India heads to an unprecedented rural economic crisis

Fifth consecutive drought for 1/3 districts, dipping rural wages, El Nino threatening monsoon have squeezed livelihood options for over 500 million Indians

By Richard Mahapatra
Published: Wednesday 10 April 2019

The last month has been about brutal economic data, all indicating towards what we were speculating about: India’s rural economy is headed for a crisis like never before.

This week (the second of April 2019), the Society of Indian Automobile Manufacturers (SIAM) released sales data for 2018. Depressingly, scooter sales grew at its slowest in 14 years. Those reporting on rural India treat scooter as the first milestone of a household’s rising prosperity.

“Sales were expected to rebound after the conclusion of the General Elections,” SIAM President Rajan Wadhera reportedly said, but with a condition: “A recovery in demand would, however, be contingent upon factors such as abundant monsoon rain and improvement in credit availability.”

Around the same time, the news of a “weak” El Nino already taking shape hit headlines. According to the National Oceanic and Atmospheric Administration (NOAA) of the US, El Nino conditions strengthened in February 2019. And it triggered the alarm bells: the summer monsoon is under threat now.

If the next monsoon is below normal levels, it would be the fifth consecutive below-normal monsoon and drought year for close to 250 districts in the country. Most of them are in India’s rainfed areas and host the poorest population. Currently, 300 districts are already under drought, the third and fifth consecutive for regions such as Marathwada in Maharashtra and Rayalseema in Andhra Pradesh.

Read our in-depth coverage Drought but why: Deciphering the disaster in detail

Since 2014-2015, which witnessed the second consecutive drought that precipitated a severe agrarian crisis, there have been no let up in monsoon deficit in the last five years except in 2017.

However, according to the Indian Meteorological Department’s definition monsoon has been normal for the last three years at pan-India level. This is because it defines below-normal only beyond a 19 per cent deficit.

India’s winter foodgrain production has already been downgraded. The country’s overall economy growth is already being downgraded, keeping in mind the potentially below-normal monsoon and also the overall slump in global economy.

However, the impacts on crop production are overtly negative as the rainfall distribution has not been uniform; many states had huge deficit while others a 9-19 per cent deficit. “Rainfall distribution has been patchy and farmer incomes are down,” Crisil Chief Economist Dharmakirti Joshi told the media.

But what makes this a point of great distress for the rural economy is the double whammy. First, farmers lost crops and income from agriculture to consecutive droughts. Second, when they looked for alternative option of livelihoods, there was not much to take up. It means their economic conditions have simply worsened.

Read Half-way, doubling farmers' income is a distant dream 

The average growth rate for farm sector wages nearly halved between 2016-17 and 2018-19. Those who want to make up for this dip can’t find options. For example, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been able to offer only 38 days of employment per household in 2018-19 — a significant drop from 45.8 days in 2017-18.

Similarly, non-farm wage growth have also dipped to around 4 per cent (December 2018). Going by government data, there is a 20-30 per cent dip in general rural wage growth.

India’s rural economy accounts for half its gross domestic product as well as private consumption. And 40 per cent of its outputs come from agriculture.

The crisis in rural economy started showing signs way back in 2011. The rural wage growth rate that hit the historic above 20 per cent in November 2011 started declining. By November 2014 it reported a growth rate of just 3.6 per cent in November 2014.

But this year also marked the start of the consecutive two severe droughts. Agricultural growth was just 0.2 per cent in 2014-15. After this, though officially the monsoon has been normal, farmers have not recovered from losses. To this was added the market glut that ensured farmers didn’t get enough returns for their produce.

The dip in wage rate means close to 50 crore (500 million) daily wagers have reported a dip in their income. This is an additional loss as their perceived income from farming would have also dipped. 

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