What is driving rural distress in India?

Indian Express

4 days ago

— Ritwika Patgiri
The Government has recently imposed a cap of 60 per cent on the spending under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for the first half of the financial year 2025-26. Until now, the scheme has operated as a demand-driven programme with no such spending limit.
The capping has been seen as a challenge for rural communities relying on it, especially during the lean agricultural season. It has also been argued that around 20 per cent of the first half's budget is usually spent on clearing pending wages of the previous year.
The mandate comes at a time when data from the Ministry of Rural Development has shown a 4.5 per cent rise in households demanding work under MGNREGS between June 2024 and June 2025. In June 2024, around 26.39 million households sought work under the scheme in June 2024, which rose to 27.59 million in June this year.
The year 2025 marks two decades since the implementation of MGNREGS, which aimed to provide at least 100 days of guaranteed wage employment to one member of every Indian rural household. The scheme was implemented against the backdrop of declining real agricultural wages after the 1991 economic liberalisation.
MGNREGS (based on MGNREG Act, 2005) also came against the backdrop of rural development policies shaped for poverty reduction and capital formation. The scheme sustained over the years, and notably during Covid-19 lockdown absorbed a large number of returning migrant workers.
However, in recent years, the scheme faced issues such as inadequate budget allocation and delayed wage disbursement. As of 2018-19, only 7.4 per cent of rural households, on average, availed of 100 days of work. In 2023-24, an average MGNREGS household worked only for 52 days.
Since the pandemic, there has been a rise in the number of people demanding MGNREGS work. However, the growing gap between the demand for work and its availability underlines a larger rural distress, where finding employment since the lockdown has become difficult.
Data from the Centre for Monitoring Indian Economy (CMIE) highlights key indicators of this distress:
— Rural wage contraction
— High rural inflation
— High demand for employment under MGNREGA, and
— Sluggish rural consumption.
These issues are closely linked to the developments in the agriculture sector.
Agriculture remains India's largest sector for employment, accounting for 46 per cent in 2023-24, while contributing only 16 per cent to the country's GDP. During the last eight years, the real Gross Value Added (GVA) of agriculture has increased by 4.9 per cent.
The projected growth rate of agriculture in FY 2025 is 4.6 per cent compared to 2.7 per cent in FY 2024. Nonetheless, despite this, real wages of agricultural workers have largely remained stagnant. The projections for growth are based on a good Kharif harvest and are contingent on an equally positive Rabi (winter) harvest, which is largely dependent on climatic conditions.
In India, the agricultural workforce consists of cultivators and agricultural labourers. Agricultural labourers work on land owned by others in return of wages, paid in cash or kind. Cultivators, on the other hand, own land or operate land through lease or contracts.
The stagnation in real wages of agricultural workers, along with an increase in agriculture's share of employment from 42.5 per cent in 2018-19 to 46.1 per cent in 2023-24, reveals issues within the sector and the broader Indian economy.
The 'buffer' or 'fallback' nature of agriculture became evident during the Covid-19 pandemic and the lockdown. Studies have found how rural households went back to agriculture in the absence of other alternatives during the lockdown. Migrant workers returning to their respective areas also took up agricultural work as a 'fallback' option.
This shows that agriculture remains important for rural labour. At the same time, sustained agricultural growth and rise in farmers' income are dependent on public investment and structural reforms in the sector.
According to NABARD's All India Rural Financial Inclusion Survey (2021-22), the average monthly income of agricultural households was Rs 13,661 compared to Rs 11,438 of non-agricultural households. For agricultural households, income from cultivation forms one-third of the total income and is the primary source.
Agricultural households have also shown more diversification into other income sources as compared to non-agricultural households. The story of the emergence of non-farm employment among rural households is closely related to the transformation of the rural economy post-Green Revolution.
India's economic growth between the 1960s and 1980s has been termed by the late economist Raj Krishna as the 'Hindu rate of growth', referring to the low economic growth that averaged around 4 per cent. During the 1960s, the growth rate of agriculture was around 1 per cent annually, which increased slightly to 2.2 per cent between 1968-69 and 1975-76.
The Green Revolution of the early 1970s helped the country achieve food sufficiency in foodgrains like rice and wheat. However, the impact of this revolution was uneven, evident in:
— Rising regional disparities
— Neglect of rainfed areas
— Neglect of nutritional crops, like millets, and non-food grains, and
— Exclusion of resource-poor farmers
Moreover, it also raised concerns about issues of ecological degradation and long-term environmental sustainability.
Another debate around the Green Revolution in India has been around its role in the emergence of the rural non-farm sector. The mainstream view holds that Green Revolution technologies, by boosting agricultural productivity and farmers' income, create consumption linkages that generate demand for goods and services produced by small-scale, labour-intensive rural entities.
This, in turn, creates backward linkages and spurs demand for agro-processing goods. Studies indicate that states like Punjab, Haryana, and West Bengal have benefitted from such growth patterns. However, there's a flipside to it – a contrasting perspective suggests that because of rising input costs and uneven distribution of the benefits of the Green Revolution, many rural households were pushed to opt for alternative non-farm sources of income.
Hence, it has been argued that rural non-farm employment was often driven by distress. In fact, the nature of the emergence of the rural non-farm economy is contentious. There is, however, evidence that a large number of farmers are increasingly relying on borrowing to manage their agricultural activities as a result of rising costs of cultivation, including the cost of labour, fertilizers, and machinery.
The larger question on the current rural distress indicates that despite growth in the agricultural sector, rural workers struggle to find adequate employment. While supply side policies like easing credit access, reducing direct taxes (like corporate taxes), and promoting the ease of doing business are important, they fall short of addressing the basic concerns of job creation and the quality of employment available to rural workers.
MGNREGS, for instance, was implemented on the basis of a legal right to employment. But the spending cap neglects the demand-driven nature of the scheme. Moreover, public investment in agriculture needs to be scaled up, particularly in areas like irrigation, storage, and climate-resilient farming practices. Both MGNREGA and agriculture acted as 'fallback' options during the pandemic-induced lockdown, a fact that cannot be overlooked in future policy decisions.
Examine the impact of the recent cap 60 per cent on MGNREGS spending on rural employment and livelihoods. What do you think could be the possible implications of spending cap on the scheme?
Despite growth in agriculture, rural workers continue to face employment challenges. Discuss the structural issues underlying this paradox.
MGNREGS functioned as a safety net during times of crisis, such as the COVID-19 lockdown. Comment.
Discuss the role of MGNREGS and agriculture as 'fallback' options in the rural labour market. What does this indicate about the state of rural employment in India?
(Ritwika Patgiri is a doctoral candidate at the Faculty of Economics, South Asian University.)
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