Reforms in rural India but structural problems remain

Posted on 13th Aug 2020 by rohit kumar

Launched unlocked BFSI 2.0 dialog with leading experts. The panelists involved in the program said that the enthusiasm being expressed about rural India is not expected to be sustained for long as the structural problems in the rural areas persist.

 

Pranav Sen, former chief statistician and country director of the International Growth Center, said that the perception that the whole of rural India is doing well after Covid-19 is misleading. He said, "The situation in rural areas dependent on remittances from outside is not as good as in six states where huge quantities of produce have been procured." We cannot see the whole of rural India in one mold. '

 

Sonal Verma, managing director and chief economist at Nomura (excluding India and Asia-Japan) cautioned that rural reform should not be exaggerated. He said, "Unless construction activities pick up pace, rural activities cannot pick up momentum." Remuneration has not increased in rural areas and land prices have also remained stable.

 

HSBC Chief Economist in India Pranjul Bhandari said that rural India has performed better so far for several reasons. First, the impact of lockdown and restrictions on economic activity was less strict in these areas than in urban areas. Most of the support from the second government remained focused on rural areas, and the monsoon has also been better.

 

Rathin Roy, the outgoing director of the National Institute of Public Finance and Policy, said that the fact that the manufacturing and services sectors had declined while agriculture was not affected. Due to this, the contribution of the agriculture sector will be more in the GDP of 2020-21. Sajid Chinoy, chief economist at JP Morgan, said agriculture cannot solve rural problems because its share of rural consumption is less than 40 percent.

 

JP Morgan Kay Chinoy said, "Debt has been a major contributor to consumption in the last five years as people have taken loans and reduced savings. If you believe that the current economic setback is not permanent, then that thinking should be changed because people have become more cautious and savings are increasing. ' He warned that as a result consumption would be severely hit. However, he said that the situation is gradually becoming favorable to the agricultural sector. He said, "Agriculture has grown on average by 4.8 percent in the last year. The reason for the rural economy being in crisis was that despite good production, food inflation was at zero percent. Now it is more than 7 percent for the last 12 months.

 

Saumya Kanti Ghosh, Chief Economic Advisor at the State Bank of India (SBI), said that agriculture-related activities are very important in rural areas and unless these accelerate, the economy of these areas will not grow strongly. Ghosh said that urban income is 1.8 times the income of rural areas, so the economy will not get much help until the improvement in urban areas. On the announcement of Prime Minister Narendra Modi's Rs 1 lakh crore fund, Sen said that warehouses, etc. require human capital and without this, there is no scope for much change. Ghosh said that 24 percent of this fund is for the power sector, but there is no suitable policy for this sector and the condition of the power distribution companies is getting worse.

 

Sen said that it is not correct to say that foodgrain yield in India is more than the requirement, because the situation is still not good in rural areas. He said that large companies are also moving to rural areas, but there is a lack of an operational framework to understand the non-agricultural sector. Verma emphasized on the food processing sector and the export market to take maximum advantage. He said that with the improvement in the agriculture sector, the income of people in rural India could increase in the medium term. On the issue of loan waiver in agriculture, Ghosh said that it should be legally banned in India. Sen said that the transition to smaller cities is a matter of greater concern.