By Aswathy Rachel Varughese & Kiran Kumar Kakarlapudi
India’s economic landscape has exhibited robust signs of recovery post-COVID-19, showcasing a promising growth trajectory that has attracted global attention. However, amid the nation’s impressive resurgence, a contrasting tale unravels in its rural heartlands, raising concerns about sustained economic inclusivity.
The recent revelation of India’s GDP growth in Q2 FY24, surpassing expectations at 7.6 per cent year-on-year, may seem indicative of a burgeoning economy. Yet, an underlying issue threatens this momentum – the troubling decline in demand, particularly within the rural sector. This decline has been most visible in the Private Final Consumption Expenditure (PFCE), a pivotal proxy for household consumption. In Q2 FY24, there was a significant drop in the growth of PFCE, falling steeply from 5.97% in the previous quarter to a disappointing 3.1%. Additionally, data from the Ministry of Statistics and Program Implementation indicated sluggishness in PFCE during the first half of the current fiscal year.
The rural segment accounts for a significant portion of the nation’s demand, influencing various industries like fast-moving consumer goods (FMCG), automobiles, housing, and retail. Disconcertingly, multiple indicators have pointed towards a sluggish growth trend in rural demand. Notably, data from the Reserve Bank of India (RBI) highlighted a downward trajectory in the growth of key indicators like two-wheelers and tractors, crucial markers of rural economic health. These sectors exhibited their lowest growth in FY22 and continued this trend into 2023.
While urban areas witnessed more robust growth in consumer goods, rural regions lagged significantly behind, registering a mere 6.4 per cent growth compared to 10.2 per cent in urban areas. This imbalance has sparked concerns about the rural economy’s well-being, signalling distressing trends beneath the apparent economic revival.
-Several drivers contribute to the distress in rural India. Most notably, the stagnation and decline of real wages in rural areas have significantly impacted purchasing power. Astonishingly, real wages for men in rural India have declined by 0.24 percent over the last eight years, exacerbating the economic challenges faced by rural communities. It is astonishing that wages in rural India for men in 2022-23 are Rs 212, which is lower than Rs 220 in 2014—a contrasting scenario, witnessing a sharper decline (-1.59 percent) in real wages after the pandemic in 2022-23. This stands in stark contrast to the pre-pandemic period from 2015 to 2019, when real wages remained stagnant at 0.05 percent annually. The escalating demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) in the ongoing fiscal year serves as a telling indicator of the magnitude of the crisis prevailing in the rural economy.
Rising inflation further compounds these issues. Food inflation, a significant component of the Consumer Price Index (CPI) basket, remains persistently high, surpassing overall inflation rates. This surge in staple food prices directly impacts the purchasing power of rural populations, adding strain to their already diminished income levels. The CPI inflation surged to a three-month peak of 5.55% in November 2023. This increase is primarily attributed to a substantial 209 basis points rise in food inflation, which climbed to 8.7% in November 2023 from 6.6% in October 2023, on a year-on-year basis.
Within the spectrum of major food items, vegetable prices experienced the most significant escalation, soaring by 17.7% in November 2023, a notable jump from 2.8% in October 2023. Similarly, fruit prices saw a rise of 11%, up from 9.3%. Pulses inflation sustained its momentum, maintaining a double-digit pace at 20.2% compared to 18.8% previously. Moreover, inflation within the sugar and confectionary category increased to 6.6% from 5.5%. Cereal and spice inflation also remained persistently high at 10.3% and 21.5%, respectively. It’s noteworthy that six out of the twelve broad categories of food inflation have sustained levels above 6%, emphasizing the overall strain in multiple sectors of the food market.
Moving forward, the prospect of a print above 6% in December 2023 cannot be dismissed, given the unfavorable base effect compounded by the persistent volatility in onion, potato, and garlic prices, attributable to erratic weather patterns. It’s important to note that excluding the typical seasonal downturn in vegetables like cauliflower, cabbage, and brinjal, the upsurge in the vegetable index could be more pronounced. Observing the high-frequency price data of essential commodities such as salt, tea, sugar, potato, Urad dal, and rice, there’s already discernible momentum building up in December 2023. Nevertheless, measures initiated by the government, such as extending export restrictions on onions, have begun to reflect some price corrections.
Additionally, concerns persist regarding the lagging Rabi sowing compared to the previous year, potentially affecting crops like wheat and pulses. Notably, the Kharif output of pulses has significantly lagged behind the previous year’s production, posing further challenges to the market landscape. As we progress, close attention to these factors is crucial to navigate potential market disruptions and ensure stability in essential food commodities.
The agricultural sector, a cornerstone of rural India, faces its own set of challenges. Lower-than-expected food production due to erratic monsoons and dwindling reservoir levels presents a looming threat. Coupled with forecasted El Niño patterns, which could further exacerbate moisture stress on crops, the prospects for agricultural growth appear bleak.
High inflation rates not matched by income growth may force consumers to compromise on the quality and nutritional value of their food purchases, potentially aggravating health and consumption patterns among rural communities.
The absence of robust policy initiatives targeting rural economic revitalization might jeopardize India’s overall growth trajectory. Immediate short-term interventions like subsidies and income transfers, coupled with long-term reforms focusing on agricultural infrastructure and fair price realization, are imperative for sustained rural growth.
While initiatives like the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), offering free food grains, signify a step in the right direction, effective implementation remains crucial. Recent estimates indicate an increase in undernourishment despite such schemes, emphasizing the need for a more astute and effective food policy that prioritizes quality and affordability.
Investments aimed at enhancing productivity and generating employment within the rural landscape are pivotal for sustainable growth. Balancing short-term relief with long-term reforms remains the linchpin in fostering an inclusive, robust rural economy, which is essential for India’s holistic development journey.
About Authors
Dr. Aswathy Rachel Varughese, Assistant Professor, Gulati Institute of Finance and Taxation
Dr. Kiran Kumar Kakarlapudi, Assistant Professor, Gulati Institute of Finance and Taxation
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