was the only sector of the economy to remain strong, with growth of 3.3%. Basically, he provided the country with its strongest safety net. A series of policy measures have strengthened minimum support prices (MSP) and purchases have kept granaries well stocked and the expansion of the public distribution system (PDS) has ensured basic food security. In 2021-2022, the sale of rice and wheat through government programs reached 105.6 million tons. Additionally, a good monsoon and two successive bumper crops coincided with rising global prices after global lockdown restrictions began to ease. Together, this has created a perfect condition for robust exports of agricultural products. In 2021-2022, agricultural exports exceeded $51 billion.

Along with the provision of staple food grains, agriculture was also India’s major employer. The Center for Monitoring Indian Economy records that between 2019 and 2022, agriculture created 11 million new jobs while the rest of the economy shed 15 million jobs. The government’s Periodic Labor Force Survey (PLFS) shows that in 2019-2020, agriculture created 32.72 million jobs compared to 2018-2019. Agriculture, long considered the employer of last resort for policymakers, has become the sole employer and main safety net for millions of Indians amid the pandemic.

However, for the most part Indian agriculture provides subsistence employment rather than a strong substitute for off-farm income. Far from being isolated, the largely informal rural economy has been devastated by Covid-19. Rural wages, especially non-farm wages, have fallen sharply during the pandemic and have yet to recover. Falling incomes have accelerated the destruction of demand for protein – milk, eggs, fruits and vegetables – a trend that began before the pandemic with the economic downturn. Liquid milk sales by dairy cooperatives, for example, fell by 2.6% in 2020-21 compared to the previous year; compare that to 5.9% annual growth in 2018-19.

The decline in demand for protein is a marked change from the 2000s, when rising incomes led to dietary diversification, creating opportunities for crop diversification. However, India’s agricultural policy has encouraged overproduction of grains and sugarcane while discouraging diversification. Ironically, this perverse policy has been a source of strength during the pandemic, ensuring food security amid growing economic vulnerability. In 2021, as India emerged from the pandemic, global supply chain disruptions and weather shocks caused commodity prices to rise sharply. The Russian-Ukrainian war exacerbated this.

But beyond the headlines, the dynamics of food inflation need to be unpacked. Calculations by Harish Damodaran and Samridhi Agarwal of the Center for Policy Research show that until March, inflation was mainly driven by edible oils (average inflation since April 2019-2022 is 15.8%) while grain and sugar prices remained sheltered from international price fluctuations. This was due to surplus grain production, encouraged by the policy, which in turn ensured food security even when incomes fell.

The March heat wave induced by the climate crisis revealed the fragility of an excessive dependence on cereals. The heat wave led to a loss of crop yields, thus contributing to an increase in cereal inflation. This, combined with soaring world wheat prices, has led to a significant reduction in wheat purchases. As a result, official wheat purchases are expected to halve from last year’s record of 43.3 million tonnes. Again, rural India’s sources of resilience are also responsible for its fragility, and the current inflation will put greater pressure on the rural poor.

The pandemic, war and climatic shock have brought about moments of crisis that expose the many contradictions in the political approach to the rural economy. On the one hand, our grain production regime has played the role of savior in the pandemic by ensuring food security. But these characteristics have made it fragile and vulnerable to climatic shocks and war. Moreover, it revealed the real tension facing policy makers – the need to balance increasing farm incomes with food security needs in a vulnerable economy, while simultaneously ensuring long-term environmental resilience. . So far, our policy response has failed in this balancing act choosing instead to impose export bans and restrictions – which will deprive farmers and traders of needed revenue gains and risk destroying the market. , in the name of food security while ignoring the need for diversification.

The current conundrum recalls the urgency of reframing the policy-making paradigm from a piecemeal, instinctive crisis management framework to one that invests in long-term risk management and balances tensions. A strong rural economy is the backbone of India’s food and climate security, and it is the only avenue for crisis management in an increasingly vulnerable global economy.

Yamini Aiyar is President and CEO of the Center for Policy Research Opinions expressed are personal Special thanks to Harish Damodaran and Mekhala Krishnamurthy

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