December 6, 2023 07:36:43

Implications of Declining Rural Incomes on Festive Demand

The Status of the Rural Jobs Scheme

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) offers 100 days of employment per year to every rural family. Between July and September, the demand for these jobs exceeded last year’s figures by 15% (2022-23), and by 29% when compared to the pre-pandemic year (2019-20). The influx of rural families seeking low-paying jobs suggests a shortage of regular employment opportunities and potential setbacks in household earnings. This growing reliance on a safety net program reflects underlying economic distress, with demand for MGNREGS jobs surging after the COVID-19 lockdown in March 2020.

Farm Incomes in Rural Regions

In August, retail prices for cereals, pulses, and vegetables were up by 12%, 13%, and 26% year-on-year, respectively. However, this does not translate into increased earnings for farmers. Price hikes are a consequence of repeated crop losses caused by extreme weather events, such as heat waves damaging wheat crops and untimely rains affecting rice production. Pulses prices are climbing due to reduced planting and looming shortages caused by droughts in major growing states. Although tomato prices soared in July and August due to lower production and rain-related damage, only a fortunate few farmers reaped the benefits.

Indicators of Distress

The surge in demand for low-paying jobs among millions of rural families implies a shortage of regular employment opportunities and potential income reductions.

Impact of the Monsoon

The southwest monsoon, a crucial lifeline for rural India, recorded a 6% deficit compared to the 50-year average. However, the distribution of monsoons across time and regions was uneven, with some states experiencing droughts while others grappled with floods and heavy rainfall. The extent of crop damage will become apparent when the kharif harvest enters the market in October.

Trade Decisions’ Effects on Rural Incomes

The government has restricted cereal and onion exports and lowered import duties on edible oils and pulses to control consumer prices. Additionally, measures like stock limits and open market sales from government reserves during harvest times have pushed down farm gate prices. A recent report estimated that wheat farmers incurred losses of 40,000 crores in 2023 due to pro-consumer policies, and rice growers may face similar challenges in October. Oilseed farmers suffered output losses but cannot expect higher prices, as the market is flooded with cheap imported oils.

Implications for Rural Demand

The decline in incomes could impact sales of packaged consumer goods, consumer durables, small cars, and two-wheelers during the festive season. Monitoring untimely rains during this month’s kharif harvest will be crucial. Consumer sentiment in rural India will also hinge on the outcome of the winter crop. On a positive note, increased spending by political parties in the lead-up to state and general elections, government cash transfer schemes, and cooking fuel subsidies may partially offset income losses.