Stimulating rural demand

A good sequel to the recent bold steps to reverse the economic slowdown would be to prop up rural demand for goods and services through a well-judged stimulus package for agriculture and its allied fields. Market researchers like Nielsen hold slump in rural demand partly responsible for the sluggish performance of various industries. Though typically, spending on consumer goods in rural areas grows by three to five percentage points more than in the urban centres, this has not been the case in the recent past. The rural demand has actually decelerated at twice the rate in urban India. The ongoing income-oriented programmes, such as rural employment guarantee scheme, minimum support prices (MSP) for crops, the PM-Kisan scheme to hand out Rs 6,000 annually to every farmer and similar others, seem to have failed to sustain rural spending. This issue needs to be addressed expeditiously.


The genesis of a cash crunch in rural areas, despite several consecutive good harvests, can be traced to the ill-advised and erratic policies related to agricultural pricing and external trade. These policies, guided largely by the concern for inflation management, are tilted towards consumers, undermining the interests of the producers. The bulk of the farmers do not get MSPs because of the paucity of procurement infrastructure. Wheat and rice are also traded at below the MSPs during the post-harvest peak marketing season in areas where official grain procurement agencies do not operate. The growers are seldom allowed to earn remunerative returns for their produce. Even a marginal uptrend in prices of farm products invites government intervention through measures like stockholding limits, curbs on exports and emergency imports. Onion is the latest case in point. The government lost little time in stalling out-bound onion shipments by raising minimum export prices, disregarding the fact that the supply-driven price spike is only temporary as it is caused by seasonal factors. The fresh harvest is also not too far. Such moves are innately anti-grower.


The need, clearly, is to invigorate farm economy to generate disposable income in the rural areas, where two-thirds of Indians live. This can be done by shifting the focus of agriculture promotion programmes from production to income generation. The profitability of farming, which has been eroded drastically, needs to be restored. This will require nudging the states to speed up agri-market reforms to ensure free, fair and transparent trading in farm commodities. The prices should be allowed to be determined by demand-supply dynamics in local and international markets.


Moreover, stability in the domestic and external trade policies is vital to let the production respond to demand. This is being denied at present through knee-jerk responses to price movements. A reliable and stable export window is the key to provide a lucrative outlet for the surplus produce, which, otherwise, depresses local prices. With over 85 per cent of the country’s landholdings being less than two hectares and, therefore, economically unviable, employment avenues need to be created in the non-farm rural sector to supplement farm incomes. Solo crop cultivation needs to give way to mixed farming and integrated agriculture involving allied activities like animal husbandry, poultry, fisheries, bee-keeping and others. This would help harness their synergies to optimise farm productivity and profits. Such holistic strategies are imperative to let rural demand contribute to economic growth.




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