MNREGA workers
Pointing to seven indicators that provide hope, Finance Minister Nirmala Sitharaman claimed the economy is getting back on the track. Replying to a debate on the Union budget for 2020-21 in Lok Sabha, she said: “Government is keen to work with everybody and we want the economy to gallop.”
Elaborating the steps taken to support the engines of growth – consumption, investment and exports – she listed the ‘green shoots’ that have started to emerge. While the Finance Minister detailed the measures taken to show that the economy is moving forward, media reports said on the crucial aspect of boosting consumption the government listed the increase in minimum support price (MSP) of all mandated rabiand kharif crops for 2019-20. If this is all it takes to boost decline in consumption demand, I wonder why rural demand, where it hit the most, slumped in the first instance.
After all, MSP is announced before every crop season, year after year, and a nominal hike in prices is always expected given the rise in cost of production. Paddy price was raised by 3.7 per cent for the 2019-20 marketing season, while the increase in wheat price for the same year was 6.1 per cent. In any case, what perhaps is not being realised is that only six per cent of India’s farmers get to market at the MSP announced. Prices for most other commodities in the open market had prevailed much lower for farmers. In other words, inefficient markets couldn’t have provided the stimulus needed to prop up rural demand.
With the outlay for MNREGA shrinking by 13 per cent, and a steep cut in food subsidies from a budget estimate of Rs 1.84-lakh crore to a revised estimate of R 1.08 lakh crore in 2019-20 to go up marginally to Rs 1.15-lakh crore for 2020-21 clearly showed that rural consumption did not receive any fillip. In addition, for the five major nutritional schemes that address malnutrition, the allocation was reduced by 3.7 per cent. The budget for mid-day meal scheme, National Health Mission and National Rural Drinking Water Mission too faced a cut. Add to it the allocations announced for agriculture and allied sectors, irrigation, rural development and panchayats which just got an incremental increase, there was in reality no fiscal stimulus for rural areas that could have boosted rural demand.
The question therefore is what happened to the declining consumption demand, especially in the rural areas? If rural demand was not a significant factor at times of a slowdown, with growth slipping to 4.5 per cent in the previous quarter, I see no reason why IMF should go to the extent of saying that a slump in rural demand in India pulled down growth, which in turn pulled down global growth. Since the Budget 2020 did not address the crisis of demand, nor were any special measures announced later to provide more money into hands of rural poor, what remains unanswered is how come growth can rebound without any tangible efforts being made to revive rural spending?
If without reviving rural demand economic growth can surge to six per cent in the next financial year beginning April, as the principal economic advisor to the finance ministry has claimed, it will be interesting to know what constitutes consumption demand for them. If consumption demand is only restricted to spike in sales of durables like mobile phones, refrigerators, air-conditioners, washing machines and automobiles etc it shows perhaps rural demand is not even factored in growth calculations. Otherwise there is no reason why the slump in rural demand remained outside the economic radar screen to be seen only in 2019 whereas rural incomes had declined or remained stagnant for over two decades. It is only when economic growth fell to less than six per cent and adequate explanations were not forthcoming for the downhill slide that mainline economists shifted focus to the hinterland for answers.
Since 70 per cent of rural households are dependent on agriculture, the depressing levels of farm incomes over the past two decades should have earlier reflected in the growth estimates. As per an OECD-ICRIER study, farmers suffered a monumental loss of Rs 45-lakh crore in the 16 year period between 2000-01 and 2016-17. Every year, the farmers encountered a loss of approximately Rs 2.54-lakh crores. So much so that even Economic Survey 2016 had estimated that average farm incomes in 17 states of India, which is roughly half the country, stood at a paltry Rs 20,000 a year. In other words, farm families in half the country were surviving on less than Rs 1,700 a month. Such a severe farm distress should have pulled down growth but it didn’t.
As if this is not enough, Niti Aayog estimates showed that during the period 2011-12 and 2015-16 the growth in real farm incomes was less than half a per cent every year. With demonetisation hitting the informal sector, the growth in real farm incomes in 2017 and 2018 was ‘near zero’. Going by the chronology of farm distress, and knowing that farmers barely had enough to manage their subsistent households, how could the acutely distressed rural farm incomes not pull down rural demand in turn? That’s a question that mainline economists and policy makers have conveniently ignored.
As long as the growth continued to hover over six per cent, going to even right and nine per cent for quite a few years, rural India remained outside the economic radar screen. Once again, when growth picks up, rural demand will disappear from the economic discourse. #
What happened to rural demand? Deccan Herald. Feb 21, 2020
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