How the Modi Government Underperformed in Developing India's Rural Economy

As India gears up for the 2024 Lok Sabha elections, a special series of macro-data analysis by the Centre for New Economics Studies' InfoSphere team aims to study the performance and state of the Indian economy as part of its operational dynamics across different contributing areas and sectors.

The first edition looks at the performance of the rural economy.

As a broadly agrarian economy, the rural landscape in India is known for the critical role played by community-based cooperative setups, including self-help groups (SHGs) run by women across different districts and villages to shape its growth.

For decades, the agricultural sector has contributed close to 16.40 percent of the Indian Gross Domestic Product (GDP) in its overall sectoral composition. Post-COVID, the rural consumption demand rates faced a declining trend, similiar to that observed in the expenditure in urban households.

However, this slumbering trend in rural consumption was offset by the increasing temporal demand for goods and services in such areas due to a better-performing agrarian production cycle, when monsoons were better and more workforce was engaged in agricultural activities. (This was witnessed when the COVID spread was not as rampant in rural areas, as it was in cities which were under lockdown.)

Despite the rural economy contributing during this period, there are structural issues endemic to rural populations.

These range from high rates of un- and underemployment rates to higher malnutrition, and severe infrastructural gaps, that hamper the growth and development of the rural economy viv-a-vis the urban landscape.

The Narendra Modi-led government has tried to improve the welfare distribution system of public goods and services in rural areas through various centrally funded schemes. Yet, this has received mixed results.

How Rural Development Leads to Macro-growth

Rural income is a key driver of rural demand, which has ripple effects on a wide range of industries, including fast-moving consumer goods (FMCG), automobiles, housing, and retail sectors. Increased consumer spending in rural areas fuels demand, creating a virtuous cycle of economic growth.

As per NFHS 2019-20, there has been a significant improvement in the rural sector, as compared to the year 2015-16.

From electricity to sanitation facilities, the quality of lives in rural areas has drastically improved leading to the empowerment of women through SHGs.

The government has implemented various schemes for rural development leading to economic growth including which are: Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), Jal Jeevan Mission, and Pradhan Mantri Kisan Samman Nidhi (PM-KISAN).

MGNREGA and Its Impact on Rural Economy

In 2005, the Government of India passed the Mahatma Gandhi National Rural Employment Guarantee Act.

The Act provides at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work and for matters connected to it.

The objective is to enhance the livelihood security of people in rural areas by generating wage employment through works that develop the infrastructure base of that particular area.

In 2022, a total of 11.37 crore households availed employment and 289.24 crore person-days employment has been generated under this scheme. Close to 5.38 crore households have also been provided employment between April-December 2022.

The major achievements of the scheme include GIS-based planning of Gram Panchayats (GPs), National Electronic Fund Management System (NeFMS)/ DBT, implementation of GeoMGNREGA, emphasis on Social Audit and Cluster Facilitation Project (CFP).

The new initiatives under the scheme include:

1. Mission Amrit Sarovar: This called for the construction or renovation of at least 75 Amrit Sarovars (ponds) in every district of the country.

2. Jaldoot App: The app measures the water level of every village, twice a year. A total of 505 'Ombudsperson' or representatives have also been assigned for reporting grievances.

This graph illustrates a consistent trend in which the demand for jobs under the scheme outpaces the actual number of jobs provided.

From our analysis, it is evident that there has been a 41 percent increase in job demand, while the number of jobs actually provided increased by 38 per cent. A 3 percent difference can seem insignificant, but when viewed in the perspective of the entire population, it becomes substantial.

The above graph illustrates a widening annual gap between the demand for government-provided positions and supply. This can be attributed to the declining budget allocations for the program, as shown in the graph below.

Consistent reductions in government budget allocations to MNREGA has had a significant contribution to the scheme's inability to create the promised number of jobs.

The graph below depicts an 18 percent decrease in budget allocations to MGNREGA compared to the previous fiscal year.

On the Jal Jeevan Mission

The Jal Jeevan Mission envisions providing safe and adequate drinking water through individual household tap connections by 2024 in rural India.

The programme seeks to implement source sustainability measures as mandatory elements, such as water conservation, rain water harvesting, and recharging and reusing through greywater management.

As of 19 October 2023, Jal Jeevan Mission states that 13.37 core (69.5 percent) of 19.23 crore rural households have tap connections. It also states that all rural households in Himachal Pradesh, Punjab, Haryana, Gujarat, Telangana, and Goa have tap water connections.

The above graph indicates that funds released by the central government are lower than the funds allocated for the scheme. From 2020, only 50 percent of the allocated budget has been released.

We can also see the upsurge of allocation from the year 2021. This is primarily done to alleviate the difficulties faced by rural households due to COVID.

This graph indicates that while the share of the expenditure by the government remained constant till 2020, a drastic improvement was noticed from 2021. Both Central and State expenditure saw further improvement in 2022.

This might be one of the vote bank politics techniques implemented to increase the vote share from rural India for the upcoming 2024 Lok Sabha Elections. There is a high probability of stagnation of expenditure from the state and central government.

This graph indicates the percentage utilisation of government funds which has reduced over the years.

Fund utilisation reduced from 75 percent in 2015-16 to 61 percent in 2022-23. In 2021-2022, when government expenditure surged significantly, only 50 percent funds were utilised.

Implementing such schemes requires careful planning and structuring. This is often overlooked by states in order to achieve quick results which has long-term consequences for its beneficiaries, who in certain cases are almost unaware of the schemes in the first place.

The Centre must implement a stringent framework to assess the on-ground implementation of such schemes and hold the defaulters accountable, whose aim is solely to forge numbers. We discuss more on this in the next article of the series.

(Deepanshu Mohan is a Professor of Economics and Director, Centre for New Economics Studies. Amisha Singh and Aditi Desai are Research Assistants with CNES and co-leads of the InfoSphere team. Vasudevan, Shilpa Santhosh, Aryan Govindakrishnan and Jheel Doshi are members of the InfoSphere team and Research Assistants with CNES.)

(This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)