A recipe to deepen the distress in rural economy

News: The pandemic induced slowdown has disproportionately affected those at the bottom. Also the economy specially the rural economy had been facing challenges due to demand deficiency even before the pandemic started. 

Given that monetary policy has limited success in dealing with a crisis of this nature ,fiscal policy is expected to play the dominant role.  

How can fiscal policy help the rural economy come out of distress? 

It can be done by increasing consumption demand in the economy and also protect those impacted by the slowdown and the pandemic.  One way of doing this is to raise incomes of those engaged in agriculture, directly as well as indirectly. 

What are the challenges that rural economy is facing? 

Rising cost of agricultural inputs: Budget has drastically reduced the subsidy on fertilisers for 2022-23. This is in addition to the high prices for energy, which has also seen a sharp rise last year as prices for both diesel and electricity rose. 

This will lead to farmer incomes declining even more than the levels of 2019. 

Although there has been a rise in inflation, the budget has not increased allocation for support schemes, such as crop insurance, interest subvention and cash transfer scheme. 

Due to the challenges faced by the agriculture economy, rural non-farm economy acted as a refuge for a majority of wageworkers. For example – Majority of the workers took employment under the National Rural Employment Guarantee Scheme (NREGS). However, budget allocation of NREGS also has been reduced compared to last year. 

Overall, there is a net result is a 12% decline in the budget of rural development at a time when distress in the rural economy is at its highest.  

Government should strive to provide protection of incomes, employment and basic services to the majority in rural areas.    

Source: This post is based on the article “A recipe to deepen the distress in rural economy” published in Live-Mint on 2^nd Feb 2022.