The recent survey by National Bank of Agriculture and Rural Development (NABARD) shows worsening conditions of India’s Rural Economy with falling income and reduced employment. Identify the various factors responsible and suggest suitable measures. (150 W/ 10 M)


Model Answer:


India is predominantly a rural country with two third population and 70% workforce residing in rural areas. Rural economy constitutes 46 per cent of national income. Despite the rise of urbanisation more than half of India‟s population is projected to be rural by 2050. Thus growth and development of rural economy and population are key to overall growth and inclusive development of the country.

Main Body:

Distress in rural economy is not limited only to the agrarian sector but has also spilled over to the larger economy with unemployment becoming a major challenge.  The roots of the rural crisis lie in structural problems—

  • Fragmentation of land holdings and the lack of land-leasing laws, –
  • Government data show the average farm size in India is small, at 1.5 hectare, and since 1970-71, there has been a steady declining trend in land holdings.
  • The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings, and this predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale.
  • the land leasing activity is very less in India or if exists it is underground or unregulated. For instance Kerala and J&K have complete ban over leasing.
  • market imperfections and lack of access to markets-
  • Farmers face price uncertainties due to fluctuations in demand and supplyowing to bumper or poor crop production and speculation and hoarding by traders.
  • The costs of farm inputshave increased faster than farm produce prices
  • The absence of a robust market for buying and selling forward-looking contracts
  • Uncertain policies and regulations such as those of the Agricultural Produce Market Committee, besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard.
  • Also, the predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits.
  • lack of adequate risk-mitigation mechanisms in farming— Risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield; the lower remunerative price; the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers.
  • The lack of adequate job creation by rural industries is balanced by the rising share of rural construction work in employment statistics. However In 2014, rural wage growth dipped by three per cent on the back of slowing infrastructure and real estate sectors. As a result, villages in Uttar Pradesh, Bihar and Odisha are increasingly witnessing return of migrants.
  • The puzzling fact is that the share of rural industrial employment in total industrial employment has been around the same over those four decades. The Economic Survey has shown the cause for concern is the deceleration in the compound annual growth rate of employment during 2004-05 to 2011-12 to 0.5 percent from 2.8 percent during 1999-2000 to 2004-05 as against growth rate of 2.9 percent and 0.4 percent respectively in the labour force for the same periods.
  • The positive effect of MGNREGA is limited by a very low access to work in some of the poorest states such as Bihar and Odisha,” Only 24.4% of rural households participate in MGNREGA nationwide, and nearly 70% of the interested households cannot participate due to lack of work. Most important, about 70% of households below of the poverty line do not participate.
  • The development experience of most successful countries has involved a shift of labour from traditional sectors with low productivity to modern sectors with high productivity. Countries such as India that have not yet made the transition inevitably have dual economies—where the traditional sector coexists with the modern sector.
  • Skill deficit There is a dual challenge of developing skills and utilizing them in a proper way. The Economic Survey 2014-15 has stated that as per the Labour Bureau Report 2014, the present skilled workforce in India is only 2 percent, which is much lower when compared to the developing nations.
  • Prevalence of informal sector without social security cover has worsened the conditions, rather amplifying the distress and discontent. Self-employment continues to dominate, with a 52.2 percent share in total employment with significant share of workers engaged in low-income-generation activities
  • Outward migration and subsequent feminization of agriculture and poverty is a matter of concern with all sorts of hardships i.e. access to factors of production. Notably, as per Census 2011, out of total female main workers, 55% were agricultural labourers and 24% cultivators. However, only 12.8% of the operational holdings were owned by women, which reflected the gender disparity in ownership of landholdings in agriculture.

Way Forward:

  • A strong push to sectors like food processing, warehousing and logistics will be very beneficial as it will help push up farmer incomes, reduce the wastage of perishable agriculture commodities and provide employment to rural workers.
  • The rural workforce finds it difficult to get absorbed in the manufacturing sector. This is where improving education facilities and skill development programmes in rural areas will play an important role.
  • Reducing the dependence of rural masses on agriculture as a source of income will help improve the overall income of the rural population.
  • Farm productivity can be improved through better irrigation facilities, technology improvement, diversifying towards higher value added crops (like fruits, vegetables, spices, condiments), and increasing crop intensity.
  • Better price realization for farmers is the other big step that can help in improving income. This is where cutting out the middlemen and introducing agriculture marketing reforms becomes critical.
  • There needs to be a mechanism in place to ensure that agriculture prices do not fall below the minimum support prices (MSP). The model APMC (agricultural produce market committee) law does propose reforms in the form of treating the entire state as a single market, removal of fruits and vegetables from the purview of mandatory trading in the APMC market, promotion of electronic trading, etc.
  • Apart from the agriculture sector, there needs to be increased focus on agriculture-allied sectors measures to boost livestock sector growth and productivity will have a significant impact in alleviating rural distress.


  • Villages are India’s backbone, contributing around 46% to the country’s net domestic product and employing 70% of the total workforce.
  • While it is very critical to increase farmer incomes, it is even more important to increase overall rural incomes. This could be achieved through reducing the over-dependence of the rural population on agriculture as a source of income.
  • A suitable push needs to be given to infrastructure development and industrial and services sector growth in rural areas.
  • Imparting skills to the rural workforce appropriately to enable them to get absorbed in the non-agriculture sector is equally important.