Expectedly, RBI’s fifth monetary policy for the financial year left key interest rate unchanged at 6%. Its analysis showed that the central bank expects inflation rate to rise a tad over the next few months. But of more significance was the story coming out of the agricultural sector, the source of livelihood for close to half the population. Rural wage growth has weakened which, in turn, dragged down the overall growth in private consumption expenditure. In the July-September quarter consumption expenditure grew 6.5%, the weakest growth rate recorded in eight quarters.
The slowdown in rural wage growth is linked to the difficulty experienced in construction and manufacturing sectors. These segments provide seasonal employment to the rural population. Therefore, weak demand for labour in these sectors spills over into rural economy. To worsen the problem this year, food grain output for the kharif agricultural season has shrunk. Signals emerging from early data indicate that government needs to renew focus on the rural economy. The organising principles for rural economic policy ought to be similar to other sectors. Farmers are capable of making intelligent decisions once they have adequate information and are freed from stifling controls which distort prices.
The way forward is to enable ease of doing farming. To illustrate, dairy activity is an important source of income diversification for farmers. Unfortunately, ill-considered laws on cow slaughter and a free rein to vigilante groups have harmed this segment. Indian agriculture cannot be asked to bear the burden of sentiments of urban politicians. If farmers are to get better returns, they need better infrastructure such as cold chains and better road networks. Most of all, they need the freedom to deal with an intermediary of their choice or the final consumer. Ease of doing business matters for rural India too.