The Political Fix: Can the rural economy pull the rest of India out of its post-lockdown malaise?

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The Big Story: ‘India survives in its villages’

After months of terrible news on the Covid-19 front – India crossed the 5,00,000 case mark last week – and dire warnings about the impact of the lockdown on the economy, some good news has finally surfaced.

The Centre for Monitoring Indian Economy pointed out that India’s unemployment rate has fallen to its pre-lockdown level of 8.5% in the week that ended June 21. Joblessness had spiked massively in March, April and May, reaching a peak of 27.1% in the week that ended May 3.

But this dramatic bounce-back has not occurred because the economy has returned to its pre-lockdown levels of functioning. Buried under that 8.5% number is an important shift, as the CMIE noted:

“The urban unemployment has fallen sharply but, it is still distinctly higher than the pre-lockdown levels. In the latest week ended June 21, the rate was down to 11.2 %. This is still over 200 basis points higher than the 9 % average in the period before the lockdown…

The big gain in employment is happening in rural India. And, it may see bigger gains in the months to come or at least sustain the current gains. The unemployment rate dropped to 7.26% in rural India in the week ended June 21. This is lower than it was in the pre-lockdown week ended March 22 when the rate was 8.3%.”

And this is what makes the data-point bittersweet.

It is, unequivocally, a good thing that India’s unemployment numbers are back to where they were before the lockdown began in March. But urban jobs have been lost – and may not be coming back anytime soon.

CMIE’s Mahesh Vyas expanded on this in an interivew with Govindraj Ethiraj. The interview is full of important points, so I’ve pulled out just a few quotes (emphasis added):

• “One way of describing this is that we are a very resilient economy; we can take the shocks and come back to normalcy pretty quickly. The other way of describing this is that such a large proportion of the Indian working force is in the informal sectors that it is easy for them to get out of work and get into work. It is the second part that is more accurate, in my opinion: It is not resilience, but the informal nature of employment that causes this.”
• “What we are seeing over here is that more people are saying that their incomes are worse than a year ago, and more people are saying that they have no hopes of the future. Whether the future is for themselves one year down the line or on the economy as a whole, there is a sense of despondency. So, on the income front, the situation is very bad and getting worse.”
• “The real concentration of job losses is in those who are less than 30 years of age and salaried jobs. This means that the young cohort that came in to look for jobs in 2019 lost their jobs in early 2020. Now, this cohort is going to compete with the cohort that comes to the labour market in 2020 (when they hit the market in August-September, or even around now). But there are no jobs then, as the economy is not going to recover by then. So, in 2021, you will have three cohorts competing for jobs.”

That is the information buried under the 8.5% number: A reiteration of India’s extremely informal economy, average wages expected to go down, and a loss of salaried jobs that will severely affect India’s young people.

There is another major angle to this. The government is relying heavily on rural India to drive the economic recovery.

In its economic package in May, the Centre decided to limit most of its interventions to support in the form of liquidity, with the bulk of fiscal support coming the way of free food rations and a larger allocation to the national rural employment guarantee scheme.

In June, the Centre doubled down on this, announcing the Pradhan Mantri Garib Kalyan Rozgar Abhiyan, a public works programme for rural India meant to provide employment for the millions of migrant workers who returned home during the lockdown.

A closer look at this programme shows that it has no additional allocation.

The government has simply re-packaged 25 existing rural-works schemes, though the difference is that this spending will be front-loaded to ensure that it takes place by October (in the normal course it would have had to be spent by December) and the funds are now going to be concentrated on 116 districts across six states that received more than 25,000 returning migrants each.

The selection of districts, based on a cut-off date of June 1, has proven to be controversial since none from West Bengal or Chhattisgarh – run by Opposition parties – have been included, despite fitting the parameters. Questions have also been raised about the lack of additional allocations, and whether this means that, rather than generating new jobs, they will simply displace local residents and go instead to the return migrants.

It’s also no small matter that 32 of Bihar’s 38 districts have been included and that Prime Minister Narendra Modi chose to launch the scheme in the state that is set to have elections later this year.

Besides the politicking, a few have raised questions about the efficiency of some the Centre’s rural spending, suggesting that the Rozgar Abhiyan only makes up for earlier policy decisions.

For example, Harish Damodaran points out that “the liquidity pumped into the farm economy after lockdown through government spending has largely helped the better-off agricultural states. The states in eastern India, where the return of migrant labourers is currently concentrated, haven’t really benefited from increased grain procurement.”

Meanwhile, it is almost July and yet it is unclear if the Centre will extend the free food grain scheme for another three months, despite senior Bharatiya Janata Party leaders calling for an extension and even as “there are more than 100 million tonnes in the [Food Corporation of India] godowns”, a huge amount of excess stocks. Not giving free food grains might mean that many will be forced to spend their limited income on food rather than other items.

Despite these concerns, it is clear that the Centre is leaning heavily on rural India to be the growth engine. Several senior bureaucrats have been appointed to see that the scheme achieves its objectives. The Finance Ministry has already pointed to positive agricultural data as a sign of recovery.

Businesses too are hoping that rural demand will return quickly, though, as Sayantan Bera reports, it is unclear how this will pan out:

“Farmers not only have to supply the country with essential food items, but are also expected to spend their earnings to help rebuild the economy.

A wide range of businesses, from manufacturers of tractors and two-wheelers to those selling fast moving consumer goods like biscuits, beverages and soaps, are pinning their hopes on rural India…

[But] rural families, including well-to-do farmers like Dilip Patidar, are wary of discretionary spending much like their urban counterparts. When the roof leaks, you don’t spend on a new television or a motorcycle. You buy a tin sheet.’

In the Congress-led years, there was persistent wage growth in rural areas, although that came with the sort of stubborn inflation that ended up hurting that government.

Through Prime Minister Narendra Modi’s tenure, despite talk of doubling farmer incomes, his government has worked hard to ensure that food prices do not go up, because the BJP seems to recognise that this angers the more vocal middle classes. The effect of this, as even the Reserve Bank of India has pointed out, has been to keep rural wage growth low.

Already in this year’s budget, the 16-point agenda for doubling farmer incomes seemed to suggest that the government – having won re-election in 2019 – may be prepared to permit more inflation if it means growth in rural wages.

The post-lockdown focus on the rural economy as the growth engine, at the cost of salaried jobs, will double down on this even further but could represent a radical shift from “Modinomics” so far. Of course, as projects like Skill India should remind us, it will be some time before we know whether this new rural focus is simply cosmetic or a genuine shift.

China catch-up

I had a long but insightful conversation with Jabin T Jacob, associate professor at Shiv Nadar University and a China expert, on Beijing’s motivations in the current stand-off, the hubris of the current government and the structural impediments that come in the way of better foreign policy for India:

“If you don’t have your own investments in your own people then at least you should encourage investments from the universities. Now at a time when I did my university education in JNU, I did not have money for a field trip. I didn’t get a government scholarship either.

I went on a scholarship to Taiwan that the Taiwanese provided me, on Taiwanese money. So whatever expertise I managed to develop on China subsequently has been because people saw that on my CV, that I spent two years in Taiwan, learnt the language and therefore they come and give me the opportunities that I have.

I have very little to thank the government for that, except for very affordable fees at JNU. Now even that is being increased, and being pulled out of the reach of ordinary Indians. If that happens, it is as if the government wants to keep all knowledge within the four walls. When you are only listening to each other in an echo chamber, you will have distorted information, you will have poor and wrong analysis.”

Read the whole interview here.

Flotsam and Jetsam

The “Make-Rahul-Gandhi-Congress-President” merry-go-round has begun again.

The Rashtriya Janata Dal saw five legislators jump over to the ruling Janata Dal (United), months ahead of elections in Bihar. Yashwant Sinha plans to jump into the fray with a new party in Bihar. Manipur nearly saw its National People’s Party-BJP coalition break apart, and then after a few flights to Delhi, everything was back in place. Kerala Chief Minister Pinarayi Vijayan announced a new “Kerala Dialogue” series to discuss development, with the very first one featuring Noam Chomsky, Amartya Sen and Soumya Swaminathan.

The Centre has extended its cap on ministry spending until September. It also has yet to respond to a request from Sri Lanka for a postponement of debt repayments for the last four months. Nepal Prime Minister KP Sharma Oli said there was an India-backed plot to topple him.

India’s supposedly independent national broadcaster has taken issue with the Press Trust of India’s decision to interview the Chinese ambassador to India despite the obvious news value and said it is reviewing the need for a continued relationship with the wire agency.

That’s all for today’s The Political Fix. If you missed it, go read the Friday Links edition for an examination of whether India can or should boycott Chinese products and also a new weekly Q&A with an expert.

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