Impediments to rural growth

  • While a number of rural economic indicators have improved, uncertainty remains about rural wage growth, which has been depressed for some time.
  • The outlook for rural wage growth could be dimmer than in the pre-pandemic world. Rural wage growth was already feeble and an influx of migrants back to rural areas could push down wage growth once again.
  • Notwithstanding a temporary uptick, rural wages may not rise sustainably – increased MGNREGA outlays don’t seem enough, construction-led employment may remain weak, and rising rural indebtedness could hurt.
  • Both rural and urban wages are driven by economic growth. HSBC expects India’s post-pandemic potential growth to fall by 1 percentage point to 5%. This does not bode well for wage growth.
  • It is possible that rural wages could tick up a shade temporarily. Sowing in the current season has been strong, requiring more hands on the ground. But our deeper investigation above suggests that rural wages may not rise sustainably once the current agricultural season is over, meaning ‘aspirational’ labourers will want to return to their urban jobs.
  • The Union government has announced measures to improve agricultural marketing.But the results of those depend on implementation by states. There has to be more rural reforms, including land. Rural India can provide a growth stimulus, but not as a substitute for urban, which will revive in due course.
  • An economic resurgence in rural India can have a downside too. If farmers end up producing plenty, it thereby disrupt the demand-supply equilibrium. Prices of agriculture products will fall sharply, impacting the farmers themselves.