The government’s stimulus plan should centre around spending on infrastructure to improve employment/income prospects in rural and urban India.
With a contribution of 45-50% to India’s GDP, expectations will be high from rural India to drive India’s growth, especially as urban India remains weak.
Procurement of wheat has been higher than recent years although the share in total production has not increased much. Centering rural growth on the agriculture sector would possibly miss more than half the story. Barring a few crops (for example wheat), farmers’ profitability has been broadly stagnant over the last few years.
Further, agricultural households on average earn higher (Rs 8,931 per month) than average non-agricultural households (Rs 7,269). However, even for agricultural households only 43% of income is from agricultural sources. Clearly, sustenance of most rural households’ income is dependent on non-agricultural activities as well.
Much has been discussed about the revival of rural jobs given the government’s focus on NREGS. Even as the jobs have increased, it has been a replacement for higher paying jobs—incomes have reduced. In fact, with 7-30 million migrants returning back to rural areas (no publicly available official data), it could be argued that some of the reverse migration would have led to low paying jobs in the agricultural sector along with reduction in urban-rural remittances.
With high disguised unemployment and relatively lower paying jobs, surplus labour may lower wages in rural/semi-urban areas unless urban centers return to normal activity levels.
Rural and urban non-agriculture jobs are heavily depend on construction, manufacturing and retail/wholesale trade. Cash transfers and rural employment may be a stopgap measure. Unless manufacturing units and construction sites start off again, income levels may settle much lower.
The government needs to expedite spending on infrastructure projects as a means to provide economic stimulus. Consumption stimulus through cash transfers risks being precautionary savings unless accompanied by sentiment boosters (assured medium-term income stream, visibility of gainful employment, etc.).
With the reverse migration from urban areas, the rural areas have started dominating the active cases now. The shift had started in early July and rural areas now are contributing more than 50% of the active cases. This can potentially be a substantial cause for concern for governments given a much weaker healthcare infrastructure in the rural areas.
However, the experiences in urban areas, especially in slums, can be helpful in implementing testing, tracing, and setting up of auxiliary healthcare facilities. Localized lockdowns will be the preferred option and will likely increase.
As major urban areas start opening up, the government should start focusing on getting back labour through restart of infrastructure spending.