Expert Speak India Matters
Published on Oct 03, 2019

Much depends on the corporate sector and how it uses the money saved from tax to increase investment, which will help create jobs that will in turn increase demand.

Rural sector needs stimulus to revive demand and economy

Several countries around the globe are facing economic slowdown and they have announced stimulus packages to revive the slackening growth of their economies. China has announced a stimulus package to go into infrastructure building and for boosting consumer spending. By cutting the cash reserve ratio that banks are required to hold as reserves to 0.5%, China’s Central Bank hopes to release $126 billion into the economy which will be available for loans. Thailand has already announced a stimulus package of $14 billion to go into agricultural subsidies, cash benefits for low income earners and tourism. The European Central Bank (ECB) has gone for monetary easing and also reduction of interest rates to negative 0.5% in order to revive the Eurozone countries. Through its asset buying programme of €20 billion a month, the ECB hopes to enhance liquidity for revival.

Each country has its unique problems and reasons for slowdown. In India, it is the rural economy which is at the core of the problems involving the economic slowdown. The NDA government has come up with many stimulus measures aimed at reviving demand and stimulating growth. These include a host of measures to help MSMEs, the housing sector, automobile industry and exports. ₹20,000 crore fund has been established to help finish apartments. MSMEs have been promised that their areas will be cleared expeditiously and their GST refunds would take place within 30 days. No stressed MSME is to be declared as a non-performing asset until 31 March 2020.

Each country has its unique problems and reasons for slowdown. In India, it is the rural economy which is at the core of the problems involving the economic slowdown.

There is full electronic refund of GST for exports and annual mega shopping festivals are to be held in four cities. The government has simplified and eased FDI norms and granted 100% FDI inflow through the automatic route for contract manufacturing, coal mining, and has also eased the rules for sourcing of online retail for single brand products.

The most important stimulus announcement which pleased the stock market and industrialists alike has been the reduction of corporate tax rate to 22% and 17% for new ventures. This move alone is supposed to work wonders. Even though it means ₹1.45 lakh crore in foregone revenue, it may give the much needed boost to the manufacturing sector.

All these stimulus measures are bound to work over a period of time, especially those related to the banking sector. ₹70,000 crore will be provided for recapitalisation of banks. Also, PSBs and select NBFCs are supposed to boost lending across 400 districts to lend to farmers, MSMEs and housing. However, much depends on the corporate sector and how it uses the money saved from tax to increase investment, which will help create jobs that will in turn increase demand.

Low international commodity prices have led to low price realisation from sale of farm products in India, and farmers have not been able to recover costs of farming. Agricultural wages have been stagnant because of stagnant farm incomes.

The government, however, has not given equal attention to the rural sector which is very much under stress and grew at the low rate of 2% in the last quarter. Low international commodity prices have led to low price realisation from sale of farm products in India, and farmers have not been able to recover costs of farming. Agricultural wages have been stagnant because of stagnant farm incomes. One cannot expect a surge in demand for goods like two wheelers, tractors, bicycles and fast moving consumer goods (FMCGs) from such a dismal rural scene. There are reports of people in rural areas cutting down on essentials like toothpaste and shampoo and snacks like Parle biscuits from their daily lives in the absence of an alternate income from non-farm jobs.

Many rural job seekers are barely literate and are school dropouts. This is because of the pathetic state of primary education in villages. Even though there are many government schemes for skill development, few students land up with jobs in government or private sector after training. Lack of skill stands in the way of their getting stable jobs in the towns and cities. They mostly work as migratory daily wage workers who have nothing more than their labour to sell. These workers have been most affected by the slowdown of the economy and are returning home when sacked. If the rural economy had more jobs and better prospects for business, the youth would have stayed in the villages. Shortage of food processing industries and viable handicrafts and handloom production in the villages is another reason for the dismal job scenario in the rural sector.

Women are not able to earn extra income because rural transportation and mobility remain inadequate. The government has given incentives for the development of the handicraft and handloom sector through cluster development programme, but more needs to be done.

The government has started many schemes to help the poor and especially women in rural areas, but the employment situation remains dismal . Many women are not able to earn extra income because rural transportation and mobility remain inadequate. The government has given incentives for the development of the handicraft and handloom sector through cluster development programme, but more needs to be done. Usually there is a severe shortage of raw materials and appropriate technology in this sector which hinders productivity, increases costs and leads to limited incomes.

Hence after   giving a boost to the manufacturing sector through corporate tax cut, the task remains to revitalise the rural sector and the government’s help is needed to create non-farm employment by facilitating food processing and other allied industries. Guaranteeing ₹6,000 per year to each poor farmer through PM-KISAN may help a little but more money is needed to revive the farmers’ demand.

The government has to increase its capital expenditure and invest in infrastructure which will help create many rural jobs. The safe drinking water availability scheme also has to be followed up. Bringing piped water to each village household still remains a major challenge; this venture too can create jobs. Improving the quality of primary education and primary health care will lead to better quality work force, which can be hired by the manufacturing industry. Increasing employment and job security are most important for reviving demand. It can be done through construction activity initiated by the government’s infrastructure building programme. The employment situation has to improve as a result. Unemployment has actually worsened in September 2019, to 7.57% according to CMIE, which is an ominous sign.

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Author

Jayshree Sengupta

Jayshree Sengupta

Jayshree Sengupta was a Senior Fellow (Associate) with ORF's Economy and Growth Programme. Her work focuses on the Indian economy and development, regional cooperation related ...

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