23 Oct 2020
In the space of a couple of months, rural India has been transformed into its new avatar as the Great Saviour of the Indian economy. With manufacturing and services reeling from their worst ever depression in decades because of the Covid lockdown, a good kharif sowing season coupled with adequate monsoon rains has raised hopes that the rural economy would prop up consumer spending and incomes. On its own though, this is likely to be an over-hyped expectation. The rural economy cannot be decoupled from the non-agricultural sector because it is heavily dependent on it for remittances from urban migrants. The decline in such remittances, along with the massive reverse migration back to the villages from urban areas due to the collapse of urban employment, has meant that rural consumers are unlikely to be the economic saviours so desperately being sought by economists and marketers. At least not without substantial help.
Governments at both the Centre and the states, have been forced to recognise this. Reacting to pictures splashed across TV screens of migrants walking back many hundreds of kilometres to their villages, the government launched a slew of schemes to alleviate rural distress. The Centre alone has made available around Rs 1.5 trillion for such public works. States such as Telangana, West Bengal, Chhattisgarh, Jharkhand and Himachal Pradesh have introduced their own schemes targeted at specific sectors of the rural economy.
The government has committed to spend around Rs 100,000 crore under its flagship rural jobs scheme, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The scheme was originally budgeted at around Rs 60,000 crore — it has now been expanded by another Rs 40,000 crore to around Rs 100,000 crore. Sources have revealed that disbursements under MGNERGA have touched Rs 280 crore per day — indeed a very welcome indication about real-time activity on the ground.
Apart from this, the PM Garib Kalyan Rozgar Abhiyan has been set up, with an allocation of Rs 50,000 crore to build 25 different types of mini-public works such as rural housing, drinking water provision through Jal Jeevan mission, panchayat bhavans, anganwadi centres, community toilets, and rural mandis. The programme will be targeted at 116 districts with a large concentration of returnee migrant workers in six states of Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan, Jharkhand and Odisha.
Individual states, especially those with a high number of returning migrants, too have moved to set up state-specific job works mostly under the auspices of MGNREGA itself. Jharkhand has introduced public works schemes covering water conservation projects and the construction of playgrounds in every panchayat to promote sports. The West Bengal government has introduced Matir Srishti, to develop fallow land in six districts for horticulture, fisheries and animal husbandry. The scheme aims to cover 50,000 acres of land and provide employment to 250,000 beneficiaries. The ability of individual states though, to dramatically expand the overall spend on rural public works over and above what is available under MGNREGA is relatively low, given that they have much less financial headroom. But clearly, valiant attempts are being made to step up the effort.
It is important to put these amounts in perspective. The PM Garib Kalyan Rozgar Abhiyan is made up of funds that were originally allotted to a range of schemes which now dovetail into it. The increment to MGNREGA because of the Covid crisis is around Rs 40,000 crore. In the context of the huge fiscal stimulus demands being made, these amounts are not very high. However, their impact on the rural economy is still likely to be important given that the expenditure on these schemes is being frontloaded (i.e. spent earlier in the financial year) to a much greater extent than is the norm. The rural economy needs all short-term boosts it can get.
But the more significant move has been in longterm infrastructure investment in agriculture, with the launch of the Rs 100,000-crore Agriculture Infrastructure Fund by the prime minister earlier this month (though it was announced as part of the Aatmanirbhar Economic package of post-covid measures a few months ago). The fund involves creating a financing facility to build post-harvest infrastructure in rural areas over the next four years. Banks and financial institutions will provide loans of Rs 10,000 crore in 2020-21 and rising to Rs 30,000 crore per year after that till 2023-24. The government will provide interest subsidy up to 3 per cent along with partial credit guarantees on all such loans which will be given to farmers, farmers’ organisations and agri-societies, self-help groups and government agencies. Around the same time, the government has also introduced Ordinances to free-up agricultural markets, allowing farmers to sell produce outside the Agricultural Produce Market Committee mandis and setting up a framework for contract farming with processors, exporters and retailers. The Agriculture Investment Fund fills the gap in enabling the legal changes to fructify into actual supporting investments on the ground. It is clear that these timely schemes are playing a significant part in propping up demand in rural India.
The article written by Mr. Vinayak Chatterjee Chairman, CII National Council on Infrastructure and Chairman, Feedback Infrastructure Services Pvt Ltd, appeared in the September 2020 issue of CII Economy Matters. Click here to read the full issue.