Brace for return migration

Rural economy won't be able to support excess workers forever

Conflicting signals have emerged about the state of the rural economy. The precise level of both prosperity and livelihoods at this stage of the pandemic in rural India is crucial in order to gain an understanding of the path of the recovery in the overall economy. On the one hand, corporate guidance and statements in recent days have suggested that there is strong rural demand, driven in part by good monsoons. Fast-moving consumer goods companies in particular have highlighted that rural demand held up better during the lockdown period than urban demand did — where, of course, the lockdowns themselves were more stringent. Many industry leaders have already said that rural demand has never been stronger. In the quarter in which the economy shrank almost 24 per cent, agriculture showed positive growth. The wage data that has recently been released, as quoted in an HSBC report, shows that rural wages rose 8.7 per cent year on year in June, in nominal terms, similar to how much they rose in May. This would suggest that rural demand will be a crucial propulsion factor in future.

There are, however, other indicators that suggest the pandemic has left deep scars. One major such index is the uptake in the Mahatma Gandhi National Rural Employment Guarantee Scheme, or MGNREGS. The initial spike in demand from the MGNREGS, of an additional 26 million people in June 2020 over June 2019, has moderated to an extra 8 million in September. But even so, this is an increase over past years and is a partial indicator of underemployment in rural areas. The question is also whether the additional Rs 40,000 crore that was set aside by the government for the MGNREGS after the lockdown was imposed has turned out to be insufficient, and the gap in financing has caused the disbursement under the scheme to fall. Given that various rural income schemes such as PM-KISAN were also front-loaded in the initial post-lockdown recovery package from the Union finance ministry, that first boost to rural demand has also run out of steam. This is backed up by the initial boost to two-wheeler sales now turning negative in terms of month-on-month growth. Of course, much depends also on the course of the pandemic. While the aggregate case curve may have flattened since September in India, a majority of the 25 worst-affected districts in that month were rural.

One question that arises from this is what the fate is of those migrant workers who left cities during the lockdown. These workers were instrumental in the increase of MGNREGS demand as well as in the taking in of a bumper harvest that has helped keep food inflation moderate. The waning of MGNREGS funding, alongside the passing of seasonal harvest work, has made their position in rural areas more difficult. This might lead to the long-delayed return to the cities of some of these migrant workers, easing the major labour shortage in some production hubs. That in turn would impact the trajectory of both growth and inflation. Union and state governments must brace for the return of migrant workers, and ensure that they are better protected, given how crucial they have been revealed to be to the Indian growth story.