Perspectives of the Indian Rural Economy

India. July-August 2009.

The rural sector persistently categorised as a highly in-formalised segment contributes to more than 60 % of the total workforce to the Indian economy. In the years post trade liberalisation, the market elasticity in the rural areas has increased tremendously, leaving the workforce extremely vulnerable to debt bondage and frequent asset failures. In the last ten years of development alone there has been a massive shortage of employment and productivity in the farm-sector activities, leading to rise in the informal credit system procured for subsistence and survival by the rural community. The employment opportunities among the rural workforce is tightly bound to skill and geographical isolation with high percentages of occupational segregation. The consistent rates of de-feminisation and reduction in agricultural female workforce observed in the rural sector provides an interesting rationale on the rigid market and labour laws practiced in the economy with little or no reforms implemented over a significant period of policy making. This particular article is a brief narrative highlighting some of the important perspectives of the Indian rural economy, evaluating evidences from the past years of development and growth. This article will analyse some key contexts shadowing the rural sector with major emphasis to the agrarian questions in the economy, commenting on the scope and vastness of the rural economy to the present India of the 21st century.

The consistent stagnation in the labour wage policies coupled with inequalities offtrade fairness causes a persistent deficit in the overall growth of the rural economy.

Shifting of priority sectors

The beginning of the trade liberalisation period endowed upon a series of direct market reforms that brought steady skewing of the financial credit inputs into the agricultural sector. The market claiming to be more free and flexible demanded the agricultural services to modify the practices into a more export first policy approach making the small scale agricultural households fall short of the expected produce. In these years of trade openness, the transition from a regulated rigid labour environment to a heavily yield dependant setting has left more number of small scale agricultural households bank upon informal credit sourcing to match market expectations. A general trend in the rural economy is observed in the shift of the priority sectors from farm to non-farm based activities. A major behaviour change has been observed in the frequent market reforms made by the government that indulge in lower agricultural credit pumping processes in the past. A trend of the financial sector liberalisation since the 1990s has been directly observed in reduction of the direct credit based programme for the agricultural households explaining the shift in focus of the economy to other sectors.

Lack of a proper institutional based credit system for households with marginalised land holding is also one of the important reasons for low per capita growth in the agricultural sector.

Minimum matching wages and the missing labour

The consistent stagnation in the labour wage policies coupled with inequalities oftrade fairness causes a persistent deficit in the overall growth of the rural economy. The data on the increase in progress of the rural based sector can be highly misleading as it does not comment on the growing problem of wages faced by financially participating rural households. The growing proportion of inequalities and gaps in the wage distribution among the workforce makes the rural market invite heavy rates of casualisation of labour, increasing the intra-sectoral shifts. A fine example of this is seen in the rising proportions of debt among such wage earners who get little or no relaxation on credits due to non-linkage to banking systems. The framework of labour policies and schemes haven’t been able to ensure maximum inclusion and higher wages for the lower earning rural households. Ensuring higher minimum wages to the marginalised agricultural households can balance the unstable agrarian economy that suffers with high percentages of seasonal migration. Apart from the increased debt traps and wage distress within the economy, a growing concern is the missing female labour force participation rates observed in the last decade. About 75 % of the women workforce majorly associated with the agricultural sector has faced de-feminisation during transition to wage termed capitalist based agriculture practices that has led to reversal in women participation rates. During this transition period while the male workforce had a transition into non-crop based agricultural practices, the women workforce faced a ten percent decline with majority of them challenged by severe income effect. The evidence of such a negative participation behaviour has been recently reported by the International Labour Organisation (ILO) stating this as a serious concern and challenge for the Indian economy.

Consistent Agrarian Crisis

The major agrarian questions pertaining to the rural economy is still mostly unanswered with the parallel thought of transition and focus towards the non-farm based activities. The rural based agrarian economy is mainly categorised by stagnated growth and fewer scopes of improved production. Though this question can be challenged over a state-wise performance as the agricultural productivity gaps have measured inequalities for different areas but the overall growth of agriculture based services have been persistently negative. The rural economy in India unfortunately has been unable to provide a classical transition into the non-farm based activities making the agrarian economy position itself as a non-risktaking sector. The high rates of seasonal migration and increasing rates of participation in the informal sector, portrays a grim picture about the majority of the labour workforce that is not able to find the right market outside being a traditional agricultural household. Lack of a proper institutional based credit system for households with marginalised land holding is also one of the important reasons for low per capita growth in the agricultural sector. The agriculture sector has had some key reforms in the form of subsidiaries and waivers but unfortunately the benefits of such schemes have been poorly targeted towards the export only agricultural practicing households in certain states of India. The indebtedness among farmers due to such inequalities of schemes have been majorly high among the marginalised households in most backward states of resulting in decrease in real wages associated with land, asset and yield.

Lessons from the rural economy – Concluding remarks

As the Indian economy completes twenty-five long years of a trade free reform based structure it is of prime importance to measure the levels of inclusion that such an economy has provided in the past for the majority of the labour force. It has been widely observed that the market opportunities and scope of growth for the agriculture dependent population has been mostly redundant with the labour force unequipped to match the competitive markets. It is essential to realise that the rural economy is not an incentive based sector but a workforce dependent framework with extremely dynamic socio-cultural diversity. An important take away here is that a reform driven economy cannot expand on the cost of its agricultural dependent workforce making them susceptible to high rates of inflation and frequent price hike of essential commodities like food, health and land. In the process of becoming an evolving economy of global standards we must not forget the relevance of having a well-balanced rural economy that can support and appreciate our standards of development.


Profile photo of Gaurav Bhattacharya
Gaurav Bhattacharya is a rural development fellow on a fellowship programme hosted by State Bank of India. He is working with a local NGO on a National Health Mission project to effectively implement a Malnutrition Treatment Centre in the Community Health centres in the tribal blocks of south-eastern Rajasthan in India. He completed his masters from the University of Oxford, and has been active in the study of rural economics to analyse social inequalities and exclusions of the rural poor.