Rural Economy Recovery

Source: Indian Express

Relevance:

Synopsis: The government has changed its fiscal strategy. It went all out last year to shield the rural economy and households by way of free food, free gas, front-loading PM-Kisan payments, increasing MGNREGA allocation, moratoriums etc.

Background:

• A large part of the resilience of the rural economy last year stemmed from government support.
• Now, the government is providing support in a targeted and calibrated manner.
• For example, free food rations have been extended till November.
• The government also increased the amount of subsidy on fertilisers unexpectedly.

This loss of lives coupled with the loss of livelihood can make rural spending more cautious.

Trends in rural India:

1. Firstly, rural India has been devastated by the vicious second wave.
   • At its peak last year in August-September, rural districts accounted for 2.28 million new cases.
   • In April and May this year, this rose to 7.61 million.
   • During August-September 2020, approximately 28,101 Covid-19 deaths occurred in rural districts.
   • In April-May this year, the reported number was up 198 per cent at 83,863.
2. Secondly, rural India has been displaying signs of a “Fast-in Fast-Out’’ phenomenon in the last few weeks.
   • For example, the CMIE rural sentiment index is up 2 per cent in June from the trough in May, even as the urban index is down nearly 3 per cent.
   • Similarly, average daily registrations of agricultural equipment like tractors, trailers, and harvesters are up 237 per cent in June as compared to May.
3. Thirdly, rural India now seems to be more optimistic as compared to urban India.

Way forward:

• The government needs to cut taxes on fuel and edible oils (it has been cut recently).
• Investment in commodities to enhance supplies.
• Simple supply-side responses to solve much of the problem related to sharp jump in food items of mass consumption.
  • Pulses have always been a bugbear in terms of their impact on inflation.
• Nudge NAFED to sell/release at least 15 per cent of the stock in 10 days. It will help cool the market.
  • In this context, the “SUPPLYCO” model, as currently prevalent in Kerala, could be effectively remodelled for NAFED to transfer maximum benefits to consumers and farmers in the entire crop-to-cash cycle.

That is why any signs of a nascent rural recovery have to be supported by government intervention through aggressive supply-side and compassionate measures.