India’s non-agrarian rural economy struggles for sustenance

We are fairly sure by now that the upcoming Budget would be the first government instrument towards the prime minister’s ambitious plan of making India a $5 trillion economy by 2024. Currently, India is nearly a $2.8 trillion economy. It is obvious we don’t need just economic growth to achieve this target but must also ensure a fair distribution of the bounty among all.

There are indications that Modi’s second term focuses on not just overall growth but also aims to give a fillip to the sluggish agriculture sector, besides investing heavily in infrastructure, and reviving the manufacturing and service sectors. There is no doubt the agriculture sector, which employs 50 per cent of the population, faces a severe crisis.

Similarly, with the exception of investments in the infrastructure sector (mostly led by public spending), the others are not doing so well. To attain the 2024 landmark, all these sectors have to be given the investment steroid and in high doses.

In this overdrive for economic growth, where does the agriculture sector fit in? This is not to emphasise the importance of the sector to rural Indians, but to raise a political and economic question in a new structural context.

Rural India is no more agrarian, in economic and employment terms. In a research paper for the Niti Aayog, economist Ramesh Chand (also a member of the government think tank) has analysed the transformation in the rural economy. His verdict: since 2004-05, it has become a non-farm economy.

Farmers are quitting agriculture and joining non-farm jobs. It is an economic decision they have taken because they earn more from the latter. This structural change came after the economic reforms in 1991-92. Chand’s research shows that between 1993-94 and 2004-05, “growth in agricultural sector decelerated to 1.87 per cent, whereas growth rate in non-farm economy accelerated to 7.93 per cent.”

This coincided with a sharp decline in agriculture’s contribution to rural economy: 39 per cent in 2004-05 from 57 per cent in 1993-94. “Thus, rural economy became more non-agricultural than agricultural by the year 2004-05.” The trend has continued.

This is what any plan for rural India needs to take note of. For decades, most government policies have focussed on non-farm sectors to absorb the people quitting farming. The focus of Modi 2.0 is also on these sectors to tide over unemployment and also to ensure livelihoods to those who have not been able to survive on agriculture.

For example, the construction sector accounted for 74 per cent of the jobs created in non-farm sectors in rural areas between 2004-05 and 2011-12. The government’s political grandstanding on its investment in infrastructure is because it is this sector that absorbs rural work seekers.
But there is a catch here.

Despite the change in the rural economy, the non-farm sectors are not able to absorb job seekers because they are not able to generate jobs at the required rate. For example, during the pre-reform phase, rural employment had 2.16 per cent annual growth. This reduced in post-reform phase, despite a high economic growth.

So, the $5 trillion economy, even if achieved, will not create jobs in sectors where they are needed. Mostly, it will be a “jobless” growth. And it will unfold into a crisis: where would the people who quit farming be absorbed? Currently, they account for a large number of underemployed and also the unemployed. They stick to agriculture despite knowing it is not remunerative. But how long can one sustain a loss-making sustenance?

(This article will be published in Down To Earth's print edition dated July 1-15, 2019)

Agriculture India