• HDFC
• 20 Apr 2018
• Knowledge Centre

HDFC, Tester

A primary factor in Prime Minister Narendra Modi’s drive for the revival of growth in the country is a complete revamp of its rural sector. “The Government’s modus operandi is to increase focus on the rural economy with a view to revive its growth, and a multi-pronged approach has been adopted to realize this goal,” says Mr. Deepak Jasani, Head Retail Research, HDFC Securities Ltd.

 

The agriculture minister recently stated that in the drive to double farmers’ incomes by 2022, a vital tool would be the increase of India’s agricultural exports to US$ 100bn by 2022-23.

 

Budget 2018

 

The Modi Government’s recent Budget offers multiple solutions to ease the problems faced by rural India. Budget 2018 had a lot to offer this sector, from increasing price realizations of farm products to providing alternate sources of income for rural inhabitants.

 

The minimum support price (the rate at which the Government acquires crops from farmers) for Kharif crops will be increased by one-and-a-half times the production cost. Apart from that, NITI Aayog, the Government’s think tank, is to develop the current 22,000 rural agriculture centers and aid the farmers with sales of their products. There was also an announcement of the Government’s intention of setting up an agri-market infrastructure fund, the initial corpus of which would be Rs 2,000cr.

 

Operation Greens, a new scheme, will be set up to promote agricultural products. A cluster of ministries – those of agriculture, commerce,and food processing - will work to overhaulall the schemes to promote cluster-based horticulture. The food processing sector has been allocated double the amount vis-a-vis the previous fiscal at Rs 1,400 cr for FY19.

 

Improving outlook

 

Plans are also afoot to liberalize the export of agri-commodities. Early signs of recovery are already visible in this sector. Some large dealers in agricultural equipment like tractors have doubled their sales in February 2018 from the corresponding period in the previous year. This trend is mirrored in Mahindra & Mahindra Ltd.’s performance, where sales jumped 39% over the year. If this continues, it may well lead to a complete turnaround after many abysmal years of distress in rural India.

 

The rural economy in India is largely agriculture-based, and is significant because of its vibrant supply and demand links with other Indian industries, predominantly as a source of raw material. A large proportion of India’s population lives in rural areas and drive electoral wins/defeats in most elections. “The Indian Government cannot afford to ignore this stratum of the population and frame policies to alleviate their concerns. However, problems accumulated over decades could take years to get resolved, even if the intentions of the Governments are clean andtransparent,” says Mr.Jasani.

 

Indian rural economy's greatest contribution is the number of people it has somehow managed to continually employ. In spite of the high scale of urbanization taking place, close to 62% of India's population (77. 5cr people) still, reside in about 6,00,000 small rural villages.

 

In a Confederation of Indian Industry (CII) report, it is stated that India's gross domestic product (GDP) is expected to grow at 7.3-7.7% during FY19, based on strengthening demand in the rural economy. Agriculture constitutes 15% of the country’s GDP. Despite a lessening of contribution to India’s GDP, agriculture and the rural economy remain the foundation for India’s growth story.