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Mainstream, Vol XLVII, No 49, November 21, 2009

Whither Rural India?

Tuesday 24 November 2009, by Kripa Shankar

The rural population is at present estimated at 85 crores. Ten per cent of the households are completely landless. Another 52 per cent have holdings of less than 0.2 hectare. The per capita agricultural land in the rural areas has come down to 0.12 hectare. According to the National Sample Survey, the annual income of an agricultural household from farming is less than Rs 12,000 and from all sources it is less than Rs 25,000. The yield per hectare is now stagnating; so are the cases of the net area sown and the area irrigated. Groundwater irrigation through private tubewells has largely been responsible for the growth in agricultural production but on account of over-exploitation the groundwater table is falling at an alarming rate making irrigation difficult as well as costlier. The growth rate in foodgrains production is lower than the population growth rate with the result that its per capita availability is no higher than what it was 50 years back. It is now declining and is currently 444 grams per capita per day against 494 grams in 2002.

If this trend is to be reversed utmost attention should be given to creating more irrigation facilities. Canal irrigation is declining and while it may be necessary to tap ground-water where it has not been fully tapped, the strategy should be to impound rainwater through a network of check dams, bundhies, dug wells and contour bunding etc. This will not only check the fall in the groundwater level but will prove to be the cheapest source of irrigation as carrying water to the fields will not be costly. It will also prevent to a great extent the menace of floods because if the rainwater is compounded there will be no excess flow to the rivers. Construction of these water harvesting structures is not a costly affair but such activities can be planned and executed on a community basis as it will benefit the entire community. The village panchayats can perform this task but they have no funds. This is true about public investment also as the allocation for such activities in the budgets is minuscule. Agriculture and allied activities like animal husbandry, dairying, watershed development, minor irrigation, agricultural education, Panchayati Raj, development of land and water resources, soil and water conservation, cooperation, crop insurance, rural godowns do not constitute even three per cent of the Central Budget. The share of the State governments’ expenditure is only marginally higher. Witness a situation where 60 per cent of the population is dependent on agriculture but public expenditure on the above mentioned activities is not even three per cent of the total expenditure of the Central Budget. There is a separate budget for rural employment schemes but its share at three per cent is far short of the requirement. Unutilised land in the country stands at four crore hectares and to bring this land under some use, a very massive outlay, both public and private, is required. Continued neglect of the agricultural sector has led to a situation where 95 per cent of the farmers are in deficit and have nothing to invest.

Public investment crowds in private investment as the former results in larger income to the households. Public investment in irrigation should form the core of investment in the first instance. Only 45 per cent of the sown area is irrigated and it is through watershed development that the unirrigated area can be brought under irrigation at the least cost. It may be mentioned that natural rainfall in most of the so-called drought prone areas is higher than the agriculturally developed States of Punjab and Haryana but as there is no investment in water harvesting schemes such areas have very low agricultural productivity. There are various employment generating programmes in the rural areas. They should be geared to water harvesting schemes in the first instance as no other activity is more important.

Agriculture happens to be the most risky activity subject to drought, floods, pests and untimely rains. There should be universal, almost free crop insurance schemes so that the peasants should be protected from these losses. Every car is insured and the government provides a subsiby of Rs 10,000 to Rs 30,000 per car owner through subsidy on diesel and petrol. The cost of running a free crop insurance scheme will not be higher than the subsidy given to car owners. The country would be saved from the blot of thousands of peasant suicides due to crop failure and their inability to pay the debts.


The investment in the rural sector can be significantly raised if bank credit is available without any hassle and illegal deductions. Only 10 per cent of bank credit goes to agriculture and allied activities. The credit deposit ratio of the rural branches of banks is less than 40 per cent. Banks are siphoning more than Rs 1 lakh crore rural savings to the urban areas instead of the other way round. The National Commission on Agriculture has suggested that loan to farmers and rural poor should be given at four per cent rate of interest. The banks can do so only when an interest subvention is given to them for meeting the loss. Assuming that an interest subvention of 10 per cent is called for, an interest subvention of Rs 10,000 crores can enable the banks to extend loan to the tune of Rs 1,00,000 crores at a nominal rate of interest. This will induce the rural population to make investments in a substantial manner. Interest subvention of the above order to the rural population will be only half of what the Central Government spends on police and less than 0.1 per cent of what is doled out as subsidy on petroleum products enjoyed largely by the relatively affluent sections of the society.

Howsoever imperative it may be to increase investment, public investment is not likely to be raised because of the huge deficits in the Central and State budgets. Instead of taxing the better-off it is depending on borrowings as interest payment along with repayment of debt combined with defence expenditure is higher than the entire revenue of the Centre. This is forcing the latter to depend wholly on borrowings to finance developmental activities.

In order that private investment may get a fillip the government should guarantee the bank loans of the rural producer which alone can induce them to offer loans. Half of the rural households are indebted and 96 per cent are under deficit. They would not risk further borrowings unless loans are hassle-free and cheap. But a new phenomenon has appeared as banks now make a cut of 10-20 per cent in an illegal manner. A new breed of dalals has also mushroomed who induce the rural people to borrow assuring them that the government will waive the loans. They also pocket a portion of the loan. Thus what is trumpeted as rising bank credit to the rural sector is nowhere reflected in higher production.

Despite all the limitations the income of the farmers can be raised if they get remunerative prices. The farmers sell their produce just after the harvest as they have no holding capacity and have to repay crop loans and other loans apart from meeting other consumption needs. Had there been a strong network of cooperative marketing societies, rural producers could have got bank loans on the hypothecation of the produce to meet their immediate needs and need not have sold immediately after the harvest. Farmers do not determine the price of their produce as it is the trader who is the master of the situation. In this connection construction of rural godowns and warehouses is of primary importance. The panchayats can undertake construction of rural godowns but they have no funds and the marketing cooperative societies exist in name only. The government is equally disinterested in promoting cooperative marketing as is reflected in the meagre sum allocated for this purpose. Traders appear to be the main beneficiary as what they pay to the producer is only half of the amount that the final consumer pays.

The political class in India wants cheap food-grains, cheap agricultural raw materials and cheap labour. Its agenda for industrial development will be jeopardised in its absence as it has to compete with other developed countries in the export market. On account of vast poverty there is a limited market in the country; so the imperative is to sell at cheap rates in the international market. This is not peculiar for India. Industrialisation has always relied on surplus extraction from farmers through price mechanism. But the significant difference is that with industrialisation the number of persons living in the rural areas and depending on agriculture declined sharply in the industrialised countries whereas in India there is a secular increase in their numbers. The number of cultivators along with agricultural labourers was 9.7 crores, according to the 1951 census. Their number increased to 23.3 crores, according to the Census of 2001.

The increasing distress migration to cities and metropolitan areas bears witness to the rising unemployment and under-employment in the rural areas. At present roughly 10 per cent of the workforce in the country is totally unemployed and their number is rising fast. The organised sector employment, which stood at 25 crores in 1997, has come down to 26 crores in 2005.

More disconcerting is the decline in employment in the manufacturing sector. The relatively higher growth rate in the national economy is not based on commodity producing sectors, particularly the agricultural sector, which is ominous. Service sector-based export-led growth is tenuous as it depends on foreign markets.

What is essential for sustained growth is a rising internal demand which can come about only if the purchasing power of the vast rural masses is raised through massive public and private investment. In its absence rural India will continue to bleed white.

The author is an Honorary Fellow, G.B. Pant Social Science Institute, Allahabad.

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