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Why rural India is marching on

Friendly policies have resulted in steady economic empowerment of Bharat. No surprises, then, that while India reels from the global slowdown, Bharat is shining. Anil Padmanabhan elaborates.

india Updated: Mar 23, 2009 00:51 IST

Last year, Reliance Industries Ltd’s (RIL) plan to acquire land to set up its special economic zone in Jhajjar and Gurgaon in Haryana ran into the barrier of escalating land prices. Farmers wanted Rs1 crore an acre for their land, more than double the Rs38 lakh RIL was offering. It was the same story in most parts of the country as the push for industrialization

led to a scramble for scarce land.

Besides highlighting the industry-agriculture conflict, the scenario also captured one of India’s most compelling stories of this millennium. One that has, in a sharp break from the past, led to a steady economic empowerment of the rural population, particularly those who live close to rapidly transforming industrial hubs and cities.

It is actually the outcome of an interesting constellation of circumstances rather than the fulfilment of an economic strategy.

The United Progressive Alliance, or UPA, has reordered government spending. It is no longer spending only on programmes that deliver the final product to the beneficiary—whether in the form of subsidized food, electricity or building a dam to provide irrigation water to farmers—but has added a new dimension wherein funds are transferred to the beneficiary. This, in effect, gives the beneficiaries the freedom to spend the money and mitigates leakages.

At the same time, improved rural connectivity, both in terms of roads as well as telephony, has allowed farmers to not only get better value for their produce domestically, but also to explore new export markets.

Sales in domestic markets have also risen steadily as a result of the government gradually pushing up the so-called minimum support price (MSP) for paddy, or unhusked rice, and wheat, while a depreciating rupee, particularly in the last one year, has ensured better realization on exports.

Since prices of industrial goods have not moved in tandem with agricultural products, it clearly means that the terms of trade—or the exchange value between industrial and agricultural goods—have moved in favour of agriculture.

Significantly, while some of these impulses are less important on account of the fallout of the global meltdown, government spending, export growth and the shift in terms of trade have endured. No surprises, then, that while India reels from the global economic slowdown, Bharat is shining.

It is logical, therefore, that Indian industry, led by consumer goods companies, is making a determined thrust to target the rural customer.

Whether by design or accident, the Congress-led UPA has effected a radical shift in the spending structure of the government.

Conventionally, this has followed the pattern of pumping money through an established delivery vehicle to reach a product or service to an intended beneficiary. All this changed when the government launched its National Rural Employment Guarantee Scheme (NREGS) in 2006, which promised at least 100 days of work in a year to one member of a poor rural family; this was in addition to the existing spending. In the 2008-09 Union Budget, the programme was extended to all 596 districts.

Four out of five jobs created under this scheme are in the area of water conservation, land development and drought-proofing. So not only has it provided an alternative and steady source of rural employment, it has also helped improve rural infrastructure. Including the money earmarked in the vote-on-account moved in Parliament for 2008-09, the spending on this programme is estimated at Rs66,800 crore.

And several thousand farmers across the country benefited from the record Rs65,318 crore farm loan waiver carried out by the UPA last year. Clearing their outstanding debts at a time when the farm cycle was in the middle of an upswing has provided significant surpluses in some household budgets.

Sure, this is not the universal story of the Indian farmer. But it is clear that purchasing power has been significantly enhanced in some segments of the rural populace, providing them with the wherewithal to articulate a demand, among other things, for consumer goods.

The new-found prosperity will be an unexplained variable in assessing the political mood in rural India. Those who have benefited will not necessarily rally around an election manifesto that emphasizes job losses in the face of growing economic uncertainty. If, indeed, the rural India story is true, then political parties will have to revisit their election strategies. For companies, though, the Bharat Shining story could not have come at a more opportune moment.

(Tomorrow, girl power: The mother of all rural marketing schemes; watches, cars and goodies galore for rural consumers; more tips from a rural expert.)