State of the Rural Economy of India | 27 Nov 2024

Source: EPW 

Why in News?

India's rural economy faces significant challenges, including poverty, unemployment, and agrarian distress. To address these issues, there is a need to focus on rural industrialisation, particularly through women-owned non-agricultural enterprises.  

• Expanding such enterprises can enhance GDP growth and improve employment opportunities in rural areas, especially for women. 

What is the State of India's Rural Economy? 

• Rural Demographics:  
  • According to Census 2011, 68.85% of India’s population resides in rural areas and it is projected by NITI Aayog that it will remain above 50% even in 2045, indicating the sustained significance of rural India in the nation's socio-economic fabric. 
• Living Conditions: 
  • According to Census 2011, around 39% of rural households resided in one-room accommodations, with only 53.2% having access to electricity compared to 92.7% in urban areas.  
  • Traditional fuels like firewood were used for cooking by 86% of rural households, and only 30.8% had access to tap water, highlighting challenges in basic infrastructure and amenities. 
• Rural Poverty: 
  • The Tendulkar methodology shows rural poverty was alarmingly high at 41.8% in 2004–05, declining to around 25% in 2011–12.  
    • However, 6 states still had poverty ratios exceeding 35% in 2011–12. 
  • The rural Monthly Per Capita Consumption Expenditure (MPCE) remains significantly lower than urban levels, indicating limited consumption capacity and acute poverty. 
• Employment: 
  • The PLFS Report 2023-24 highlights that rural employment is largely characterised by self-employment (53.5%) and casual labour (25.6%).  
    • A significant portion of rural workers (58.4%) is engaged in agriculture (offers seasonal employment). 
    • Salaried jobs in rural areas comprise only 12% of the workforce, with most of these positions lacking contracts, paid leave, and job security. 
  • The India Employment Report 2024 by the ILO shows unemployment among educated youth has nearly doubled from 35.2% in 2000 to 65.7% in 2022, with women (76.7%) facing higher unemployment than men (62.2%). 
  • From 2017–18 to 2023–24, India added 150 million jobs, with rural women driving 54% of this growth, particularly in agriculture.  
    • Rural female workforce participation increased by 12.5% to 34.8% in 2023–24. 
• Agricultural Distress: 
  • Small and marginal farmers, who constitute 86% of the farming population, hold only 43% of agricultural land, while larger farmers with economic holdings manage 53% of the land . 
  • Agricultural labourers who make up a larger proportion of the rural workforce compared to landowners face seasonal work, low wages, and a lack of social security measures, including medical assistance and pensions. 

What are the Challenges to Rural Economy in India? 

• Stagnation of the Manufacturing Sector: India’s manufacturing sector has experienced stagnation, contributing only 15% to the GDP in 2023, down from 16.1% in 2014-15. 
• Spatial Planning Challenge: India's shift from agriculture to manufacturing has been slow and uneven, with over 40% of the workforce still employed in agriculture, compared to 20% in China and 2% in the US.  
• Infrastructural Issues: De-urbanisation of manufacturing in India has shifted organised manufacturing from urban to rural areas, reducing costs but hindering growth due to inadequate rural infrastructure.  
  • Small towns and rural areas are emerging as engines of economic growth in India, with over half of the urban population residing in these regions, projected to grow significantly by 2050.  
• Investment Challenges: Private investment in rural manufacturing is limited. Factors such as poor physical infrastructure, lack of reliable land records, and distorted capital markets contribute to this underinvestment.  
  • The absence of efficient resource allocation mechanisms has restricted the entry of new, more efficient enterprises. 

What Measures Can Be Taken to Boost Rural Economic Growth in India? 

• Infrastructure Investments: Significant investments in rural infrastructure, including roads, electricity, and telecommunications, are vital for creating a conducive environment for manufacturing growth and economic development. 
• Promoting MSMEs: Policies should focus on empowering micro, small, and medium enterprises (MSMEs) by ensuring easier access to credit, land, and skill development programs.  
  • Supporting MSMEs, especially those addressing rural demands, will enhance entrepreneurship and generate employment. 
  • A policy shift towards developing small towns as industrial hubs is crucial for balanced regional development and mitigating urban-rural disparities. 
• Focus on Skill Development: Skill development programs must be aligned with industry needs to boost the employability of the rural workforce, particularly in non-agricultural sectors.  
  • It will ensure they are ready for the opportunities arising from rural industrialization. 
• Promoting Women-Owned Non-Agricultural Enterprises: These enterprises contribute to economic growth by enhancing productivity, diversifying incomes, and promoting financial inclusion.  
  • Women need to account for over half the new jobs created by 2030 for India to achieve an 8% GDP growth rate. 
  • Formalising these enterprises, and providing targeted business and financial support through priority sector lending, is crucial. 
• Enhancing Digital Infrastructure: Expanding digital infrastructure, including internet access and mobile connectivity in rural areas will facilitate women's participation in non-agricultural sectors.  
  • This would enable women to leverage fintech solutions for better financial access and efficient business management.