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Resource centre on India's rural distress
 
 

For real inclusion, agriculture and not just the economy must grow fast
-The Economic Times

The latest consumption figures from the National Sample Survey Organisation show that rural consumption grew 18% in the two years to 2011-12. 

Poverty fell by roughly 7% in villages and 1% in towns. The town-country gap in incomes narrowed. This is welcome but needs to be qualified. 2009-10 was a drought year, depressing consumption and thereby exaggerating the improvement registered two years later. 

Over a longer seven-year period, between 2004-05 and 2011-12, the annual compound growth in real consumption in both urban and rural areas is less than 4%. Of course, NSSO captures less than 50% of the consumption reported in the national accounts. So, actual consumption could have been rising faster. But the fact is that over the same period, the compound growth rate of GDP was in excess of 8% a year. 

In a fast-growing economy, investment does grow faster than consumption, raising its share in GDP. But considering the abysmal standards of consumption at the bottom rungs of society, it is not particularly a happy development that consumption by the poor (taking rural consumption as a proxy for it) is growing at half the rate at which overall output is growing. It is fashionable to bemoan growing inequality. 

Given the initial conditions of multiple deprivations of the poor, growth would, in any case, benefit the well-off more than it benefits the poor. The question is, do the poor gain at all from growth? A near-4% compound annual growth rate in real consumption is a significant achievement by India's past standards. 

The poor are not made worse off, rather, their living standards are improving. This much is definite. But more could happen, if only agriculture grew faster. 

When agriculture, the sector that directly engages the bulk of the poor, grows, the impact on poverty is much greater than from overall growth. And growth in agriculture over the seven-year period has been 3.7% compound. 

Clearly, the government must switch from subsidy to investment in agriculture, provide rural areas with roads and power and give farmers organised strength in place of stifling controls. That will produce even more inclusive growth, and win votes as well.