Amidst the pandemic, it has been observed over the past few months that the agricultural economy is going to save the day for the Indian economy. This year when economies all over the world are contracting due to the lockdown since mid-march because of the widespread of the virus. Meanwhile, India experienced that the agriculture sector expected to continue to grow. It has been seen a jump in the sales of tractors and motorcycle during the pandemic. It gave rise to many theories that have been floated about a farm economy-fuelled revival. However, many people can’t differentiate between agricultural and rural economies. Some of them think that they are the same. Which is not true! Rural is not only agriculture.
Let’s understand the basic differences between agricultural and rural economies.
Agriculture economies contain several subsidies such as Agriculture policy, agriculture production, Agriculture marketing, and rural economies. Whereas, the Rural economy is part of Urban, Rural, and Regional economies. In layman language, agricultural economies optimize the production and distribution of food and fiber, they specially dealt with land usage and focus on maximizing the crop yield while maintaining a good soil ecosystem. Whereas rural economy includes the study of farm and non-farm economic growth, development, and change size, and spatial distribution of production and household units. The non-agricultural rural economy consists of construction, manufacturing, financial services, communication, and the government.
According to the Nabard’s All India Rural Financial Inclusion Survey 2016-17 published in August 2018, only 23% of the income of average rural household came from what can be categorized agriculture, that is 19% from cultivation and 4% from livestock rearings. Although, only 35% of income comes from cultivation in agriculture households, and 34% from wage labor.
With cities running out of the land, there is an increase in the construction of new factories in bulk especially in the rural areas in the past two decades. This brings a lot of change in the movement of the people from agriculture to manufacturing and also helped in job creation. In fact, there are 63 million micro, small, and medium-sized enterprises (MSMEs) which contribute around 30% in India’s GDP (Gross Domestic Product) and about 50% in rural areas. However, MSMEs have gone through a really tough time during the pandemic because of a lack of cash flow, low demand, lack of manpower, stuck working capital, and the lack of these abilities can lead to further stress on employment.
The MSMEs had faced a lot of difficulties in maintaining activities, on the other hand, large businesses are generating revenues in this pandemic. It has been estimated that 25-30 million jobs have been lost in the MSME sector by the end of June 2020. There is no stop yet in the loss job. It is expected that by the end of August 2020 another 10-15 million jobs will be lost.
People who have lost jobs under the MSME sector including both rural and urban areas are looking to work under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Individuals are growing to work under this scheme, the work demand has grown up by 38%. It clearly shows that the non-agricultural part of the rural economy is not generating enough work, in return forcing people to shift to work under this scheme. This can’t be good! Although there is a statement that something is better than nothing. But this shows that people do not have work opportunities and then they have to depend on such schemes. However, somehow it supports the rural economy.
Another reason that supports the rural economy during this time is the massive government procurement of wheat. The government buys rice and wheat directly from the farmers through the Food Corporation of India (FCI). During this year, the government procured 388.81 lakh tonnes of wheat directly from the farmers. This is a jump of 13.9% than the last year. Hence, wheat farmers made more money during this pandemic.
The agricultural economy also consists of more than just rice and wheat. As the supply chain has broken down due to the total lockdown over the past few months. There are no MSPs for vegetables and fruits given their perishable nature. However, there are many farmers out there with very little government support and facing major issues.
The government also helped the rural areas with the distribution of free rice, wheat, and pulses under the Pradhan Mantri Garib Kalyan Anna Yojana. MGNREGS budget helped to increase the fund more, which means money has been put into the hand of rural citizens.
Meanwhile, many workers moving back to their cities from urban sectors due to loss in jobs during the lockdown. The increase in the expenditure of the state is approximately 89% more than the central government in the past five years and as the tax collection for the state government in 2020-21 has collapsed, the expenditure will continue to increase. And states are even spending money to fight against coronavirus. Collectively, all of these will impact rural growth negatively.
Since June COVID started to spread in rural areas as well, which particularly known as Tier3/4 cities. The impact of COVID in these cities will be more dangerous than states because of the weaker medical infrastructure. The only response to it is the lockdown and obviously it isn’t good news for the economy.
Besides this, the sales in tractor have been gone up and widely seen as the site of rural recovery. But tractors are expensive, the average cost is Rs.500,000. Therefore, normal farmers do not have the financial ability to buy them. However, In 2019-20, over 700,000 lakh tractors were sold in India. The size of the agricultural economy was Rs. 32.6 trillion in 2019-20. Hence, tractors form a significant part in the overall agricultural economy and the increase in sales shows that rich farmers are doing well, this year as well. But they neither reflect the agricultural or rural economy.
However, the indicators like tractor sales or increased government procurement of foodgrains affect only the small slice of the agriculture economy. Meanwhile, the agricultural economy has seen improvement over the past two decades.