“Manufacturing will play major role in the rural economy”

Dr Pramod Kumar Joshi, Honorary Director, Agro-economic Research Centre & Secretary, National Academy of Agricultural Sciences, shares his views on the mass flight of daily wage workers due to the lockdown to contain Covid-19 with TPCI. He thinks that the present crisis can be converted into opportunities by creating more regular and remunerative jobs in rural and peri-urban areas.

TPCI: What, in your opinion, are the reasons responsible for the large-scale exodus of migrants from cities to villages? How do you see the near term impact of this on India’s urban economy after the lockdown is lifted?  

Dr. PK Joshi (PKJ): The Covid-19 pandemic has severely threatened the lives and livelihoods of the global community. The worst affected are the poor for their life, food and livelihood security. In India, the poor and daily wage earners were suddenly affected due to the nationwide lockdown that led to mass exodus from cities to rural areas. The main reasons for such a mass exodus were threat to health (or life) of self and family members, unavailability of food, and uncertainty for livelihood. Since the lockdown adversely affected employment and income opportunities, the migrants felt that their own villages may be more safe and secure. Fake news and miscommunication about availability of transport to their destinations have further aggravated the problem.

“Reverse migration due to Covid-19 is a temporary phenomenon. As soon as the situation becomes normal, the migrants will return to urban areas. It is all driven by demand for and supply of labour.”

Such a mass exodus is not a new phenomenon. These are often seen globally during natural calamities, such as floods, earthquakes, tsunami, wars, conflicts, etc. Due to their very localized presence, these are not noticed many times. The migration happens mainly to ensure food and livelihood security. In the present situation, the panic of the Coronavirus has further intensified the problem. 

In my view, the reverse migration due to Covid-19 is a temporary phenomenon. As soon as the situation becomes normal, the migrants will return to urban areas. It is all driven by demand for and supply of labour. Since rural areas do not have lucrative and sustained employment opportunities, these migrants will go back as soon as the situation becomes normal.  Moreover, rural areas have a perennial problem of under-employment and disguised unemployment. In addition, they may not absorb the sudden influx of revers migration.

However, bringing the situation back to normal will depend upon the strategies designed and implemented in affected areas. There are predictions that the urban economy contributes 70-75% to the national gross domestic product. This will definitely be affected in the 2020-21 financial year. Reviving to this level will depend upon government policies, public and private sector investment, industrial revival, and building community confidence. In my view, during this financial year, agriculture will be the main source of economic growth in India.

TPCI: Large-scale migration appears to support the view in favour of large-scale decentralisation of the Indian economy, so that people in remote areas need not migrate to cities. What is your perspective on this?

PKJ: The present crisis can be converted into opportunities by creating more regular and remunerative jobs in rural and peri-urban areas. Unfortunately, the rural areas do not have better income and employment opportunities than in the cities. A government report revealed that a rural worker is earning less than half of his counterpart in urban areas. Besides, the rural areas do not have enough opportunities to provide full employment at wages equivalent to the urban areas. These areas also lack basic amenities such as safe water, sanitation, electricity, education and health. However, ensuring effective rural-urban linkages and developing adequate infrastructure will favour decentralization of Indian economy.

Recently, the International Food Policy Research Institute proposed the concept of ‘Rurbanomics’ to revitalize rural economies. The concept emphasized the interrelatedness and interdependence of rural and urban economies. It hinges on the premise that the rural areas originate national, regional and global value chains of agricultural and non-agricultural commodities. However, it is a daunting task, unless appropriate infrastructure and institutional arrangements are being developed in rural areas.  

TPCI: How can rural India’s contribution to current GVA be augmented? And what role do you see for rural India in the development of the economy, in farm and non-farm sectors?

PKJ: Rural economy contributes nearly 25-30% in the national gross domestic product. Traditionally, agriculture used to be the main source of income and employment in rural areas. However, the share of agriculture to the gross value added has declined from 18.2% in 2014-15 to 16.5% in 2019-20. The sector is still the main source of employment to rural population. Unfortunately, labour productivity in the agriculture sector is too low as compared to many developed and developing countries. Non-fam sector is gradually emerging as an important source of rural output.  

A comprehensive strategy will be required to augment the share of rural India’s contribution in national gross domestic product. It should focus on developing both farm and non-farm sectors, and strengthening their linkages. To increase the share of agriculture in gross domestic product, a five-pronged strategy may be adopted. This may include:

(1) Increase yield levels of cereals, pulses, and oilseeds
(2) Reduce cost by improving input use efficiency
(3) Promote agricultural diversification towards high-value commodities (HVCs), such as fruits, vegetables, dairy, poultry, and fisheries sectors
(4) Value addition of food commodities through sorting, grading and processing
(5) Link rural areas with high income global consumers

Since agriculture is absorbing large share of labour force in rural areas, agriculture-driven industrialization will be more feasible for increasing incomes and employment opportunities. Among others, agro-processing is a sun rise sector; the demand for processed commodities is rapidly growing in India and abroad. The sector is contributing 12% in agricultural GDP, and 14% in manufacturing GDP.  The agro-processed commodities also significantly (13%) contribute in exports. This sector needs special attention by developing niche areas depending upon the specialization of agro-commodities. This will not only increase rural incomes but also generate employment for rural youth.

“A strong linkage between farm and non-farm sector needs to be evolved  for augmenting income and generating more job opportunities in rural areas. Farm-sector driven industrialization may be evolved from production to processing and marketing.”

In my opinion, in the long-run, manufacturing sector will play significant role in increasing rural incomes. A NITI Aayog report showed that the share of manufacturing sector in rural areas has grown substantially (51.3%), but without generating employment opportunities. It is because of installing machines and adopting technologies, which replace unskilled labour force. India needs machines and technologies, which improve labour productivity than replace labour.  Construction sector is another area, which has grown overtime in generating income as well as employment. However,  construction is a low-wage sector, which is also modernizing gradually to save labour.  

A strong linkage between farm and non-farm sector needs to be evolved  for augmenting income and generating more job opportunities in rural areas. Farm-sector driven industrialization may be evolved from production to processing and marketing. Such a linkages will help farm sector to:

(1) Produce market-driven commodities
(2) Reduce transportation cost
(3) Receive remunerative prices at farm gate
(4) Reduce farm waste

‘Amul’ is an excellent example of farm-led processing, branding and marketing of milk for various dairy products. Such model should be replicated for other agricultural commodities.

TPCI: What should be done to facilitate the industrialisation and development of rural regions in India? What are the key sectors that should be developed to promote gainful employment?

PKJ: Role of micro, small and medium enterprises (MSMEs) will be very critical in developing rural industrialization. Their share in national gross value added is about 32%. These are providing employment to about 111 million workers. The share of MSME-related products in exports was about 48% during 2018-19. The government is gearing up to increase their contribution in the gross value added to 50%, and in export to 75%.  It projects to generate jobs for about 150 million workers. Such overwhelming targets will require:

(1) Huge investment to create necessary infrastructure,
(2) Effective institutions for enabling MSMEs to have access to technologies, finance and markets
(3) Skill development in manufacturing and business planning.

The success of rural industrialization will rely on the concept given by the former President of India, Dr APJ Abdul Kalam, that is ‘Providing Urban Amenities to Rural Areas (PURA)’. It calls for urban infrastructure and services to be developed in rural hubs to create economic opportunities outside of urban areas. Creating enabling business environment through simplifying regulatory requirements, and reforming land and labour laws, will equally play important role for the success of rural industrialization. The present government has already launched various programs for promoting MSMEs. These include Make in India, Start Up India, MUDRA Bank & Skill Development Programme. Sectors for rural hubs can be identified based on the resources, markets and infrastructure.

TPCI: What suggestions would you like to offer to the government or private players to make sure that the rural economy becomes as vibrant and attractive for jobseekers?

PKJ: Private player will play an important role in rural industrialization. Role of government should be to create enabling business environment. Some of these include:

(1) Investment in creating road, rail, air, and water infrastructure;
(2) Assured power supply;
(3) Simplify tax compliance;
(4) Single window clearance for construction and starting business;
(5) Easy access to credit
(6) Stable policies.  

Private sector will invest in developed areas, where business environment is more favourable. Often, these will be either in cities or nearby cities. Private sector will not come forward in under-developed and marginal areas. Government may offer incentives in these areas, and launch programs under public-private partnership mode. In such areas, several promising projects may not be viable due to lack of basic facilities and infrastructure. In such cases, components may be identified for meeting ‘viability gaps’ through government funding. Tax holidays to incentivise private sector investment in under-developed and marginal areas will also help.

TPCI: Is there an international model of rural development that can be emulated by India? Please elaborate.

PKJ: There are scattered successful models on rural development. These have been based on their context, resources and markets. Most often, Chinese model of rural development is cited. The model is based on the development of rural-urban connectivity for goods and services. China started its reform from agriculture sector. The areas were:

(1) Abolished agricultural taxes;
(2) Provided subsidy to agriculture and protected it under globalization;
(3) Lifted control over purchase and sale of grains to make agriculture sector market-based trading;
(4) Reformed tenure in collective forestry;
(5) Ensured compulsory funding in education;
(6) Strengthened social safety-net programs in rural areas; and
(7) Abolished unfair policies and restrictions.

Incentives were given for promoting improved and low-cost technologies, value addition of agricultural commodities, and in some areas linked rural areas with global consumers through use of e-commerce. The Chinese model was driven by continuum of agriculture, agri-business and rural-based business. These measures helped China in reducing poverty steeply and reversing rural-urban migration. We may learn lessons from Chinese experiences by reforming agriculture sector, and then leapfrogging towards manufacturing sector.

However, I strongly feel that we should have our own rural development model. It should build on our socio-economic and cultural strength. We are fortunate to have various agro-ecological regions for specialized agriculture-driven industrialization. The need is to harness the untapped potential of agriculture and agro-based processing sector for transforming rural areas.

---

Dr Pramod K. Joshi is the director for South Asia, International Food Policy Research Institute. Previous to this, he held the position of the director of the National Academy of Agricultural Research Management, Hyderabad, India. His areas of research include technology policy, market, and institutional economics. Dr Joshi has received the Professor R.C. Agrawal Lifetime Award of Indian Society of Agricultural Economics and Dr MS Randhawa Memorial Award of the National Academy of Agricultural Sciences. He is the fellow of National Academy of Agricultural Sciences and Indian Society of Agriculture Economics. Dr Joshi has also served as the chairman of the SAARC Agricultural Centre’s governing board in Dhaka, Bangladesh and UN-CAPSA governing board in Bogor. He served as the member of the intergovernmental panel on the World Bank’s International Assessment of Agricultural Science and Technology for Development; International Steering Committee for the Climate Change, Agriculture and Food Security Challenge Program of CGIAR.