By Devinder Sharma
India’s farm sector expanded only 0.2 per cent in 2014-15. The data released by the government in May about rural income showed that the growth is depressing. Since 52 per cent of the farming population lives in rural India, the declining farm incomes is certainly the main reason for the declining rural income
Rural India is poor. Socio Economic and Caste Census 2011, released a few days after the international rating agency Moody’s came out with its India report called “Inside India”, establishes that rural India, comprising 70 per cent of India’s population, is reeling in poverty.
The socio-economic survey makes it abundantly clear that rural India is poorer than what was estimated all these years. With the highest income of an earning member in 75 per cent of the rural households not exceeding `5,000 a month, and with 51 per cent households surviving on manual labour as the primary source of income, the socio-economic survey has exposed the dark
underbelly of rural India.
Ratings agency Moody’s too has at least got the first part right. It has accepted that the continuing farm distress is pulling down economic growth. “India’s farm sector expanded only 0.2 per cent in 2014-15, data released by the government in May showed, and thereby depressing rural income growth.” Since 52 per cent of the farming population of the country lives in rural India, the declining farm incomes is certainly the primary reason for the
declining rural incomes.
In fact, the socio-economic survey presents the real “inside” story of rural India. Conducted for the first time, the socio-economic survey began in 2011 and was completed in 2013. What makes it significant is the great insight it provides into the grim happenings in the rural areas, which by far have eluded any scholarly analysis. It also debunks all claims of growing rural prosperity that have been woven by pro-market economists after the economic reforms were introduced in 1991.
If after 24 years of economic reforms, and 60 years of planned economy considering that Five Year Plans were launched in 1951, rural India presents a dismal picture, it is time to openly accept that both the approaches have failed to prop up rural India. 24 years of reforms is a long time in history to ascertain the impact it leaves
behind on the poor.
Where Moody’s has gone completely wrong is its effort to link rural slowdown with the slow pace of economic reforms. In a report ‘Inside India’ which is based on a poll conducted by Moody’s global credit research, the rating agency pointed to “sluggish reform momentum”. Harping again and again on “disappointing pace of reforms’’ has therefore become a usual but over-used expression, which is turning out to be nothing but a cliché.
The same is being repeated by Finance Minister Arun Jaitley. He too has gone on record saying a higher growth rate is what is required to overcome rural poverty.
The problem with creditors (and credit ratings agency are supposed to operate on their behalf) is that they cannot look beyond reforms, which means cutting down on social security in the name of containing fiscal deficit. Such austerity measures have already created a socio-economic upheaval in Europe, and the crisis in Greece emanates from such faulty prescriptions. Even the IMF has reluctantly begun to accept that the ‘trickle down’ theory, the hallmark of global economic reforms, does not work anymore.
Following the same faulty economic prescription, India too has one aggressively to reduce the fiscal deficit, a euphemism for austerity. In the budget 2015-16, Finance Minister has slashed the social sector spending by a whopping `4.40-lakh-crore.
“Rural income growth has been struck in the mid-to-low single digits in 2015 to date, well off the 20 per cent plus rates clocked in 2011. Given the rural consumer price inflation came in at 5.5 per cent year-over-year in May, this means that rural wages are actually contracting in real terms,” the Moody’s report said. This certainly is a correct assessment. The lower the rural incomes, the less would be the capacity of the rural people to increase consumption as a result of which the demand for industrial as well as FMCG products decline. The wheels of economy come to a halt when rural wages decline.
Instead of pushing what is generally meant by reforms, what is urgently needed are measures that raise farm incomes to a higher level and at the same time attract more public investments in rural areas. The best way to do so is to raise the minimum support price (MSP) for farmers. The subdued hike in procurement price of rice by a mere `50 per quintal, an increase of 3.67 per cent, is less than the 5.5 per cent rural consumer price inflation that Moody’s report point to. Similarly, the hike in wheat MSP is by `50/quintal, a jump of 3.27 per cent, shows how deliberately farm incomes are being kept low. With such low farm incomes how does Moody’s expect a revival in rural incomes to the levels achieved in 2011? I would have therefore expected Moody’s to make a strong plea for raising the MSP for farm produce. But perhaps I was expecting too much.
This assumes significance in the light of a recent study highlighting the mounting rural indebtedness over the years. In his book Rural Credit and Financial Penetration in Punjab, Dr Satish Verma, RBI Professor at the Centre for Research in Rural and Industrial Development (CRRID) in Chandigarh, clearly has shown how rural debt has been multiplying. In Punjab, the food bowl, the average cash loan per cultivator household has risen by a whopping 22 times in a decade. In just 10 years, the average debt per farmer has risen from `0.25 lakh to `5.6 lakh.
Incidentally, Punjab, ranks third in the country as far as farm debt is concerned. Chhattisgarh tops the chart with `7.54 lakh, followed by Kerala at `6.48 lakh.
Loading the farmer with more credit would surely help the sale of farm machines and equipment, which would add to the country’s growth, but is no reflection of the extent of agrarian distress that prevails. It is easy to say that “a sustained soft patch or India’s rural economy would weigh on private consumption and non-performing assets in the agriculture sector, a credit negative for the sovereign and banks,” but difficult to spell out an economic gateway from where the indebted farmer can exit. Whether we like it or not, 24 years of reforms have only pushed 600 million farmers deeper and deeper into a vicious cycle of credit, indebtedness and suicides.
The social survey therefore needs an honest appraisal.
The writer is a prominent global food and trade
policy analyst
