Rural economy, not the corporate sector, holds the key to economic revival

How will the rural economy survive and adapt to drastic social changes and economic crisis is a question that demands our immediate attention. What needs to be done and the direction rural economy takes are issues of paramount importance before us.

Return of the Migrant Workers: The challenging task will be to absorb, both socially and economically, migrant workers who have returned and are not likely to go back to the urban centres in the near future. The so-called urban pull factor of migration is unlikely to work in the foreseeable future— with urban job opportunities also declining significantly due to the recession.

Added to this is the indifference and cruelty migrant workers have experienced during the lockdown, which will act as a further deterrent. Now that many of them are back home, they have to find some occupation to earn their livelihood in the rural economy itself. Otherwise, social tension and unrest will break out sooner than later. A major issue will be how to reconcile unemployment in the rural informal sector, which traditionally depended on urban trade.

Consumption by the migrant workers now in the rural areas will no doubt boost demand for food in the rural sector but not for other consumables. Consequently, the supply of marketable surplus to the urban sector will decline to some extent. This may strengthen the local rural economy.

But with remittances sent earlier by migrant workers from urban centres having dried up, consumption on non-food items will decline sharply in the rural economy. The wages for agricultural labour are also likely to decline following the influx of migrant workers seeking jobs in the rural sector. So, in effect rural communities will need to internally generate employment opportunities and income.

This may come about in three ways. A move to develop an active community level awareness and campaign to replace mechanisation in agriculture by more labour-intensive cultivation is possible. This may also be cost-effective due to the rising price of diesel and machineries vis-à-vis the now declining agricultural wages. Labour shortage in agriculture due to migration of labourers to urban jobs has been one of the reasons for mechanisation, which in turn triggered further migration. The vicious cycle of pull-push migration could be broken if labour intensive techniques are adopted.

Secondly, for local production of items of local requirement, the local weavers, artisans and craftsmen may establish micro enterprises and form local community marketing cooperatives. Side by side, there may be community campaigns for buying local products, as far as possible, replacing some of the items coming from urban industrial sectors (a kind of a Swadeshi Movement).

Thirdly, local initiative for building community infrastructure, like water harvesting, canal irrigation network, huts for community market centres etc. may generate employment opportunities. Community level planning and implementation of 100-days work programmes under MNREGA may be emphasised with assured timely disbursement of cash, and issuing of new job cards to those who are not yet included.

Where to Sell the Crops: Recession in urban markets will have its impact on agriculture too. Big farmers and those producing cash crops for agro-based industries and for export or sale in the urban markets of their produce like animal husbandry, fish, fruits and flowers, are going to be hit more.

Due to the liquidity crisis the government and banks may not be in a position to effectively pursue schemes of agricultural credit, state purchases at minimum support price, crop insurance etc. In the wholesale market of agricultural commodity, wholesale dealers and retailers will also be cautious due to the liquidity crisis and there may be break in the market chains with a general price deflation.

Therefore, the present motive of the farmer’s agricultural production for larger urban markets has to be now reoriented more towards local and regional needs. Instead of specialising in one or two cash crops, the choice of crops to be cultivated needs to be diversified, and quantities to be produced revised according to the demand in local and regional markets.

Secondly, in situations of shrinking market and product price deflation, cost reduction becomes necessary. A move towards organic farming to lower the costs may be desired. Here input costs of chemical fertilisers and pesticides are eliminated, the price of which are increasing as fertiliser subsidies are being withdrawn. In this process agriculture becomes more self-reliant by reducing its dependence on industrial products like fertilisers, pesticides, and machineries and the consequent outflow of money from the local economy towards these purchases.

Local Money Economy: With declining sales to urban centres and remittances coming from the urban sector, the rural sector will be money starved, unless government regularly pumps in money through its various schemes. But can that money be retained within the rural economy for its internal transactions?

Usually, as the rural sector is a net importer of urban products, its money flows out to the urban sector. Therefore, due to the short supply of money into the rural sector, further agricultural price deflation may occur in local markets. A paradoxical situation indeed – there may be enough food in the rural sector but no money to buy it. An answer to this could be delinking and insulating the local economy from external urban markets as far as possible.

Globally, from the national economies to the corporate businesses, all are going into shells, scrapping down the fundamentals of free trade market economy and its globalisation. The national and international economic and political structures are also breaking down.

At the national level, particularly in the rural sector, the market economy now needs to be replaced by inward looking local economies. These local economies are to be protected from external monetary shocks, if possible with their own community money, or by barter exchanges within themselves, as in non-monetary debt or gift economy.

In a move towards a somewhat similar goal, China, from May 2020, has started a trial of state-run localised digital currency in four major cities alongside her national currency to protect their domestic economy from external monetary shocks. Localisation in this form means making the local economies self-reliant. It does not mean self-sufficiency. In a matrix of local economies transact their surplus production, shortening the distance between the producers and consumers.

While economic contraction is seen in all countries, mishandling the issue of migrant labourers for nearly two months under lockdown has given a different dimension to India’s economic crisis. The wheel is now moving in the opposite direction – de-urbanisation and de-industrialisation now appear as real possibilities.

Of India’s population, about 69 percent live in rural areas and 39 percent are migrants (Census 2011). In this economic pandemic, the lifeline of Indian economy lies in the transformation of the rural sector into a matrix of local economies, striking a balance between their diversified local production for local needs and surplus trading.

(The author is former Professor of Economics, University of Kalyani and former Joint Secretary, University Grants Commission)