Indias Rural Economy

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Indias Rural Economy

• Presentation to Cornell Students
• Vijay Mahajan
• August 2005

2
Outline

• Introduction
• Growth
• Prospects is the growth sustainable?
• Agriculture
• Non-farm sector
• Equity

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India A Nation of a Billion Plus People
4
The Numbers are Numbing

• In purchasing power parity (PPP) terms, India is
  the worlds fourth largest economy, but
• Over 25 live below the spartan (calorie intake
  based) poverty line and over 40 below the
  1/day poverty line.
• Total workforce in India in 2001 was 403 million
  By now close to 440 million, growing at 1.8 pa
• About three-quarters of this is rural and about
  two-third of the workforce is engaged in the
  primary sector, of which 80 is in agriculture.

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India a nation of 440 million workers

• The formal/organised sector accounts for only 7
  of all employment.
• The rest work in 116 million farms with average
  land size of 3 acres, and in 35 million
  non-agricultural enterprises, employing an
  average of 1-2 persons.
• But access to credit, even for the economically
  active poor, is low and access to savings,
  insurance and other financial services, even
  less.
• Unemployment is about 7 but under-employment is
  a far bigger problem, and the main cause of
  poverty.

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Most of the poor are the landless in low rainfall
areas
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Non-farm activity Limestone Kiln
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Non-farm activity Brick Making
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Services petty trade, vending, etc.
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Growth Rate

• From 1947 (Independence) to 1980, the economy,
  the economy grew at about 3.5 pa
• The growth rate accelerated to about 5.5 in the
  1981-91 period, but was rife with instability and
  high inflation, ending in the 1991 crisis
• Post 1991, the growth rate has been around 6
  pa, not much higher, but much more stable and
  maintained in that range in spite of different
  political parties in power.

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Growth Rate - Components

• Agriculture growth slowed down from 3.8 pa,
  pre 1980 to below 3, with number of rainfall
  linked swings in between.
• Industry growth slowed down from 7 pa pre 1980
  to around 6 in the 1990s, with some pick up in
  the last few years.
• Services growth rate increased from 6.7 pa pre
  1980 to nearly 8 in 1990s and even higher more
  recently.

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Growth Rate Other features

• Inflation was in double digits in the mid 1980s
  and stabilised to 7-8 in 1990s and is lower now
  at 5
• Fiscal deficit of the central plus state
  governments, increased from about 6.5 of GDP in
  the pre-1980s to 9.4 in 1980s to 9.8 in 1990s.
• Savings rate increased from 21 pa pre 1980 to
  nearly 24 more recently.
• Trade (Imports Exports) increased from 14.8 of
  GDP in 1991 to 23.8 of the GDP in 2003
• Forex reserves have gone up from near zero in
  1991 to nearly 150 billion.

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Prospects is the growth sustainable?

• The Xth Five Year Plan adopted a growth rate
  target of 8 pa.
• India Vision 2020 adopted by the Planning
  Commission in 2004 says India should aspire for
  an upper middle income status.
• Growth rate in the past three years has been
  good, inching towards an 8 pa average.
• However, unless, agriculture and industry growth
  rates go up, the economy cannot sustain an 8
  growth rate.

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Prospects is the growth sustainable?Agriculture

• Agricultural growth in the irrigated areas has
  plateaued and large investments are needed in the
  dry land areas
• Elasticity of employment in agriculture is near
  zero, so while it will not lead to more jobs,
  agri growth will greatly reduce under-employment
  and thus poverty.
• Agricultural research and extension systems,
  inputs supply, procurement and marketing systems
  all need upgradation and institutional reforms.
• Investments are needed in land and water
  conservation, pasture and forest regeneration and
  in livestock development, and in agricultural
  diversification.

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Soil And Water Conservation Works, Jhabua, MP
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Community Water Harvesting Tanks, Jhabua, MP
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Medicinal Herb Plantation in Bastar, Chattisgarh
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Prospects Rural Non-Farm Sector (RNFS)

• As agriculture is over-crowded, additional
  livelihoods have to come from the rural non-farm
  sector (RNFS) and the urban informal sector.
• The RNFS accounts for nearly a quarter of all
  rural employment, and two-thirds of RNFS
  employment is in agro-processing and services.
• RNFS promotion requires skilled manpower,
  infrastructure and market linkages, and credit.

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Agro-processing Unit
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Rural Metal Workshop
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Sectoral distribution of income versus
employment (2001)

• The skew in GDP/Empl ratio is the cause of
  poverty among primary sector workers.

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Sectoral distribution of income versus employment

• The primary sector accounts for nearly two-thirds
  of the employment but only a quarter of the GDP
• The tertiary sector accounts for only about a
  fifth of the employment yet about half of the GDP
• Within the primary sector, there are severe
  income inequalities e.g. the landless vs. large
  farmers
• Those at the bottom of this pyramid are poor but
  have little chance of their children not being
  so. This structural inequity is unjust and
  unacceptable.

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Inequity India vs Bharat

• India is the English speaking 10 million elite
  and perhaps another 100 million middle class
• Bharat is the other 1000 million, non-English
  speaking, both rural and its spillover into urban
  areas
• Not all of rural population is poor, in fact
  there is substantial purchasing power in rural
  India.
• Nearly a quarter of the population is BPL below
  poverty line over 280 million people.
• Vast majority of the poor are the rural
  landless, who also then migrate to cities as
  urban informal workers.

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Inequity India vs Bharat

• However, poverty has been declining steadily
  from 51 BPL in 1977 (two decades after
  independence) to 26 in 2001.
• Proportion of the poorest (with income less than
  75 of the poverty line) has declined faster
  than total poverty.
• Regionally too, decline is widespread. However,
  the BIMARU states Bihar, Madhya Pradesh,
  Rajasthan and Uttar Pradesh still have high
  poverty, along with Orissa and Assam.

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Social and Human Development Indicators

• Nutrition is a big issue 48 of children were
  malnourished in 2001, though down from 63 in
  1975, still unconscionable.
• Health is another big issue rural landless men
  lost 41 days per year, women 77 days pa, due to
  ill-health
• Education, with literacy rates around 60 and
  high school drop-out rates, is the next big
  issue.
• Women and children come out badly in comparison
  to men in terms of all social parameters.
• Scheduled castes, scheduled tribes and Muslims
  too.

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Prospects is the growth sustainable?Equity

• On the whole, while 8 growth may be possible,
  meeting the Millennium Development Goal of
  reducing poverty by half by 2015 may be difficult
  unless
• Investments are made in land, water, forests,
  human development and rural infrastructure.
• Redistributive policies are put in place, e.g.
  Employment Guarantee Act, and
• Social sector expenditure as well its
  productivity is enhanced.

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Thank You vijaymahajan_at_basixindia.com