The Modi Government Has Underperformed in Developing the Rural Economy

This is the first in a two-part explainer by the CNES InfoSphere team from its latest edition, as part of its special research series on Arthvyavastha: Measuring the State of the Indian Economy. To review InfoSphere’s research work, please view its website here.

As India gears up for its next national election cycle, a special series of macro data analyses by the Centre for New Economics Studies’s InfoSphere team aims to study the performance and state of the Indian economy as part of its operational dynamics across different contributing areas and sectors.

The first edition of this series looks at the performance of the rural economy from the data made available.

As a broadly agrarian economy, rural India plays a critical role in different community-based cooperative setups, including self-help groups anchored by women which thrive across districts and villages to contribute and shape the rural growth story.

For decades now, “agriculture” alone has contributed close to 16.40% of the Indian GDP in its overall sectoral composition. In the post-COVID-19 economic scenario, much like urban areas, the rural consumption demand rates faced a declining trend, too, which was closely linked to the nature of the expenditure patterns in the urban households, witnessing a persistent decline.

However, the slumbering trend in rural consumption was offset by the increasing temporal rural demand for goods and services, due to a better-performing agrarian production cycle when monsoons were better on average and more workforce was engaged in agricultural production. This happened especially during the COVID-19 pandemic.

Despite the rural economy contributing temporarily on the consumption front, there are structural issues that are endemic to rural populations. These range from high rates of unemployment and under-employment rates to higher malnutrition, and severe infrastructural gaps that hamper the growth and development of the rural economy vis-à-vis the urban landscape. The Modi government has tried to improve the welfare distribution system of public goods and services in rural areas through different centrally funded schemes, but the results have remained mixed at best.

How does rural development cater to macro growth?

Rural income is a key driver of rural demand, which has ripple effects on a wide range of industries, including fast-moving consumer goods (FMCG), automobiles, housing, and other retail aspects. Increased consumer spending in rural areas fuels rural demand, creating a virtuous cycle of economic growth.

As per the National Family Health Survey (NFHS) 5, there was significant improvement in the rural sector during the survey period (2019-21) compared to the previous survey between 2015-16. The quality of rural lives, ranging from electricity to sanitation facilities has improved drastically, leading to rural women’s empowerment through SHGs. The government has implemented various schemes for rural development leading to economic growth which include the following four flagship programmes:

1. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
2. Jal Jeevan Mission
3. Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)

MGNREGS

The MGNREGA, passed in September 2005, gives a legal guarantee of 100 days of wage employment in a financial year to adult members of a rural household who demand employment and are willing to do unskilled manual work. The objective of the Act is to enhance the livelihood security of the people in rural areas by generating wage employment through works that develop the infrastructure base of that area.

Under MGNREGA, a total of 11.37 crore households availed of employment and a total of 289.24 crore person-days employment has been generated till December 15, 2022. A total of 289.24 crore person-days employment had been generated between January 2022 and December 2022, followed by 5.38 crore households availing of employment between April and December 2022.

The major achievements of MGNREGA include GIS-based Planning of Gram Panchayats (GPs), National Electronic Fund Management System (NeFMS)/DBT, Implementation of Geo-MGNREGA, Emphasis on Social Audit and Cluster Facilitation Project (CFP).

The new initiatives under the scheme include Amrit Sarovar, which called for the construction/renovation of at least 75 ponds in each district of the country. The Jaldoot app measures the water level in a gram panchayat through two to three selected open wells twice a year, and an ombudsperson is aimed at smooth reporting and categorisation of grievances. A total of 505 ombudspersons have been appointed.

The graph illustrates a consistent trend in which the demand for jobs under the scheme consistently outpaces the actual number of jobs provided. From our analysis, it is evident that there has been a 41% increase in the job demand, while the number of jobs provided increased by 38%. A 3% difference can appear to be insignificant, but when viewed from the perspective of the entire population, it becomes substantial.

The graph above illustrates an increasing annual gap between the demand for government-provided positions and the supply. This can be attributed to the declining budget allocations for the programme, as shown in the graph below. Consistent reductions in the government budget allocations have contributed significantly to the scheme’s inability to create the promised number of jobs. The graph below depicts an 18% decrease in the budget allocation compared to the previous fiscal year.

Jal Jeevan Mission

The Jal Jeevan Mission is envisioned to provide safe and adequate drinking water through individual household tap connections by 2024 to all households in rural India.

The programme seeks to implement source sustainability measures as mandatory elements, such as recharge and reuse through greywater management, water conservation, and rainwater harvesting.

As of October 19, 2023, the Jal Jeevan Mission states that 13.37 crore (69.5%) of 19.23 crore rural households have household tap connections. It also states that all rural households in Himachal Pradesh, Punjab, Haryana, Gujarat, Telangana, and Goa have tap water connections.

The above graph indicates a clear distinction between the funds allocated and funds released by the Union government. The funds released by the Union government are lower than the funds allocated for the scheme. From 2020, only around 50% of the allocated budget is released for the scheme. We can also see the upsurge in allocation from 2021. This is primarily done to alleviate the difficulties faced by rural households due to the COVID-19 pandemic.

This graph indicates that the share of expenditure from the Union government and states had remained almost constant till 2020, but improved drastically from 2021, to address the issues that had arisen due to the COVID-19 pandemic. It could be seen that central and state expenditures improve more in 2022. This might be one of the vote bank politics techniques to increase the vote share from rural India in the 2024 Lok Sabha elections. There is a high probability of stagnation of expenditure from the state and the Union government.

This graph indicates the percentage utilisation of government funds. It shows that the utilised funds have reduced over the years. The fund utilisation has reduced from 75% in 2015-16 to 61% in 2022-23. In 2021-2022, when the government expenditure surged significantly, only 50% of the funds were utilised.

Implementing schemes such as these requires careful planning and structuring, which is often overlooked by states to achieve quick results that have long-term consequences for the beneficiaries of these schemes, who in certain instances are completely unaware of the schemes in the first place. The Union government should implement a stringent framework to assess the on-ground implementation of these schemes and hold accountable all defaulters whose aim is solely to forge numbers. We discuss more on this in part 2 of the series.

Deepanshu Mohan is professor of economics and director, CNES. Amisha Singh and Aditi Desai are research assistants with CNES and co-leads of the InfoSphere team. Vasudevan, Shilpa Santhosh, Aryan Govindakrishnan and Jheel Doshi are members of the InfoSphere team and research assistants with CNES.