Editorial: Raising rural demand

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Published: May 20, 2015 12:56:43 AM

Industry is the key, not crop prices

Given the slowdown in rural wages—wages grew by 3.8% y-o-y in November 2014 as compared with the 20%-plus levels of 2011—it is not surprising that rural demand is also slowing. That is evident in the results of various companies like Dabur that have a strong rural component. Indeed, data from AC Nielsen shows that while rural demand rose 13.2% in FY14, it grew by a slower 11.3% in FY15. Not surprisingly, there has been a call for increasing support prices for crops, for greater spending on MGNREGA, and greater increase in government spending. Certainly, greater government spending will help, and will take place, since there was an extraordinary squeeze in spending in the fourth quarter of last year to meet fiscal targets—to the extent government spending improves, so will rural demand. MGNREGA in itself is unlikely to help since, with R31,000 crore of spending in FY15, it constitutes a very small share of overall rural incomes—the greater kick to rural demand is likely to come from roads and irrigation projects. Increases in support prices sound attractive, but are not possible either. In the case of wheat, for instance, Indian prices are pretty near global levels if not actually higher—so, all that higher prices will do is to add to FCI’s buffers; higher MSPs will also add to inflation levels.

Indeed, while it is true that India lives in its villages, a larger proportion of people in villages today survive on non-farm income than ever before. The National Sample Survey Organisation’s Situation Assessment Survey of Agricultural Households conducted during January-December 2013 found that over 60% of rural India does not depend on agriculture for its sustenance. Of 156 million rural households, 90.2 million (57.8%) are agricultural households. Of that only 61 million households (68.3%) mentioned farming as their principal source of income. A Credit Suisse report also pointed out that 60% of all industrial production takes place in rural India; three-fourths of all new factories set up in India in the last decade, Credit Suisse pointed out, were set up in rural India. In other words, if rural demand is to pick up, it can only do so when there is an overall increase in investment levels and industrial activity across the country. Bharat can no longer grow unless India does.

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