Has infra spending slack worsened rural distress?
Nonfarming activities are major drivers of rural incomes and a cut in government spending potentially affects sectors that are among the biggest job creators in the country’s rural economy
It is a truth universally acknowledged that rural distress will be one of the biggest challenges the Bjpled NDA government will have to tackle in the run-up to the 2019 elections. Usually, discussions on rural distress centre on farmer-centric issues such as farm loan waivers and hike in Minimum Support Prices (MSPS), the price at which the government buys certain crops from farmers. It is important to realise that there is much more to the rural economy than agriculture. According to the latest survey (2011-12 ) by the National Sample Survey Office (NSSO), 45% of rural households were employed in activities other than selfemployment or casual labour in agriculture. This underlines the importance of non-farm economic activity in driving rural fortunes, or livelihoods. Government spending on rural infrastructure is one of the most important policy instruments in terms of boosting non-farm rural incomes. A recent report by PRS Legislative Research suggests that Narendra Modi’s government has lost the initial momentum it displayed in terms of spending on rural infrastructure.
In budget for 2018-2019, 85% of the total allocation to the department of rural development is earmarked for three key schemes: Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), Pradhan Mantri Awaas Yojana-gramin (PMAY-G) and Pradhan Mantri Gram Sadak Yojana (PMGSY). While MGNREGS acts as the employer of last resort, PMAY-G and PMGSY are important drivers of construction activity by promoting construction of houses and roads in villages. All these schemes are those that generate employment.
Budgetary allocations for MGNREGS have either gone up or remained constant under the present government. However, this has not helped the scheme in achieving its stated objective, which is providing 100 days of work to one member of all rural households that demand work. In 2017-18, there was a decline in both the share of households that were provided work against demand and the average days of employment provided per household. The latter stood at 39, the lowest under this government (Chart 1). The report does acknowledge improvement in one aspect of MGNREGS: the share of delayed payments in 2017-18 is the lowest since 2012-13.
The PMAY-G has taken an ambitious target of constructing 10 million rural houses by March 2019. Of these, 5.1 million houses were to be constructed by March 2018 and another 5.1 million by March 2019. Figures from the PMAY-G website show that there is a huge shortfall in meeting these targets. Only 6.5 lakh houses have been constructed in 2017-18 so far. In fact, the total number of houses which have been completed under the scheme since 2014-15 is 2.63 million. These figures raise questions on whether the government will be able to meet its target of building 10 million houses. The fact that the government has actually cut the allocation for this scheme in this year’s budget also raises doubts about its seriousness about achieving these targets.
The importance of PMGSY is two-fold: apart from generating employment in construction sector, it improves economic opportunities by ensuring better connectivity to villages. There has been a 12% increase in allocation for the scheme in this year’s budget. However, funds allocated in 2016-17 and 2017-18 were not fully utilised. Even starker is the shortfall in meeting targets of road length and habitations connected via the scheme in these two years (Chart 2).
These statistics need to be seen in the context of deceleration in rural wages and construction activity in the economy. Both these trends started showing even before the December 2016 quarter, which suggests that the slowdown in construction might have been a result of factors other than just the disruption from demonetisation (Chart 3).
The construction sector has been the biggest job-creator in India’s rural economy in the post-reform period. NSSO data shows that 3.3% of rural male workers were engaged in this sector in 1993-94. This had increased to 13.1% by 2011-12. A December 2017 Economic and Political Weekly paper by Kanika Mahajan and R Nagraj says that men account for bulk of construction sector jobs: of the 51 million employed in this sector, only 11% were women. The paper also shows that rural construction activity was a much bigger source of the post-2000 construction boom in India. Rural construction employment grew at 12% per annum between 2000 and 2012. The figure was just 5% per annum for urban areas. By 2011-12 rural share in total construction jobs was more than three-fourth.
A slowdown in construction activity is bound to increase the pain in rural areas, which is already dealing with a viability crisis in farming. A loss in government’s rural infrastructure spending momentum is likely to have added to the slowdown instead of reversing it.