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The Big Picture- Rural Economy in 2016



The Big Picture- Rural Economy in 2016




The rural economy is an important segment of the ecosystem and accounts for about 70% of employment and 50% of GDP with agriculture being the main driver followed by services and manufacturing. It is largely unorganized and hence those working in rural India or consuming in this economy are different category of economic agents driven by different factors. The economy is quite complex given the fact that most of the dealings are done in cash and while there has been some intrusion of credit cards, debit cards and ATMs; dependence on technology driven payment systems is still limited.

Summary of Rural Economy in last 1 year:

Over a long period of time after having an increase in wages in the rural areas as a consequence of recession worldwide, India witnessed a decrease in the level of wages. This is a fact which has been reconciled by the policy makers of the country also. The outcomes of MNREGA speak in terms of the fact that the number of work days on an average for a family has been 49 far lower than what it optimally should be for a particular period given that there is a crisis of sorts. A number of states have been declared drought hit.

Therefore, the performance of rural economy in the current quarters have to improve and this is possible if Government goes for large scale employment expansion through its flagship employment programmes. Otherwise, the opportunities which are coming from the urban areas for migration would attract more rural people. Contrary to popular wisdom, the MNREGA has also contributed towards creation of minor irrigation works, check dams etc which has helped in enhancing the irrigated area under cultivation within our country.

In the first two quarters, agriculture had the spillover effect of droughts of last two years which had hit the farm economy very severely. Indebtedness of farmers increased and now in this particular monsoon season, the kharif season was better because of which agricultural output improved and it is expected that rabi season will be good because of improved soil moisture.

To some extent, demonetization has hit the rural economy as it thrives mostly on cash and because of this, their harvest is not getting good price and the labour and transportation costs are also not getting covered even in the areas with close proximity to the cities. From crop farming, an average family earns Rs.3081 per month which is very low and for marginal farmers, it is very difficult to survive. Whatever they earn is spent on day to day consumption without savings. Unless there is a drastic change in the approach of farming like technological breakthroughs which reduces the cost of production for farmers improving their profitability like soil health cards. This can also be done by reducing the rates of interests or removing it. Co-operative banks are not so successful because they have been captured by political people at the top which needs to be checked.

This year was a recovery year altogether given the issues faced by the farmers in the previous years. Debit card and Paytm transactions are not available with labour, purchase of seeds and diesel etc although Government allowed purchase of fuel from old currency notes. Because of these reasons, this season will also be a negative. This year there is a much higher requirement to look into schemes, systems that can replace the income lost because of demonetization in the budget.

Steps to be taken ahead:

  1. Government should consider giving short term loans to the farmers and some loan waivers can be given as bank coffers are full now.
  2. Investment in agriculture has to improve. NABARD should be asked to have a kind on interest intervention for long term credits. Until this improves, private investments will remain negligible.
  3. Insurance sector needs to be strengthened. Though there is Fasal Bima Yojana but more has to be done with regard to implementation of schemes.
  4. E-Marketing is a very good thing for integration of markets but the progress is very slow.
  5. Dependence of marginal farmers on moneylenders to finance their process of cultivation has to be addressed with a sense of urgency. Co-operative institutions have to be built at the grass root level and sharing of common facilities like tractors, micro irrigation etc. Employment flagship programmes have to be used efficiently.
  6. Dairy, poultry and agro-processing sector can be improved side by side.


Medium and small scale industries are also dependent largely on cash. These industries are shrinking countrywide because of trade policies allowing import of small items from China or other countries. Same is the case in agriculture. For example- Imported apples coming from China are much cheaper than Kashmiri apples. They are not thought about while making policies on taxes, investments etc. In the coming budget, Government needs to take these factors into consideration along with public and private investments in agriculture.