The Rural Economy is India's Lifeline


Covid-19 has left India in a recessive state. In these challenging times, the Indian economy has recorded the worst financial records in the country's history. However, this paper explores the economic sector that does not receive much limelight: the rural economy. The rural economy has been the only part of the Indian economy, which has recorded any growth during the pandemic. The consumer behaviour of the rural population has experienced drastic changes in recent years. Consumption patterns in rural India have been influenced by technological adaptation and financial inclusion. Government initiatives aimed at uplifting the population have levied several expenditures off the shoulders of the Indian household. The pandemic saw the Indian Government released numerous initiatives aimed at helping the rural population. This momentum created by the rural population, supported by the Government, has created conditions conducive to the rural economy's growth. The agriculture, FMCG, consumer durables, and banking sectors can help the derailed Indian economy achieve its goal of becoming a $3-trillion economy.

India has predominantly been a rural country, with over two-thirds of its population still residing in rural areas. More than 70% of the population resides in India's rural areas, giving credence to the notion that 'real India lives in her villages. Over the years, the rural economy has supported and contributed to economic growth within the country. Thus, the rural economy is the backbone of the Indian economy.

The Indian economy is primarily dependent on its rural sector, which mainly compromises agricultural activities. India has been deemed an agrarian economy for decades. However, in recent years, agriculture dominance in the rural sector is gradually being replaced by non-farming activities. Moreover, the rural youth, which is more educated and informed about the status quo, aspires for employment that tailors their unique set of skills and knowledge.

Covid-19 has impacted the Indian economy in its entirety. With an unprecedented decline in GDP recorded during the pandemic, the urban areas are experiencing an economic deadlock.



Even during the pandemic, the rural economy has emerged as the most promising sector, and the concept of 'rural revitalization' has gained widespread support from both the Government and the public.

The economic impasse in the urban centres impedes India's objective to be a $5-trillion economy by 2024-25. During the pandemic, urban India has experienced an economic recession. With the commencement of the 2020-21 financial year, the effects of Covid-19 have destabilized the economy. The service and industrial sectors being primarily concentrated in urban areas have experienced a drastic decline. However, amid this crisis, the rural economy shows sign of hope. Rural revitalization has become a critical factor in achieving the twin objectives of becoming a $5-trillion economy and Atmanirbhar Bharat. The rural economy’s annual contribution to the Gross Domestic Product (GDP) ranges from 25 to 30%. The non-farm sector has gradually replaced agriculture as the primary source of income and employment in rural areas. A transformative and pragmatic approach towards rural revitalization can create conditions conducive to the recuperation of the Indian economy. The Government's new approach towards augmenting Indian manufacturing of products and its increased support for local businesses has laid the foundation for rural India's development. By capitalizing on these new opportunities, rural India can become the economy's pillar of support in this time of crisis.

India's higher education system has a significant role in India's economic recovery during and after post-Covid (Pradeep V. Kamat and Neela Kamat 2020). Greater emphasis on higher education in India’s rural areas in tandem with the Government employment schemes transforms rural India into an asset.

As highlighted by the KPMG and the Confederation of Indian Industries, rural India's markets have emerged as the saviour of the economy during the novel coronavirus disease. With everyone betting on the consumption demand growth in rural areas, the rural economy is the biggest asset in India's arsenal at the moment. The markets in the rural region are increasingly becoming powerful economic drivers. Policymakers and businesses are highly invested in the prospects presented by this section of the market. The rural population has seen an increase in their spending power. The expansion of multinational companies and regional businesses across India has exposed the rural population to markets limited to metropolis. The rural population receiving such exposure has seen an increase in their purchasing power. Such expansion into rural India has seen a contagious impact on the rest of the states. There is promising data that suggests that this substantial rise in consumers' purchasing power will be a catalyst in reviving India's economy and bringing growth across a variety of sectors. The following factors lend credence to the growing confidence in India’s rural economy:

  • Increased government spending in rural areas. As seen in 2020, the Government released several policies to support the lives of the rural population. Besides giving low-income households special schemes to tackle the pandemic, the Government also released several policies to improve the rural economy. The Indian Government initiated the Aatminirbhar Bharat Abhiyan to promote Indian made products and transform India into a manufacturing stronghold. In the last five years, the Ministry of Rural Development has seen a 10.5 per cent compound annual in its budgetary allocation with MGNREGS[1] accounting for half of the Ministry’s budget (Ministry of Rural Development, Government of India). Consequently, India witnessed a remarkable reduction in unemployment and increased wages through MGNREGS, whose funding was increased from INR 32,477 crore (2014-15) to INR 44,599 crore (2018-19).

  • The rural population diversified their sources of income. Historically, the rural population has depended on agriculture as their primary source of income. However, recently, the rise in remittance income from the migrant rural population and the increase of non-farm activities in rural areas has decreased the rural population's dependence on farm income. People living in rural households are actively pursuing different career fields. Though agriculture still accounts for a majority of the rural economic contribution, the number of people pursuing non-farm activities has increased exponentially because of the spread of education. In recent years, the Government of India has focused on the spread of education in rural areas, and the number of literate people has seen a linear growth. As a result, the demographic propensity to pursue a non-farm activity has increased.

  • During the pandemic, the Government has released several schemes granting credit and loans to the rural population. Additionally, it has also released providing a free supply of essential goods to the rural population. The expense incurred in the sale of essential commodities has been negated from the rural household's income. Moreover, easy access to finance and credit has increased the flow of money in rural households. The presence of such schemes has augmented the spending ability of the rural population.

  • The farming sector remained the least affected by the pandemic. Besides effective regulation of the industry by the Indian farmers, the agriculture sector also experienced an increase in farmer income[2] by a rise in government procurement prices. Contemporaneously, the rural population's purchasing power has also been augmented by the increase in farmer income. In some preliminary calculations, it is estimated that the farm income will increase by approximately 9 per cent in 2020 ( The Print)

The perseverance of the rural economy supported by increased rural consumption has put rural India in a promising position. From a business perspective, key sectors like Agriculture, Fast Moving Consumer Goods (FMCG), Consumer Durables, and Banking are likely to receive heavy investment.

The Government has taken many steps towards promoting the rural sectors of the economy and has proposed and implemented effective policies to drive consumption and investment. The economic situation created due to Covid-19 called for urgent action by the Government. The Indian Government responded by proposing macroeconomic solutions derived from emergency liquidity by central banks. Measures taken by the Indian Government include fiscal policies such as wage subsidies, broad tax-relief, unemployment benefits, and equity investments by the Government in non-performing companies.

The potential held by the rural economy should not be ignored. The effects of the pandemic are likely to be felt long after covid-19 has been eradicated. However, in its road to recovery, India should be mindful of the rural economy's contribution. As stated in the paper, the rural economy is perhaps the only sector to experience growth during the pandemic. The government initiatives and the changes in technology and infrastructure have made the rural economy an asset to the nation. In this time of economic slowdown, the rural population has changed buying behaviour, and the renewed motivation to increase business has changed the dynamic of the rural population. Urban India has always been the focus of analysis, but recent times have witnessed a growing interest in rural India and the potential and opportunities. Technology adaptation and increasing purchasing power have re-positioned the rural economy to lead the demand for the resurgence of the Indian economy.

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