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LATEST NEWS UPDATES | Rural economy holds the key to economic revival -Himanshu

Rural economy holds the key to economic revival -Himanshu

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published Published on Jan 3, 2018   modified Modified on Jan 3, 2018
-Livemint.com

Distress in rural economy is not limited only to the agrarian sector but has also spilled over to the larger economy with unemployment becoming a major challenge

2017 has been a bad year for the economy. The fact that the economy is in crisis, particularly the rural economy, is no longer a matter of statistics. The recent elections in Gujarat have laid bare the fissures in the rural economy that have been ignored for the last three-and-a-half years. With three of the major states ruled by the Bharatiya Janata Party (BJP) facing elections this year, the ruling dispensation can hardly afford to take things lightly. There is already some discussion on designing better mechanisms for price support measures for farmers in Madhya Pradesh and other states ruled by the BJP. While the political exigencies may lead to support for the rural economy, there is in fact a strong economic case as well, if aggregate economic growth has to be revived.

For most commentators, there is a sense of relief that the worst phase of the economy may be over. This belief partly stems from the fact that the overall economy has rebounded, reversing the deceleration in aggregate growth numbers. Most commentators also believe, erroneously, that the slowdown has been the result of demonetisation and the hurried rollout of the goods and services tax (GST) and with the economy slowly adjusting to these shocks, the economy may actually be on an upward trajectory. But this euphoria may not last long if the root cause of the deceleration is not tackled.

It is worth reiterating that neither was the slowdown the result of demonetisation and GST rollout, nor is remonetization and the economy adjusting to GST a sign of recovery. The slowdown precedes both these shocks and the real reason is the crisis in the rural economy. There is a lot of evidence to support this, the most important being rural incomes and wages, both of which have been falling in real terms over a period of more than three years. The droughts and the sudden collapse of prices after August 2014 aggravated rural misery but the structural issues remain important and unattended to.

It was the demand depression caused by rural distress that spilled over to the larger economy. Therefore, any attempt at reviving the economy has to begin with revival of the rural economy.

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Livemint.com, 2 January, 2018, http://www.livemint.com/Opinion/ru2Zvh7HneasGeL87foNTK/Rural-economy-holds-the-key-to-economic-revival.html


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