Time to focus on rural non-farm economy

IN PERSPECTIVE

The COVID-19 pandemic and the ensuing lockdown have shattered economies across the world, devastating the lives of millions. The migrant workers in India, primarily hailing from rural regions, are the first ones to lose jobs. This forced them to return to their villages, with many walking thousands of kilometres and some dying on way home.

This goes to demonstrate that during a crisis which creates a profusion of anxiety and fear, home is the haven of safety and security, especially for those workers who have an informal contractual job or depend on daily wages to survive. Studies have shown that rural to urban migration in India is caused largely by rural unemployment and agrarian distress (push factors), not the enticement of a higher standard of living (pull factor) attainable in cities.

The decision of moving away from home perhaps carries a high level of personal disutility for most migrants. Against this backdrop, the pandemic has showcased the structural fault lines of the rural economy wherein lies the origin of much suffering that we see today.

As the crisis will take time to abate, returning migrants will now seek jobs at their source. As the contractual nature of their work does not guarantee employment upon return to cities, leaving them to secure a means of livelihood back home. With farming generally offering meagre returns and working as an agricultural labourer being seasonal, the rural non-farm sector has the potential to play a vital role in generating year-round employment opportunities.

As per the NSSO (National Sample Survey Office) 67th round data, the non-farm sector accounted for 36% of total rural employment, an increase from 27.3% in 2009. While this is an encouraging trend, the recent NSSO 73rd round data shows that as high as 91% of rural non-farm enterprises are own-account enterprises, meaning that they employ only household labour (no hired labour) with a rather low value addition per worker (Rs 55,495 annually).

Of the rural non-farm enterprises, only 35% are engaged in manufacturing and the rest are in services, of which, almost 50% are in trading. In the category of trading, 88% are again own-account enterprises, implying that most rural trading establishments are probably petty shops, which may barely support a family.

For our agro-based rural sector, food processing industries are considered to hold much promise, but analysing NSSO data, we observe that this sector too is dominated by own account enterprises where more than 50% are either stagnant or contracting.

Thus, a need has arisen to encourage the growth of remunerative manufacturing and service sector units in villages. This need is crucial today, owing to the high influx of return migrants and uncertainty of their future employment in cities due to the pandemic. Organisation into clusters by leveraging of local resources and involvement with the supply chain by the rural non-farm enterprises can help achieve value addition as well as employment generation.

Farm and non-farm linkages here are crucial, and with the adoption of more innovative farming, much can be achieved. To encourage such activities, focused policies and more importantly, their implementation strategies including handholding at the initial stages, are necessary. Our village-level survey in Karnataka shows that the rural non-farm sector faces two major problems: inadequate finances and a lack of knowledge.

Access to credit

In relation to the first concern - access to credit - schemes are aplenty. For example, the finance minister announced recently the Atmanirbhar Bharat Abhiyan allocating funds for MSMEs. The MUDRA Yojana is another massive credit scheme that can potentially be beneficial, provided the non-farm sector is able to take up remunerative and scalable projects instead of petty businesses as we see today which usually are not able to receive credit support.

This brings us to the second, more critical issue pertaining to knowledge, technology and planning. Our field visits in Karnataka have revealed that many rural households lack the knowledge about innovative or remunerative ventures and can only think of opening a kirana store or renting out a tractor as plausible activities.

The Organic Jaggery Technology Park established through state support in Mudhol, Karnataka, shows how agro-processing can benefit farmers. More such initiatives are necessary to make a significant difference in rural livelihood. Now, farmers in Mudhol are planning to set up processing units within their farms, thereby moving directly into non-farm activities.

If allied activities like packaging and transportation can also find root in villages, more employment-generating establishments can develop. Forming joint liability groups of small village entrepreneurs is helpful in accessing credit without any security. With educated youth looking for new venues to channel their talents, management and engineering graduates hailing from these regions can leverage digital marketing platforms to promote local businesses.

Herbal product development with their packaging and marketing is another remunerative and employment-generating activity. Similarly, one can develop village tourism and industries around it. It would provide several service-related jobs and also create a market for local handloom, handicraft, food and beverages. Developing skills at the local level, bringing promising entrepreneurs by providing incentives or linking villages with such entrepreneurs, starting technology parks in rural areas are ways to bridge the knowledge gap.

The coronavirus crisis calls upon our policymakers to do at a much larger scale what has been elusive so far -- transforming the structure of the rural economy and giving it the stability needed not just to survive but also to thrive and brighten the lives of millions, who right now see a bleak future ahead.

(Meenakshi Rajeev is Professor and Anush Hariharan is Research Assistant at ISEC, Bengaluru)