Saving the rural economy: The govt will have to deepen its procurement operation

April 29, 2020 3:15 AM

In the long term, the govt will have to deepen its procurement operations, expanding from the wheat-paddy complex.

The total lockdown has further added to the collateral damage caused to economic structures, which may take a long time to be mitigated.The total lockdown has further added to the collateral damage caused to economic structures, which may take a long time to be mitigated.

By Arindam Banerjee

Already in the grip of an economic slowdown, India now faces an escalating challenge of handling the economic consequences of the Covid-19 pandemic. With high unemployment rates, stagnating incomes, and a consequent demand crunch, one can expect an intensification of the maladies of the masses. The total lockdown has further added to the collateral damage caused to economic structures, which may take a long time to be mitigated.

Much has been written on the urban economy coming to a grinding halt due to urban centres emerging as infection hotspots, and on the migrant workers’ crisis. The latter has exposed the endemic inequality and injustice of our economic structures, where millions of workers in urban centres do not consider the cities their homes. With poor living conditions and the lockdown drying up income sources, there is a desperate attempt to reach their villages.

This, then, draws attention to the rural economy where these millions of migrant workers hope to seek solace during the crisis. The impact of the lockdown on the rural economy is more than what meets the eye. Agricultural activities like harvesting and livestock production are exempt from the lockdown. However, two types of challenges have emerged in the rural economy.

The first relates to the mobilisation of labour and equipment for harvesting the standing rabi crops—primarily wheat, but also mustard, and other vegetables. While in Punjab, much of the rabi wheat was harvested before the lockdown, in Uttar Pradesh and Madhya Pradesh, wheat harvesting has been delayed. The lockdown has disrupted the usual labour supply for such activities, flowing in from states like Bihar and Jharkhand. Also, in many places, combine harvesters from Punjab have not arrived as usual; wherever they have arrived, drivers have left them to return to their villages in Punjab. In all likelihood, these hurdles will be overcome by farmers using local non-agricultural labour, who are also currently without employment, albeit with reduced efficiency, a longer period of harvest, and some crop losses.

The second, more important problem is disruption of supply chains. The initial weeks of the lockdown witnessed reduced and arbitrary functioning of mandis, preventing farmers from getting the right price for their crops. Delayed government procurement has also added to farmers’ anxieties. While those who can afford storage facilities are avoiding the lower prices, apprehension prevails that when the lockdown ends, possible supply gluts may lower prices further. And, with supply of agricultural inputs having taken a hit, the sowing of buffer crops between rabi and kharif seasons for for supplementary incomes, too, is likely to be disrupted.

Supply chains for milk have functioned relatively better across rural India, though with restaurants and canteens being closed, the demand for milk has fallen. This is consequential as sale of milk ensures daily circulation of currency in the rural economy; a squeeze in this would adversely impact other commodities and services. Given that stagnating agricultural income was already a major causes of the economic slowdown, these short-term impacts of the lockdown are likely to deepen the infirmities of the Indian economy.

The staggered restoration of economic activity post-lockdown is expected to take most of 2020. This would have two major implications for the rural economy in the medium/long term. First, to the extent that migrant workers have returned to villages, they would exert a downward pressure on rural wages. Their return to their usual rural and urban destinations will be a slow process, not so much due to their unwillingness as the staggered revival of labour demand. For example, lingering fear of infection among the populace may result in restaurants and theatres witnessing dampened demand even after they reopen. Other economic activities, too, will take much longer to reach their pre-Covid-19 levels.

This does not bode well in a situation where real rural wages have been stagnant for several years now. Between 2014 and 2018, the real wage for agricultural labourers have grown at a meagre 0.87% annually; for rural construction workers, these declined by 0.02% per annum (Himanshu, 2019: India’s Farm Crisis, The India Forum). A renewed lowering of the ‘reservation wage’ under the current circumstances will further shrink the demand for mass consumption goods.

The second implication is grander. Global prices of major agricultural commodities, including those that India exports, have been on a decline since 2012 (see graphic). The pandemic has triggered uncertainties about global trade arrangements; these will last even longer than the domestic malaise since restoration of global supply chains would require the revival of import demand in a large number of export destinations. In fact, the pandemic has hit the foundation of the globalised economy that has evolved over the last four decades. With reduced international trade volumes, agricultural commodity prices are expected to slip into a faster downward slide. This worsens the already dim export outlook for agriculture, and amplifies the challenges for recovery of the rural economy.

Needless to say, the government needs to hasten the implementation of the exit from the lockdown. Immediate measures already adopted by the government—cash transfers to farmers and other vulnerable sections, provision of subsidised food—have to be scaled up, and extended for a longer duration. A rapid expansion of rural employment through MGNREGA will also aid the mitigation process.

In the longer term, the government will have to deepen its procurement operations, expanding them from the current rice-wheat complex. This provides an opportunity to ensure nutrition sufficiency for larger sections of the population by provisioning micro-nutrients through the PDS in the form of fruits and vegetables. While this implies greater government intervention in an otherwise ‘private sphere’, it is the need of the hour, given that substantial loss of livelihoods will lead to shrinking of private economic activities in the medium term. And, when one recognises that sustained nutritional fortification of the larger population is an insurance against casualties and costs arising from future epidemics, this will turn out to be an investment worth making—an opportunity within the current crisis!

The author is Associate Professor, Ambedkar University, Delhi. Views are personal

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