March 26, 2024


Has the Modi government helped or hurt the rural economy?

For all the urbanisation happening across India, we’re still predominantly a rural country. It’s why economists and policymakers pay close attention to rural demand, employment, productivity, consumption, etc. In India, agriculture gets a lot of attention, understandably. We’re still an agrarian economy in many ways.

The past decade has been an interesting period for India’s rural sector. There have been some profound changes with modernisation and mechanisation. The pandemic caused a lot of upheaval with the migration of workers. Through all that and more, has the Union government uplifted the rural economy? Are things better off now than, say, a decade ago?


The development of the rural economy in India is one of the most important factors for the entire economy’s health and growth. Agriculture, in particular, accounts for about one-fifth of the Gross Domestic Product (GDP).

Per the 2011 Census, nearly 69% of the country’s population and just over 72% of the workforce resided in rural areas. The share of these numbers is slowly but steadily declining thanks to increased urbanisation. Between 2001 and 2011, India’s urban population increased by 31.8% compared to 12.18% for the rural population. This isn’t necessarily good for urban areas as it puts infrastructure and amenities under pressure.

The result is many low-wage migrant labourers living in poor conditions. There’s a need to improve the socio-economic conditions of the rural population to check unplanned migration from rural to urban areas. This would also help reduce the gap between rural and urban incomes, which has been persistently high.

Over the decades, the rural share in total employment saw a decline. However, its pace didn’t match the changes in its share of national output or income. So, there was a declining contribution of rural areas without a commensurate decline in its share of employment. This means that a good portion of overall economic growth came from capital-intensive sectors in urban areas.

The significance of rural demand shouldn’t be underestimated. It accounts for a substantial portion of the Indian population. The purchasing power of rural consumers impacts other economic sectors. When it’s robust, it leads to increased agricultural production, manufacturing, and consumption.

There’s a cascading effect on sectors like fast-moving consumer goods (FMCG), retail, and housing. It also helps increase employment opportunities and boosts income levels.

2020-21 saw the worst-ever contraction in the Indian economy since Independence. But agriculture was spared thanks to the monsoon and agriculture being exempted from the nationwide lockdown. In the decade since the BJP government took office, several policies have been implemented aimed at helping the rural economy grow at a sustainable rate. Have they helped?

VIEW: More good news than bad

Over the past several years, the rural economy has grown steadily and remained a crucial driver of economic growth. The government made the right call to exempt agriculture from the national lockdown, ensuring people were employed and paid. There has also been a change in how the rural population spends their money. Previously, it was mostly on food. Now, they’re diversifying thanks to better-subsidised food programmes from the government.

Let’s focus on agriculture for a moment. Thanks to schemes like the Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY), over 13 lakh candidates have been trained, and nearly 8 lakh have secured job placements. More rural residents are also finding opportunities in non-farming activities like manufacturing, services, and construction, helping them diversify their sources of income.

The introduction of technology and increased digitisation deserve special mention. The penetration of smartphones, UPI, and schemes like the Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDSA) have helped increase internet access. It’s given the rural population better access to education and healthcare, two components that governments often struggle with.

More women are in the rural labour force, with a 32.8% participation rate in 2020-21. Getting farm produce to the markets has been increased thanks to better connectivity through schemes like the Pradhan Mantri Gram Sadak Yojana (PMGSY). What does all this mean? A Deloitte report from last year showed that rural India was seeing an increase in middle-income households driven by rising income levels and excellent payment and logistics infrastructure, to name a few.

COUNTERVIEW: It has been a failure

Despite some of the policies introduced by the government, endemic structural issues remain. Unemployment, underemployment, high malnutrition, and inadequate infrastructure, to name a few. The government’s efforts to improve and scale up the welfare distribution system of public goods have yielded mixed results. If we take employment, some estimates showed a 3% gap between job demand and jobs provided. That’s significant if we take the entire rural population.

For all the talk of India’s robust economic growth and GDP numbers, something’s lurking – declining rural demand. Private Final Consumption Expenditure (PFCE) for rural India fell to 3.1% in Q2 of FY2024. Some Reserve Bank of India (RBI) data has also shown a downward trajectory in sales of two-wheelers and tractors. It’s because of a stagnation and decline in real wages. More people are looking for paid work, as shown by the rising demand under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) scheme.

The government has also failed to contain rising inflation. That only affects the urban population when they go grocery shopping, but rural India’s purchasing power gets more dire. The output of some crops like wheat has decreased due to rising temperatures and more frequent extreme weather events. The government’s decision to ban wheat exports didn’t exactly help farmers.

The second wave of Covid hit the rural economy hard, and recovery has been spotty. There’s an argument to be made that early warning signs were ignored. India Inc. was probably the first to raise concerns. The schemes and policies introduced by the government haven’t been robust enough. In many cases, they haven’t been implemented well, or the money allocated hasn’t been fully or properly used.

Reference Links:

  • Explained: Why rural demand is crucial for India’s economic growth – India Today
  • India on cusp on big shift in way rural economy is operating: Nirmala Sitharaman to HT – Hindustan Times
  • Rise of middle-income households in rural India outpaces urban growth | Deloitte India Report – CNBC TV18
  • Going digital: A bubbling revolution in rural India - Forbes
  • Is the worst over for India’s rural economy? – Forbes
  • Contrasting Horizons: India’s Economic Growth and the Rural Reality Check – Financial Express
  • Insight: World-beating growth? Not for India’s rural majority – Reuters
  • The Modi Government Has Underperformed in Developing the Rural Economy – The Wire

What is your opinion on this?
(Only subscribers can participate in polls)

a) The Modi government’s policies have helped the rural economy.

b) The Modi government’s policies have hurt the rural economy.


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