World-beating growth? Not for India's rural majority

Rural non-agricultural wages have contracted for the second consecutive year, while agricultural wages grew just 0.2 per cent, the lowest growth in 3 years. Growth in farm output, which contributes about 15 per cent of GDP and employs more than 40 per cent of the workforce, was seen slowing to 1.8 per cent in the current fiscal year, from 4 per cent a year ago.

Jakir Khan, an Indian farm worker, says he has cut down on food as his income has halved. There are fewer and fewer opportunities, he says, for employment in his small village in Uttar Pradesh state.

Khan says his monthly income has come down to Rs 5,000 from Rs 10,000 before the pandemic, while his weekly expenses on food have gone up 60 per cent. In November, he took a 100,000 rupees loan from relatives.

Khan, like millions of others, is struggling with the economic slowdown in rural India, home to 60 per cent of its 1.4 billion people, which is painting a starkly different picture to the country's spectacular economic growth and the prosperity of its urban population.

Reuters interviewed nearly 50 families in rural areas such as Khan's in three Indian states - Uttar Pradesh, Odisha and West Bengal - and 85 per cent of them reported stagnant or lower incomes compared to the years before the pandemic. They said inflation was high and was forcing them to borrow money to sustain already reduced consumption.

The families attributed the lower incomes to fewer jobs, more people vying for the same work leading to lesser pay and lower farm output, which reduces the demand for farm labour.

While there have been some indicative data points that show rural recovery has been slow, there is no recent, publicly available survey on incomes and consumption in India's vast rural hinterland.

"Who doesn't want to eat meat? But times are hard and I cannot afford it. I eat meat only in marriage functions of others," Khan said, speaking in Bahboliya Mahada, a village surrounded by sugarcane fields and banana plantations.

India's statistics office has forecast overall annual growth of 7.3 per cent, the highest among major global economies, for the current fiscal year ending in March, fuelled by sectors like construction and financial services.

But growth in farm output, which contributes about 15 per cent of GDP and employs more than 40 per cent of the workforce, was seen slowing to 1.8 per cent in the current fiscal year, from 4 per cent a year ago.

"I am a bit concerned. A host of indicators is not painting a great picture," Dhiraj Nim, an economist at ANZ, told Reuters. These included an increase in seasonally adjusted demand for the government's minimum job guarantee scheme for rural areas, low agriculture growth in the September quarter and rising inflation in the hinterland, he said.

"Industries that tend to be more...rurally focused in terms of employment are also not doing well," he said.

Prime Minister Narendra Modi is seeking a third term in elections due by May this year, and economists say the government might have to spend more on rural subsidies to ease the distress.

Asked for comment, the government's economic policy body, NITI Aayog, said multi-dimensional poverty was estimated to have declined to 11.28 per cent of the population from 29.17 per cent between 2013-14 and 2022-23, or by around 250 million people.

"Of these (114.3 million) belong to Uttar Pradesh, West Bengal and Odisha, the states in which Reuters has conducted this survey," it said in a statement.

"The whole programme of Mr Modi's government has been about inclusion and inclusive growth," NITI Aayog vice chairman Suman Bery told reporters on a visit to Singapore earlier this month.

"To focus on short-term agricultural performance is to neglect all that has happened in providing a whole range of safety nets during Covid and after Covid," he added.

"There is a lot to be done on the structural side but I don't think one can reasonably argue that the overall programme has not been inclusive."

LOWER FARM INCOMES

The rural economy has been hurt by a drop in the output of some key crops, such as wheat, in the past three years due to a rise in temperatures, patchy monsoon rains and falling reservoir levels.

On top of that, higher food inflation has forced the government to ban exports of wheat, some grades of rice and onions to contain prices, but this has hurt farm incomes even more.

Over 44 per cent of the families that Reuters interviewed said they were earning less than before the pandemic years, while about 41 per cent reported the same income levels as before and the rest reported an increase in their incomes.

Brokerage house Motilal Oswal said rural non-agricultural wages have contracted for the second consecutive year, while agricultural wages grew just 0.2 per cent, the lowest growth in 3 years.

It estimates rural spending fell 0.5 per cent in the July-September period. Arun Kumar, an economist and former professor at New Delhi's Jawaharlal Nehru University, said the gap in incomes between the mostly urban organised sector and the mostly rural unorganized sector "can be anything like a factor of 5".

He said it was hard to quantify the gap as the government has not released detailed consumption data for years.

Higher food inflation is leading to most rural households cutting down on key sources of protein like chicken, lentils, eggs and milk, which are more expensive than cereals and vegetables.

The cut down in food is despite the government providing free foodgrain to 800 million Indians since 2020.

ANZ said in a report that a slow recovery in indicators such as railway passenger traffic while demand for air travel has surged is indicative of the widened consumption inequality.

Nearly 30 families that Reuters spoke to had taken additional debt in the last few months from either commercial banks, local lenders or relatives. Most of this debt was to service their earlier debts or to meet food expenses.

Tilottama Pradhan, a housewife in a small village called Tarada in Odisha, said she had taken a third round of loans of 60,000 rupees from a local lender. She has cut down on meat and fish, and buys locally produced cheaper vegetables.

"We are very cautious with our spending because our income is not increasing .. We have taken a new loan to pay back old loan instalments," Pradhan said.

The Reserve Bank of India (RBI) in a report published last month said 42.7 per cent of customers availing consumption loans already had three live loans at the time of origination and 30.4 per cent of customers have availed more than three loans in the last six months. The report did not specify if the risk build up in consumer loans was seen in rural areas or urban.

URBAN CONTRAST

While rural incomes stagnated in the last few years, median salaries in companies have increased 10 per cent in 2023, following annual increases of 7.5-9.8 per cent between 2020 to 2022, according to WTW, an advisory and broking company.

That has meant strong demand in urban consumption as seen in sales of items such as smartphones, television and cars.

For instance, SUVs sales rose 22 per cent in 2023, firmly above the pre-pandemic figures, a data point seen as a proxy for strong urban consumer demand. But two-wheeler sales, seen as a proxy for rural consumption, remain lower than pandemic levels despite a 9 per cent rise in 2023.

"India is such a huge country that even if say 100 million do well, that's bigger than most of the European countries," Kumar, the economist, said.

"So the outside people may only see this, what's happening to the 100 million, not what's happening to the 1.3 billion other people. But at some point or the other it will impinge on India's story."