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The rural economy can jump-start a revival


The second wave of the COVID-19 pandemic could be slowly receding with the economy also very gradually getting back to normal. However, the challenge of an economic recovery is far more serious than the health pandemic despite official claims of there being an economic recovery.


GS-III: Indian Economy (Growth and Development of Indian Economy, Government Policies and Interventions, Inclusive Growth), GS-III: Agriculture

Dimensions of the Article:

  1. Understanding the Economic Outlook of India
  2. Agriculture, a key driver
  3. The rural economy can jump-start a revival
  4. Special Support needed for Secondary Agriculture

Understanding the Economic Outlook of India

  • Recently, the National Statistical Office (NSO) released the estimates of the Indian Gross Domestic Product (GDP) growth for the fiscal year 2020-21 and its estimate of decline in GDP, at 7.3%, was slightly better than expectation, even though this is a gross underestimate of the reality given the methodological issue of underestimation of the economic distress in the unorganised sector.
  • But what makes economic recovery challenging is that this decline followed three years of sharp decline in GDP even before the novel coronavirus pandemic hit the country.
  • Economic growth had already decelerated to 4% in 2019-20, less than half from the high of 8.3% in 2016-17.
  • Since then, the slowdown in the economy has not only made things worse as far as economic recovery is concerned but also come at a huge cost for a majority of households which have lost jobs and incomes.

Agriculture, a key driver

  • Despite the lack of fiscal support, an important contributor to the better-than-expected economic performance was the resilience of the rural economy, particularly the agricultural sector.
  • While rural areas were the first point of refuge for a majority of migrants who walked back thousands of kilometres from urban metropolitan areas, agriculture was the only major sector (other than electricity, gas, water supply and other utility services) which reported an increase in Gross Value Added (GVA) in 2020-21.
  • The agriculture sector not only provided jobs to returning migrants but also sustained the economy in the rural areas.
  • The average growth rate in agriculture GVA in the last five years, at 4.8%, is significantly higher than the GVA growth of the economy as a whole, at 3.6%, in the last five years.

Inadequacy in the sector

  • Unlike 2020, the Government has not increased the allocation this year for the National Rural Employment Guarantee Scheme (NREGS).
  • For the country as a whole, despite an increase in employment demand in NREGS, the person-days generated in May 2021 was only 65% when compared to May 2020.
  • While the free food-grain scheme has been extended this year as well, it does not include pulses as was provided in 2020.
  • Similarly, there has not been any cash transfer to vulnerable groups, unlike 2020.
  • While real wages have continued to decline with the latest estimates of April 2021 showing a decline in rural non-agricultural wages by 0.9% per annum in the last two years, agricultural wages continue to stagnate.

The rural economy can jump-start a revival

According to Dalwai Panel, Secondary agriculture is defined as cottage Industry that (a) utilises agricultural products as raw material or provides various inputs to agriculture (b) deploys locally available skills to produce goods and services; and (c) can be categorised appropriately as MSME.

Philosophy behind Secondary Agriculture- Harnessing Structural transformation in Rural Areas

  • The share of non-farm income in rural areas has increased from 25% in 1970s to 70% in 2015, while the share of employment in non-farm has increased from 23% to 35%.
  • The rural areas account for 95% of agricultural output, 50% of Manufacturing and 25% of services sector output.
  • The share of rural areas in manufacturing output has doubled in sixty years, without an associated increase in share in the workforce.
  • Thus, there is the need to strategically promote the right kind of development in manufacturing and services sectors, that will generate employment.
  • Thus, there is the need to strategically promote labour-intensive cottage-based manufacturing and services sectors to support Indian Agriculture, boost employment creation and transform rural areas.

Special Support needed for Secondary Agriculture

Secondary agriculture would need to be promoted by providing enterprise level support, which can be undertaken by initial setting up of a Division on Secondary Agriculture & Enterprises in all three Departments of the Ministry of Agriculture and Farmers’ Welfare, and coordinate their efforts through a structured platform.

The following steps can be taken to support secondary agriculture:

  • Priority sector status for institutional credit.
  • Low-cost skilling and knowledge-based exposure.
  • Specialised extension services for enterprises owned by females.
  • Priority under rural electrification objectives.
  • Fast track procedures to avail benefits under ongoing central sector and centrally supported schemes.
  • Geographical Indicator labels to products from village scale secondary production.

-Source: The Hindu

February 2024