Forbes India 15th Anniversary Special

Himanshu: There's a New-found Dynamism in Rural Areas

But the real challenge is to channel this dynamism to the mainstream of the economy

Published: Aug 13, 2013 06:53:43 AM IST
Updated: Aug 13, 2013 08:35:51 AM IST
Himanshu: There's a New-found Dynamism in Rural Areas
Image: Amit Verma

Assistant Professor of Economics at Jawaharlal Nehru University and Visiting Fellow, Centre de Sciences Humaines, New Delhi.
Interests: In his spare time he enjoys tracking political developments; loves to follow cricket.

Two sets of data recently released by the National Sample Survey Organisation (NSSO) have been significant in more than one way. The first, based on the Employment and Unemployment Survey (EUS) for 2011-12, shows that the percentage of workers engaged in agriculture is now less than half of total workers in the country. The second is the data on poverty estimates released by the Planning Commission, based on consumption expenditure survey of NSSO for 2011-12, which shows a sharp reduction in poverty between 2004-05 and 2011-12. A large part of the poverty reduction, at least in the last two years, has been driven by poorer states and states which are primarily rural.

Along with these, data from the population census of 2011 showed a faster rate of urbanisation than any of the previous decades. While these may be early and premature pointers towards the changing role of rural areas in the overall economy, these are certainly not enough to conclude that the rural areas are the new engines of growth. At the same time, the new-found dynamism in rural areas, particularly in states with a significantly larger population residing in rural areas, does need a deeper examination of the happenings in rural areas.

The good thing is that a large part of the dynamism is not coming from the traditional dominant agricultural sector but from the non-agricultural sector. While the shift from agriculture to non-agriculture was already there in income terms, the welcome news is the employment pattern with acceleration in shift towards non-farm employment in rural areas. The shift is significant not only because it allows the ever increasing workforce to find avenues in the more productive non-farm sector but also because it creates the synergy between the primary engine of growth of the economy and the rural areas. However, a word of caution may be necessary here since a large part of the rural non-farm is still in self-employed low-productive categories or in low-paid construction as casual labourers.

But this shift to non-farm is not only helpful in generating incomes in rural areas, it has also changed the dynamics of income generation in these areas. Two things are worth noting here: First, the movement away from agriculture has meant that traditional bottlenecks of rural revival such as agriculture and land are less relevant. Second, the fact that non-farm employment is less driven by traditional institutions such as caste has also meant that the deprived castes are now enjoying a significant share of the benefit of the growth of income in rural areas. While this is certainly evident based on primary surveys, it is also being seen in terms of poverty reduction with Scheduled castes and Scheduled tribes showing a significant reduction in poverty than earlier.

Himanshu: There's a New-found Dynamism in Rural Areas
Image: Desmond Boylan / Reuters

The indirect effect of the diversification towards non-farm has also been responsible for pulling up wages in rural areas which is now growing at an average of 5 percent per annum, not much lower than the average per capita growth rate of incomes. It is, of course, also a result of the increased agricultural productivity and the shift in terms of trade in favour of agriculture which has made rural cultivators realise better incomes for their agricultural produce. The other significant change as far as rural demand is concerned is the increased flow of funds to rural areas as part of government expenditure. This not only includes big ticket-expenditure such as National Rural Employment Guarantee Act and increased spending on Public Distribution System (although largely led by state governments), but also various other expenditures including Prime Minister’s Gram Sadak Yojana. While the exact contribution of each of these is disputed, there is certainly a consensus that the rural areas have seen a spurt in demand. So much so, that the unabated run of inflation in primary commodities in the last five years has partly been attributed to the unsaturated demand-pull of rural areas.

Unfortunately, the drivers of growth in rural areas are also threatening to derail the dynamism that has been seen in rural areas. Greater integration with the urban and larger economy has also meant that the rural areas are no more insulated from change in global and national economy. Even though the rural economy is gradually moving away from the agricultural economy, the fact that a large part still derives its income from agriculture also means that the sustainability of rural demand will depend a lot on incomes generated in agriculture alone. Things do not appear as optimistic on this front with farm business incomes showing signs of decline and deceleration. Some of this has been due to withdrawal of subsidies on diesel and fertiliser, but a large part of this has also been the increasing cost of labour. We may still be away from an agrarian crisis; there are clear signs of such crisis emerging in the short to medium run unless agricultural growth revives.

The second factor that may act as a drag on the growth of rural areas is the abysmal condition of physical infrastructure. It is not just electricity, roads, markets and communication infrastructure, but also financial infrastructure such as banking facilities. Even with an increase in penetration of small and medium enterprises in rural areas, their share in total bank credit is abysmally low compared to their urban and corporate counterparts.

But the real challenge is to channel the new-found dynamism in rural areas to the mainstream of the economy. With an explosive growth in education and skill endowments, rural areas are waiting to be tapped. An enabling environment to encourage small and medium enterprises is not only crucial to rural revival, it is also the key to manufacturing being the engine of growth for the country. This, in fact, is the only recipe for a sustainable and inclusive model of growth.

(This story appears in the 23 August, 2013 issue of Forbes India. To visit our Archives, click here.)

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  • Dr.a.jagadeesh

    Excellent article. In our country about 60% of people live and work in rural areas. It is precisely here that the process of modernization has thus far made its smallest imprint. What then is the cause for this problem? Is it wrong policy? Are there lacuna in the implementation stage? So many questions come to mind. First and foremost reason lies in the short sighted policy of adopting '€˜imported technology'€™ to suit '€˜indigenous needs'€™. This problem is not common in India alone but in many developing countries as well. In our eagerness to catch up with the west, we have drawn up science and technology plans centered around '€˜urban man'€™ ignoring the back-bone of the nation '€˜rural man'€™. The planners often cite the example of '€˜mass illiteracy'€™ in India for the slow dissemination of scientific knowledge. This is far from reality. We must not forget the fact that it is the uneducated villager of Punjab and Haryana that produced the '€˜green revolution'€™ in wheat. The villager will not lag behind in adopting what is best for him and his family. We often think of modernising tractor but rarely think of improving the traditional plough used by millions of farmers in rural India. This is where the rural people were isolated from understanding science and appreciating it. On the other hand too much sophistication of our scientific and technological advancement confining to urban areas and satisfying the needs of urban dwellers left the villager to think of science as a tool '˜intelligently'€™ used by '€˜affluent persons'€™ to satisfy their ego. That is why the villager often looks at science with contempt much less to understand it in its true sense. Ideas float around in bewildering numbers, and scores of designs, ranging from windmills to the spinning wheel, are available; papers are circulated stating the wonders of intermediate (not appropriate) technology what could be done, why it should be done, what must be done, and how the rural countryside can be changed if intermediate technology is implemented. Experts are called from abroad to tell people this. In all this talk, there seems to be no place for the ideas generated by farmers, rural artisans, weaker sections of society.A stand seems to have been taken that this transfer of technology for the socio-economic regeneration of the rural areas is a novelty for country-folk. But rural communities have survived for generations without any help in ideas and materials from outside. They have developed a low-cost technology of their own, suited to their own particular areas. It would be foolish to over look and take for granted methods used by farmers and artisans. When a ploughshare develops trouble on the field, when a bullock cart breaks down on the road to market, when a house collapses in a storm, the villager uses materials available in the immediate vicinity to solve his problem. It is the scientist who must see these problems as challenges that must be met if there is to be development in rural areas. It is clear that the villagers and scientists will see the problems of the villages quite differently, and it will not always be true that the projects proposed by the scientists will be meaningful to the villages. If projects are imposed on the villagers, they are likely to be skeptical and may well resist rather than co-operate with the programme. Rural Development Schemes, in the broadest sense, requires first a good sociological approach, and as much psychology as scientific knowledge. After all ‘country means people and not soil’ Here it may not be out of place to recall the words of late Dr.E.F.Schumacher. “The great paradox of our age is that the Gandhian ideas were implemented not in India in Red China. Not mass production but production by the masses, there is enough for everybody’s need but not for anybody’s greed-all these ideas are Maoist but actually they come from Gandhi. They had their first enunciation in India and implementation in China as far as I can see”. The villagers may be illiterate but not ill informed(in fact in some cases well informed!). Switching over from old monetary system in 60s to new one, adoption of Fertilisers and pesticides, Usage of Mobile phones etc. are classic examples of Rural Indians Ingenuity for Adoption. There is the need to adopt Agro Industries utilising local resources and local skills as advocated by Mahatma Gandhi. In the waste lands fast growing and multiple use plants like Agave, Opuntia can be cultivated. Youth Economic Zones(YEZ) on the lines of SEZ can be set up in rural areas. Your Co-operatives consisting 10 to 20 people can be formed and each individual allotted about 10 acres of Waste Land. Fast growing trees can be raised and biofuel/biogas production units and subsequent power generation can be done locally. This way the rural yout will be employed and large tracts of waste lands can be brought under cultivation. We have to follow the example of Mexico and Israel(Communes). Modernise the Traditional – Traditionalise the Modern. Dr.A.Jagadeesh Nellore(AP),India E-mail:

    on Aug 13, 2013