On 11 July, this newspaper published an
article by Abheek Barua on rural India titled “The 1.9
per cent growth economy”. The gist of it was that:
a) Rural India is nothing but
agriculture; and since agriculture has been growing at a
mere 1.9 per cent since 1995-96, so too is the rural
economy. Therefore, per capita rural income has fallen
in the recent past.
b) “We have a dual economic structure
in which a 1.9 per cent growth economy supports more
than 60 per cent of the population, and a 7.3 per cent
growth economy supports the remaining 40 per cent” [Barua’s
quote].
c) The rural-urban chasm is not only
deep but also “has grown substantially over the past few
years”.
d) For cell phones, other durables,
consumer goods and services, penetrating the rural
market will be limited by poverty and lack of growth,
and that “companies might find themselves reaching
saturation point much sooner than expected.”
Unfortunately, this gives a misleading
picture of the economy. We would have understood if a
populist politician equated rural with agriculture to
state that two-third of India’s population live on only
22 per cent of the country’s income, while a third live
in cities and lord over 78 per cent of the GDP. For it
to come from a trained economist is perplexing.
Since April last year, we have
constructed probably the most comprehensive picture of
India’s rural economy — a digitised database of
economic–demographic–consumption data that has been
extracted and harmonised across various sources, goes
back over two decades, down to the level of 530
districts. All the evidence that we have collected,
processed and analysed shows that rural is more than
agriculture.
First, rural is much more than
agriculture. This is true not just for the present, but
has been so for quite some time. In 1993-94, the Central
Statistical Organisation conducted its last rural-urban
classification of India’s net domestic product (NDP),
which is GDP minus depreciation. It showed that rural
India accounted for 54 per cent of the country’s NDP,
while agriculture contributed to 31 per cent of India’s
GDP. So, even if one were to account for depreciation,
the rural economy of 1993-94 was quite a bit more than
just agriculture, forestry and fishing.
The share of rural economy is more or
less the same seven years later. Our analysis shows that
in 2000-01, out of India’s NDP of Rs.1,062,400 crore at
constant 1993-94 prices, the share of rural India was 52
per cent. This is how it rural NDP played out in
2000-01: agriculture accounted for 46 per cent; industry
took up another 21 per cent; and services was 33 per
cent. Between 1993-94 and 2000-01, rural NDP at constant
prices grew at an average of 6.2 per cent per year.
Since agriculture grew at around 2 per cent during this
period, clearly the rural economy has been much more
than just agriculture.
There is a lot of evidence as well to
demonstrate that the growth of non-agricultural
activities throughout rural India. According to the
Annual Survey of Industries, even in 1993-94, rural
India accounted for 29 per cent of the country’s
organised manufacturing units, 30 per cent of its
employees, 32 per cent of its output and 30 per cent of
its net value added. In 2000-01, over a rising base,
rural India could speak of 36 per cent of organised
manufacturing establishments, 38 per cent of its
employees, 43 per cent of output and 41 per cent of net
value added.
Consider also the Census of India. In
1991, 30.6 per cent of rural households had permanent
(or ‘pucca’) houses. By 2001, this had risen to 41 per
cent, over a base which was growing at 1.7 per cent per
year. Between 1991 and 2001,households used LPG for
cooking rose from 1% to almost 6 per cent, with Himachal
Pradesh leading at 22 per cent. In 2001, almost a fifth
of rural households owned TV sets, and the rural regions
of ten states were significantly above the national
average., Between 1991 and 2001, the percentage of rural
households with electricity connections rose from 30 per
cent to 43.5 per cent, with eleven states ranked well
over the national rural average. In 2001, over 30 per
cent of rural households kept their funds in banks or
postal savings accounts. All this doesn’t square up
with the age old dominant picture of rural India — that
of highly indebted, underfed peasants ploughing
handkerchief sized fields under the blazing heat of the
mid-day sun. That may be still be partly true of
agriculture; but not of the rural economy.
We won’t inundate you with more evidence.
Instead, let’s make three points. First, rural is much
more than agriculture; it has a thriving and growing
manufacturing and services sector. Second, between
1993-94 and 2000- 2001 per capita rural income grew at
the same pace as that of urban. The reason why total
urban income was greater has much to do with higher
population growth. Third, there is considerable pent up
demand for goods as well as services like education,
telecom, medical treatment and financial products. Those
in the top quartile of rural India have been
discontinuously higher spenders than the average,
spending at least Rs.180,000 crore (NSS, 55th round) in
1999-2000, with expenditure patterns that are pretty
similar to urban India. Just consider this: services
can’t constitute 52 per cent of GDP on the rump of only
the urban populace.
Rural is morphing more rapidly than one
thinks. Barua might discover it if he looks at some more
data; or visits 20 randomly chosen rural districts, as
we have.