Why the Rural Economy Can No Longer Be India's Sidekick
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By Jyoti Awasthi
I am sitting in a remote village in one of the routinely flooded panchayats on the banks of the Kosi river, in Saharsa district of Bihar, wondering what magic mantra would turn this sleepy hamlet into a self-sustained economy, one where people are not forced to migrate to far-off lands to support the families they leave behind. Is it the roads that are missing? Education? Skill? Jobs? What is the missing link between our villages and their development, or are there simply too many to count?
India in 2020 is still looking for an answer to a question first asked in 1947: what development model should we choose to put India on the rails of economic growth? Gandhi insisted that Gram Swaraj, or village self-rule, was the only way to strengthen the nation from within. Nehru saw modern science and technology as the cure for the abject poverty staring us in the face.
Seven decades later, as the country reels under COVID-19, that old confusion between a self-reliant rural India and a growth-propelling urban India has surfaced more sharply than ever. The images of millions of migrants walking home during the lockdown placed a large question mark over the trajectory India has taken. The big cities could not protect them from a crisis of sheer survival, and when it mattered most they turned towards their own homeland for refuge.
India's Development Pathway: A Retrospective View of the Rural Economy of India
Look back at the consecutive Five-Year Plans that followed the setting up of a planning institution by Pandit Jawaharlal Nehru in 1950-51. Lawmakers designed the trajectory of an India struggling to feed its people, keen to exploit its land, water, minerals and energy, and determined to be self-reliant. Infrastructure sat at the centre of that story: irrigation, transportation, communication, industry. Agriculture was 'modernised' with heavy research inputs, high-yielding varieties, a thrust on wheat, paddy and oilseeds, and technology for food processing. Large dams were built and irrigation channels carried water to dry lands.
Meanwhile a new industrial India took shape around industry and mining centres. Import duties were raised on capital goods so a circular economy could stay within the country, and defence was strengthened as we faced wars on our northern frontiers. Jai Jawan, Jai Kisan was the slogan at the heart of development, until Rajiv Gandhi, Prime Minister from 1984 to 1989, led the Sixth Plan and brought industrialisation, information technology and rapid transportation to the core of the agenda.
With policy now treating cities as the propellers of growth, infrastructure became steadily more urban, and rural India quietly turned into a source from which cities could draw human resource. A country that was largely agrarian at Independence, with roughly 85 per cent of its people in agriculture, began transforming into an industrial economy where rural youth became job seekers in a labour market far from home.
Open Markets, Structural Reform, and a Rural India Left to Fend for Itself
After the Gulf War, India ran into a financial crisis building since the late 1980s, fell into deep debt, and had to pledge its gold reserves to the International Monetary Fund. In 1991 the IMF and the World Bank pushed India to adopt the Structural Adjustment Programme, begun in the mid-1980s and later unfolding in many forms. India joined the WTO and entered the global market seeking investment to 'uplift' a sinking economy. Liberalisation, privatisation and globalisation were set in motion under Prime Minister P.V. Narasimha Rao and his finance minister Manmohan Singh.
In 1993, the 74th Constitutional Amendment arrived as the Nagarpalika Act, mandating major urban reforms, giving municipal bodies power for local self-governance, handing local area development to local governments, and pushing municipalities to raise their own funds.
The greatest vehicle for this urban overhaul was the Jawaharlal Nehru National Urban Renewal Mission, launched in 2005 across 65 selected cities. JNNURM had two sub-missions, Urban Infrastructure and Governance, and Basic Services for Urban Poor. Cities had to improve their infrastructure, and living conditions for the urban poor had to improve through basic services. Three sets of reforms were introduced to speed this up, covering financial management, e-governance and pro-poor measures.
India's urban centres were then thrown open to 100 per cent FDI in infrastructure. The Urban Land Ceiling Act was repealed. The public private partnership mode was initiated. Urban India was formally declared the 'engine of growth'. Amidst all that hullabaloo, rural India was left to fend for itself.
The 73rd Amendment and a Half-Kept Promise
Here is the irony. A little before the 74th Amendment, the government brought in the 73rd Amendment to devolve power for rural governance through panchayati raj institutions, letting the ruling Congress claim it was realising Gandhiji's dream of Gram Swaraj. Gandhi always advocated seeing villages as mini republics where people themselves were the decision makers. Whether our villages became that is debatable. What is clearly visible is something else: rural India became a land bank for an ever-expanding urban India, where every road built towards a village largely served to bring migrants out as cheap labour.
Without real financial powers or dedicated budgets, PRIs became mere vehicles for implementing projects decided at the top, rather than planning village development from the bottom up. Caste equations and cultural hegemonies played their own role in preventing Gram Sabhas from performing their mandated functions, and over time this last tier of local governance became a formality.
Could a 'Structurally Reformed Smart India' Be the Solution?
When India opened its markets to FDI, hopes were sky high. Metros were modernised with better transport networks, industrial corridors were built, special economic zones welcomed multinational manufacturing units and IT parks arrived. Education opened up to privatised professional courses, with more colleges creating human resource for the new management and service sectors. Employment surpassed targets, GDP was skyrocketing and construction reached new heights. Beyond a point, though, this growth could not take the country anywhere.
The youth unemployment data for India from 1999 to 2019, released by the World Bank and the ILO, tells the story better than any argument. The rate stood at 7.79 per cent in 1999, dipped to around that level again in the mid-2000s, then climbed almost without interruption to 10.51 per cent by 2019, peaking at 10.61 per cent in 2016. Four decades after opening our economy to the western model, this is where we are.
After a landslide victory in 2014, the Modi government repackaged the urban renewal mission into the Smart City Mission, meant to modernise urban India with technology-led solutions. But the focus stayed on technology, mechanisation and corporatised solutions. Integrating the basic needs of the urban poor, social security, employment, education and health, is still a missing link.
Today India appears to be at a standstill. From the Narasimha Rao-Manmohan Singh era to the Modi-Shah regime, the economy has stagnated, with GDP growth barely touching 5.5 per cent in 2019-20. A fast economy demands huge investment, world-class infrastructure, automation and skilled professionals, and this modernisation could not employ our youth, who existed in millions but without matching skills. Mining, construction and manufacturing, once large-scale employers, were now run on sophisticated machines that removed manual labour, and the jobs moved from workers to trained professionals.
Agriculture and allied sectors, the largest source of employment, bore the brunt of this race. Agricultural land, especially near major cities, was acquired in the name of national interest and turned into land banks for new-era industries. Farm owners turned landless and farm labourers were rendered jobless. The former at least had some cash; the latter had nothing at all.
The Farm Bills and the Question of Price
Analysis after analysis has since concluded that agriculture, once our largest employer, has effectively crashed, leaving India sinking on growth, development indicators and employment alike. The Modi government has been working on strategies for "doubling farmers' income by 2022", and one of its big-ticket reforms is the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020. Instead of being a moment to celebrate, it has drawn severe opposition from farmers and policy lobbies across the country.
The strongest criticism is this: while the new Act dismantles the marketing committees set up under the APMC Act of 2003 and lets farmers sell anywhere in the country, it provides no regulation on minimum support price. Kavitha Kuruganti of the Alliance for Sustainable and Holistic Agriculture has argued in Hindustan Times that the government is "abdicating all oversight responsibility" by declining to register traders or build a price intelligence system, even as it weakens the mandi network. If the government has stepped back, how and when will it intervene at all?
With corporates entering the food sector as big players, the risk of farmers getting an unfair share from a plain imbalance of power is evident, and a government that opts out leaves them at the mercy of private companies. The stir continues, and the nation waits to see in whose favour it ends.
A Responsible and Responsive Alternate Pathway
In 2017, NITI Aayog published a discussion paper, Changing Structure of Rural Economy of India: Implications for Employment and Growth, by Ramesh Chand, S.K. Srivastava and Jaspal Singh, on how job losses in agriculture became a major factor in India's stagnation.
The paper measures the rural contribution between 1970-71 and 2011-12. In 1970-71, rural areas engaged 84.1 per cent of the total workforce and produced 62.4 per cent of net domestic product. Rural share in national income then declined sharply until 1999-2000, while rural share in employment fell nowhere near as fast. That gap is the whole story: it means most of the country's growth came from capital-intensive urban sectors and generated very little work.
Rural India and MGNREGA.
In 2005 the Manmohan Singh government passed a landmark law, the National Rural Employment Guarantee Act, later renamed after Mahatma Gandhi. Its purpose was to generate employment for both men and women so the rural poor could work in their own place and not be forced to migrate, while building productive assets that answered people's needs: soil and water conservation work, farm ponds, reviving old water bodies and creating new ones for groundwater recharge, irrigation, drainage, plantation, land development, rural housing and livestock infrastructure. Implemented in letter and spirit, it could have transformed rural India.
Yet review reports have repeatedly flagged the obstacles: political whims and fancies, bureaucratic bottlenecks that restrict fund flow, social and caste hegemony within villages, and corruption at various levels of fund transfer. Direct bank transfer and geo-tagging appear to be improving implementation. The real question is different: is the ambit of MGNREGA wide enough to meet the actual infrastructure needs of our villages?
During the lockdown, the Modi government leaned on MGNREGA to soften the work and wage crisis. Government data cited by Business Standard shows almost 63 per cent of the increased allocation of about Rs 1.01 trillion for 2020-21 was spent within the first five months of the year. That tells you how vital the programme is, and how quickly it runs dry when demand arrives.
Rural India Needs Infrastructure That Rejuvenates Local Livelihood
Structural reforms, urban makeovers, SEZs, FDI in retail and infrastructure spending have together failed to give livelihood to rural India. The dream of a ripple effect and a trickle-down economy never reached the far and wide villages of this country, and did little good for its backbone, agriculture.
The village I am sitting in is water rich, which suits paddy, wheat, makhana, freshwater fish and a range of vegetables and lentils. But it faces two hard problems. First, landholdings have shrunk over generations, and much of the Kosi-affected belt stays inundated for a large part of the year. Second, with no wholesale mandi facilitated by the government, traders buy produce at a bargained price nowhere near the declared MSP, and with no exposure to value addition, farmers sell raw produce to the same traders year after year.
What villagers say here is echoed by the Centre for Budget and Governance Analysis. With 70 per cent of the population living in rural areas on stagnant incomes and wages, demand simply cannot rise. CBGA argues for reviving the rural economy through infrastructure investment and structural reform, with agricultural marketing reform as a priority. For better price discovery, agriculture must go beyond farming and build value chains covering wholesaling, warehousing, logistics, processing and retailing. Exports need policy support, and rural infrastructure and water management are equally urgent.
Microenterprises established by and for rural youth are the need of the hour. Farmers here could set up small units that add value to farm produce and push it into a supply chain. But is the private sector interested in investing in rural India? Prima facie it seems difficult, which is precisely why the government must go first, investing in rural roads, electricity, bridges, education and health. The potential is not in doubt. Rajju Shroff of the Crop Care Federation of India has urged the government to treble India's share in agri exports, noting that India ranks second in global agricultural production at $367 billion and can double farmer incomes and take agri exports to $100 billion.
The Rural Infrastructure Development Fund, managed by NABARD, is mandated to bring infrastructure to rural India, but because of several bottlenecks states are not fully using it. That under-utilisation hurts deployment of the priority sector lending quota with banks, which covers agriculture, micro and small enterprises, education and housing. One failure feeds the next.
Money put into rural infrastructure works twice over. It creates durable assets that make the economy more efficient in the long run, and consumption demand in the short run, by putting wages in the hands of construction workers, painters, electricians and masons. Since private players are reluctant to invest in rural areas because of low profitability, the first push has to come from government spending on rural roads and housing, through viability gap funding and housing subsidies. Public investment will then attract private investment.
Skilled Rural Youth, Measured Against Global Standards
Infrastructure is not only roads, toilets, water and electricity. Professional skill and sustainable livelihood are the next milestones, and we have to make our youth skilled enough to meet global quality expectations.
A study in the EPRA International Journal of Economic and Business Review by P.C. Jose Paul traces our journey from 1990-91 to 2014-15 and asks why we still struggle despite switching entirely from a socialist model to a corporate one borrowed from the west. India began producing for foreign markets, but our products could not meet the quality standards those markets set. There were serious shortfalls in qualified labour, machinery and technology, and social problems such as child labour and caste discrimination also cost us markets. The three sectors that should have been our aces, agriculture, textiles and leather, performed the worst.
The Ministry of Rural Development runs two skill initiatives under the National Rural Livelihood Mission. The Deen Dayal Upadhyaya Grameen Kaushalya Yojana is a placement-linked programme that skills in PPP mode with assured placement in a regular job at an organisation the trainee does not own. The Rural Self Employment Training Institutes take the other route, enabling trainees to take bank credit and start their own micro-enterprise.
Government data for 2018-19 shows both schemes surpassed their skilling targets, and yet there has been no visible impact on the employment status of India's youth. Our education system fails to connect young people with work because the entire focus is on scoring marks and securing ranks. Skill programmes fall short for a similar reason: the number enrolled matters more than the number who find jobs. Having recognised this, the government has moved to a new education policy and a new approach to the Skill India Mission.
Challenges and Impediments in Skilling India
A thought-provoking article in The Pioneer by agricultural economist S. Amarendar Reddy makes the case plainly: the buck now stops at strengthening rural infrastructure so we can produce export-class goods. A $5 trillion economy by 2025, he argues, is achievable only if rural India grows at 12 per cent a year. Despite rising urbanisation, the rural economy still contributes about 46 per cent of national income, and once predominantly agrarian, rural India is now far more diversified, with the non-agricultural sector accounting for roughly two-thirds of household incomes. Most SMEs, along with livestock and horticulture, hold huge export growth potential, providing productive employment for rural youth, profits for private players, and quality jobs for educated young people in post-harvest units, food processing and export sectors.
To breathe life into an economy broken by the lockdown, Prime Minister Narendra Modi launched the Rs 20 lakh crore Atmanirbhar Bharat campaign, encouraging young people to become entrepreneurs and explore new avenues of enterprise. The new pitch is 'Vocal for Local', which nudges consumers to buy local and strengthen local businesses.
One fundamental challenge sits underneath all of this. Educational backgrounds are poor, and even basic literacy is a tough ask among the present generation of youth. Any livelihood model needs some computer literacy, some ability to handle technology, some book-keeping, and a clear understanding of the quality standards buyers expect. One hopes the National Education Policy 2020 addresses this from the ground up.
In Gujarat, Rajasthan, Maharashtra, Tamil Nadu and Andhra Pradesh, rural livelihood has developed a direct connect with the global market, and young people can see a path to their own micro enterprises. When I look at rural youth in Uttar Pradesh, Bihar or Madhya Pradesh, I find no such orientation. Finding a sundry job in Punjab, Delhi, Noida or Mumbai is the entire ambition, and beyond that there is no vision.
Instead of luring multinational corporations, the government must promote rural micro, small and medium enterprises at scale: microcredit within reach, livelihood counselling centres, Jan Suvidha Kendra style assistance for young people setting up their own work, market linkage directly or through mid-sized traders, and exhibitions and buyer-seller meets organised even in remote areas.
Small Is Beautiful
If the recommendations put forward by so many economists and thinkers were implemented with passion and commitment, then one day this village on the banks of the Kosi will have its own makhana snacks unit, its own fish drying and canning system, its own wheat and lentil-based healthy products, employing local people, putting money in local hands and setting a circular economy in motion.
Small is beautiful, they say. Let us think small and think diverse, and see how many more people can be employed in micro industries rooted in Indian villages, built on their own natural resources, promoting local skill, working towards the India Gandhi imagined: self-sustained, ecologically responsible, leaving no one behind.
I am curious to see how the design and spirit of an Atmanirbhar Bharat lifts the dampened spirits of villagers, and especially of the youth here in Saharsa, in Bihar, the first Indian state to go to the polls after the COVID-19 pandemic.
References
Aims of 74th Constitution Amendment Act remains unfulfilled: NITI Aayog official, The Economic Times
India: Youth unemployment rate from 1999 to 2019, Statista (World Bank / ILO data)
What is Smart City, Smart Cities Mission, Government of India
The Agricultural Produce Market Committee (APMC) Act, 2003, Ministry of Agriculture
Critics cite crucial loopholes in farm bills, Hindustan Times
Changing Structure of Rural Economy of India: Implications for Employment and Growth, Ramesh Chand, S.K. Srivastava and Jaspal Singh, NITI Aayog Discussion Paper, 2017
MGNREGS funds fast drying up as demand surges amid COVID-19 pandemic, Business Standard
Rural infrastructure, Centre for Budget and Governance Analysis
Agriculture exports may grow to $100 billion by 2022: Experts, The Economic Times
NABARD's Rural Infrastructure Development Fund needs a relook, says RBI official, The Economic Times
Impact of Globalisation on Economic Growth in India, P.C. Jose Paul, EPRA International Journal of Economic and Business Review
Training and employment of rural youth, Ministry of Rural Development
Thrust on rural India must, S. Amarendar Reddy, The Pioneer
National Education Policy 2020, Ministry of Education
Adapted from Jyoti Awasthi's essay "Rural economy no sidekick to India".
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