STATE OF RURAL ECONOMY

WHY IN NEWS?

• A recent study by NielsenIQ put rural demand in Q2 at 200-300 basis points lower than urban demand.

CURRENT STATE OF RURAL ECONOMY:

• As per the Economic Survey 2022-23, 65% of India’s population lives in the rural areas and 47% of the population is dependent on agriculture for livelihood.
• Rural consumption fell to a six-quarter low of 2.8 percent year-on-year in Q1FY24 in comparison to 7.9 percent in Q1FY23
• According to the National Statistical Office’ Situation Assessment Survey (SAS) of agricultural households for the 2018-19, showed the unprecedented crisis in India’s economy driven by declining demand and supply disruptions.
• As per the 77th round of the National Statistical Office (NSO) survey, around 49 percent of rural household income comes from wages, approximately 37 percent from crop production, and close to 14 percent from non-farm business, livestock and rent.
• Currently, the rural unemployment rate hovers close to 8 percent and the demand for work under the rural employment guarantee scheme increased by 15.2 percent in July over the previous year.

WHAT IMPACTED RURAL CONSUMPTION?

• Rural demand was hit hard by the second wave of the covid-19 pandemic. It never really recovered from there.
• Unseasonal rainfall in the first quarter of 2023-24 resulted in significant crop damage and lower output.
• In the second quarter, the erratic monsoon hurt crop sowing.
• Add to that higher inflation which meant costlier food and other essential items.
• In fact, rural inflation in September 2023 was higher at5.33% than urban inflation of 4.65%.
• Hit by higher costs and lower income, rural consumers held back their non-essential spending, delaying further the revival in rural demand.

INDICATORS OF RURAL ECONOMY:

• There are ten proxy markers for gauging the state of the rural economy.
• These include two-wheeler sales, tractor sales, farmers’ terms of trade, agricultural exports, real agricultural GVA, farm credit, reservoir levels, and fertiliser sales.
• A simple average of these indicators, according to economists, suggests that the rural economy is not out of the woods.

IMPORTANCE OF RURAL ECONOMY:

• The rural economy holds significant potential for creating decent and productive jobs, eradicating poverty, ensuring food security, and achieving social justice.
• Almost 70 percent of its people live in rural areas where agriculture is an important source of income. Yet, farming contributes less than 20 percent to the country’s GDP.
• A strong rural economy is a pre-requisite for faster economic growth as it fuels consumption, an important engine of growth.

• In FY23, India was able to post a 7.2% GDP growth thanks to strong growth in private consumption.
• This consumption growth came largely from the urban centres.
• That would need a good monsoon, strong agricultural output and good prices for the produce.

WAY FORWARD:

• As underlined during the United Nations Food Systems Summit in 2021, many of the Sustainable Development Goals will not be achieved unless we take action to make decent work a reality for all women and men working in agri-food systems and rural economies, thus ensuring that we leave no one behind.

• If India has to consistently register a GDP growth in excess of 8%, rural consumption has to be strong.
• The Economic Survey 2022-23 highlights the need for reorientation in the face of challenges such as climate change, rising input costs, and low productivity.