N C Saxena, Distinguished Fellow, SKOCH Development Foundation

Despite a continuing fall in the growth rate of India’s GDP for the last several quarters there are indicators that point to a turn-around of the rural economy, explains N C Saxena

Positive and long-term improvements can be seen in foodgrains production, horticulture, dairy, poultry and fisheries, access to physical infrastructure such as electricity and roads, per-capita income of poorer states (which have a high percentage of rural population), wages of unskilled labour and growing employment in non-farm occupations due to programmes such as MUDRA. However challenges still remain in some vital sectors, such as water, marketing of fruits and vegetables, skill development, education and health.

Thanks to good monsoons, India had a record foodgrain production of 273 million tonnes (MT) in 2016-17, which was a good 17 million tonnes more than the annual average of the previous three years. The long-term trend in foodgrain production after 2003-04 has also been encouraging. Foodgrain production in 1990-91 was 176 MT, which increased only by less than 11 per cent to 195 MT in 2003-04 but jumped in the next 13 years by 40 per cent to 273 MT in 2016-17. Yearwise production is shown in Table 1, clearly indicating a higher trend in production after 2002-03.

However, growth in some other crops, such as oilseeds, sugarcane, cotton and potato in the last six years has not been encouraging, as shown in Table 1. This has slowed down the overall growth of crop production in India. In the recent past, growth rate of agriculture has been fluctuating at 1.5 per cent in 2012-13, 5.6 per cent in 2013-14, (-) 0.2 per cent in 2014-15, 0.7 per cent in 2015-16 and 4.9 per cent in 2016-17.

As observed by the recent Economic Survey, the uncertainties in growth of crop agriculture are explained by the fact that shocks emanate mainly from deficiency in rainfall since 55 per cent of agriculture in India is rainfall dependent and there have been two consecutive years of less than normal rainfall in 2014-15 and 2015-16.

As opposed to crop agriculture, India has seen far better progress in noncrop agriculture, i.e., in horticulture, dairy, poultry and fisheries. Whereas foodgrain production rose by 40 per cent between 2003-04 and 2016-17, production of horticulture crops almost doubled during the same period from 153 to 287 MT. The vegetable and fruit segments of the horticulture sector can be key drivers of agricultural growth and can be further developed by appropriate investments in harvesting, low-cost storage facilities and processing technologies along with development of marketing infrastructure. These challenges are discussed later in the paper.

India continues to be the largest producer of milk in the world. During the years 2014-15 and 2015-16, the milk production registered an annual growth rate of 6.27 per cent. Poultry and fisheries have also recorded an annual growth rate of more than 5 per cent since 2010-11. Production of milk and fish is now almost three times what it used to be in 1990-91, whereas egg production has shown even better progress, as shown in Table 2.

Wages & Employment

Higher agricultural growth, especially in foodgrains and non-crop agriculture and greater opportunities for wage labour in the non-farm sector, such as construction, has increased the demand for labour and led to a rise in real wages. During 2007-12, rural wages soared by an unprecedented growth rate of 8.3 per cent per annum in real terms, thanks to increased non-farm employment opportunities in a booming economy aided by improved road and telecom connectivity. This was further enabled by rising crop prices that made it possible for farmers to absorb the wage increases. MGNREGA was not the sole factor responsible for this uptrend. Factors such as agricultural productivity, construction sector growth, migration to cities and literacy also majorly contributed to the rise in rural wages, benefitting more than 40 per cent of rural population dependent on casual labour.

The largest increase in nonagricultural employment has been in the construction sector, where the share of employment in rural areas increased from 14.4 per cent (1999- 2000) to 30.1 per cent (2011-12). But with the stagnation in the crop sector after 2012 and slump in construction activities, rate of growth of wages shrank in 2014 and 2015.

However, rural wages began rising in 2016 after stagnating for two years, indicating that the slowdown in rural demand was temporary. Despite demonetisation, rural wages rose by 7.3 per cent in 2016-17 over the previous year. Expenditure on wages in MGNREGA has also picked up, from Rs 24,209 crore in 2014-15 to Rs 40,836 crore in 2016-17. Table 3 compares the expenditure in some of the poorer states in these two years and also gives expenditure in the current year upto August 2017. The figures show that some of the poorest states such as Assam and Bihar have shown remarkable progress in the last two years. Moreover, the wage expenditure in the first five months of the current year is almost at the same level as in the 12 months of 2014-15.

Rising Rural Consumption

The impact of higher agricultural growth combined with spurt in wages is also witnessed in the rising consumption in rural India. A recent article in The Economic Times (14 July 2017) concludes that consumption growth in rural India was in double digits for the first time in two years and outpaced the rate of expansion in cities, underpinned by higher farm income after last year’s good monsoon rains and minimal supply disruption in the run-up to the rollout of the single producer levy. Rural demand has also helped drive the overall FMCG (fast-moving consumer goods) sector growth to 10 per cent now, compared with about 5 per cent during the quarter-ended March 2017. Rural markets account for more than a third of all consumer goods sold. The impact of a good monsoon should spur even stronger growth in the second half of the year.

According to a recent study by Motilal Oswal Group, the year 2017 will be a second consecutive year of normal monsoons and will have significant positive implications for rural consumption. Given the confluence of several positives like normal monsoon, higher MSPs, farm loan waivers and higher government spending in rural areas, rural consumption is poised to make a further recovery after remaining in hibernation for the last three years. Rural consumption has been positively influenced by satisfactory growth in poorer states that have a significant rural population in the last four years, as shown in Table 4.

Rural Infrastructure

Building infrastructure, while creating jobs, can also have a lasting positive impact on human productivity and incomes. Table 5, based on NFHS- 4 and census data shows that the number of households having electricity has shown excellent progress after 2011 even in poorer states.

Electrification brings significant consumption gains for households in many ways. Labour earnings are an important channel of impact. This is because power enables both men and women to perform extra productive work at home.

Similar fantastic progress has been achieved in construction of new rural roads under PMGSY. A total of 178,184 habitations have been identified state-wise to be targeted for providing road connectivity under PMGSY. States have so far provided connectivity to 127,427 habitations. It is significant that more than two-third of the total length constructed is in poorer states, as shown in Table 6.

Construction of all-weather roads has directly or indirectly contributed to improvements in connectivity, transportation, government services, livelihood, commerce, education, health, land value, infrastructure, social interactions and gender empowerment. Roads are a lifeline for rural communities, linking them to markets, education, health and other facilities. In many cases it was seen that road construction attracted complementary investments made by people in tempos, shops and real estate. Many new income opportunities and small enterprises have thus flourished simply due to the rural roads. Roads also facilitate labour movement to better paid jobs in nearby semi-urban regions.


Despite several positive developments, rural India needs better governance, especially in the provision of public health and education. Teachers and doctors should be held accountable for outcomes. As this malaise affects urban India too, we will not discuss it in this paper and confine ourselves to agricultural reforms, such as in irrigation, marketing infrastructure and skill development that can help improve rural livelihoods.

Water Management

In India, the availability of surface water is greater than groundwater. However, owing to the latter’s decentralised availability 60 per cent of the demand from agriculture and irrigation and about 80 per cent of the domestic water demand, is met through groundwater. In many cases, use of groundwater is also a response to poor service delivery of surface water systems, as in urban water supply. Due to its over-extraction, 60 per cent of the districts in India are showing evidence of either depletion of groundwater or contamination or both. Semi-arid regions with less groundwater, such as Punjab, subsidised electricity that leads to excessive pumping of groundwater. These water-starved regions often cultivate water-hungry crops like paddy in Punjab and cotton and sugarcane in Maharashtra. On the other hand, electricity supply is limited and has not reached many villages in the alluvial plains of Eastern India with rich groundwater potential, which remains under-exploited.

Finally, although government runs several programmes, such as National Mission for Clean Ganga, Integrated Watershed Management Programme, Pradhan Mantri Krishi Sinchai Yojana (for irrigation) and National Rural Drinking Water Programme, they all are constrained due to lack of peoples’ participation and inadequate capacity of local bodies. The phenomena of local water users successfully managing their water resources has been observed unfortunately in only a few areas.

The main thrust of the programmes to combat the impact of climate change in rainfed areas should be on activities relating to rainwater harvesting, soil conservation, land shaping, pasture development, vegetative bunding and water resources conservation on the basis of the entire compact micro-watershed, which would include both cultivated and uncultivated lands. Agriculture in semi-arid regions has to move from traditional crop centric farming to agri-pastoral-farm forestry systems (fruit trees, shrubs, perennial grasses and small ruminants).

Mass movement in Saurashtra for rainwater harvesting in the last 20 years led to village communities constructing thousands of community-managed groundwater recharge structures. Assured irrigation and the provision of eight hours of uninterrupted power supply of full voltage every day (but not subsidised, unlike Punjab and Andhra) led to the increase in agricultural production, thus vastly reducing poverty. Madhya Pradesh too significantly increased wheat production by more than four times from 32 lakh tonnes in 1990- 91 to 142 lakh tonnes in 2014-15 by improving irrigation and these success stories should be replicated in other states.


As fruits and vegetables give 4-10 times more returns than the other crops, India needs better mechanisms to increase direct linkage between smallholders producing fruits and vegetables and large buyers. Government should take fruits and vegetables out of the Mandi Committee Acts and make their sale and purchase completely free.

More investment is required in developing modern supply chains and logistics services, such as cold chains and warehouses, specialised to handle high-value commodities. The private sector has a greater role to play in terms of investments in value chains and strengthening the firmfarm linkages critical for scaling up processing and retailing operations.

In order to pay a consistent and fair market price to farmers, processors, exporters and value adders require regularly spaced purchases, appropriate quantity lots, assured quality and market intelligence. India needs better mechanisms to increase the communication and direct linkage between India’s smallholders and larger buyers. Mechanisms to reduce transactions costs, more efficient procurement markets, quality standards and electronic exchanges enforcing compulsory delivery can address this need. More work needs to be done to improve supply chain management.

There is also a need to have a relook at some of the provisions of the Essential Commodities (EC) Act, which discourages large scale private investments in agricultural markets. One possible strategy would be to provide exemptions to certain categories of players such as exporters, food processors, multiple outlet retailers and large departmental retailers from applicability of stock limits prescribed in the EC Act. This would ensure that genuine players are not harassed.

Skill Development

Skill development still has to establish deep roots in India. Indian universities and professional institutions churn out hordes of degree and diploma holders, most of them are unemployable because they lack the skills, manufacturing and services industries look for. The current size of the India apprenticeship system is small, with approximately 0.2 million youth apprentices. This is a significantly low benchmark for a workforce that is growing by 12 million a year. Furthermore, the number is lower than that of smaller countries; Japan and Germany, which have 3 million and 1 million apprentices respectively. The law governing apprenticeship has strict provisions that discourages private companies from implementing apprenticeship schemes.

Lastly, trained manpower can be absorbed only if Micro, Small & Medium Enterprises (MSMEs) are encouraged to flourish. However, these sectors, though having immense potential to generate new jobs with relatively low direct investments, suffer from many constraints. Their expansion depends upon a number of factors, which are influenced by government policies – directly or indirectly. India’s rank in ‘Ease-of-Doing’ business’ has hardly improved in the last three years from a lowly rank of 130 out of 189 countries and Prime Minister’s desire to break into the top 50 by 2018 remains.


To sum up, rural India, despite good achievement on the growth front, faces significant challenges. These relate to groundwater management, improving marketing infrastructure for perishable commodities and creating enabling environment for new investment in rural India.

There are two regions of concentration of rural poverty: eastern India with plenty of groundwater and central tribal India, with vast areas of uncultivated and forest lands but depleted soils and falling groundwater levels. In eastern India there is need to promote electricity and smaller than 5 hp pumps and improved manual irrigation technologies such as pedal pumps, which do not require any diesel or electricity to run. It is particularly suited to small farmers because it requires low-investment.

In semi-arid central region one should promote conjunctive use of surface and groundwater, such as drip irrigation and water sprinkler, mulching and bed plantation, construction of tanks and check-dams for water harvesting and conservation. Over-extraction of groundwater in water-stressed regions should be minimised by regulating the use of electricity for its extraction.

MSMEs have the highest potential of creating jobs, but their growth is constrained because of bureaucratic hassles in obtaining clearances and bank loans. The maze of laws and practices that confront an ordinary entrepreneur must be simplified. A farmer can neither set up a brick kiln unit, nor a rice shelling plant and not even cut a tree standing on his own private field without bribing several officials. A simple operation of converting prosopis (Vilayati babul in Hindi - a wild shrub occurring mostly on wastelands, the more you cut it the more it grows) into charcoal in Tamil Nadu, which can give employment to thousands of people, requires permission from the Forest Department!

N C Saxena is Distinguished Fellow, SKOCH Development Foundation

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of INCLUSION. Comments are welcome at info@skoch.in)

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