A deep divide: Reverse migration may put ailing rural economy on ventilator. Here’s how to save it. – ET Prime

Clipped from: https://prime.economictimes.indiatimes.com

India does not live in its towns but in its villages — Mahatma Gandhi.

Nobody has perhaps emphasised the importance of empowering India’s villages to help them achieve ‘swaraj’ as much as the father of our nation. But more than seven decades since he breathed his last, India remains a far cry from a country of strong, self-reliant village republic that the Mahatma envisioned.

The gaping rural-urban divide was on full display when Mumbai’s railway stations were overflowing with migrant workers even as the city’s roads were deserted after the countrywide lockdown, which commenced in late March, brought the economy to a complete halt.

Miles away from their villages, these migrant workers were facing extreme financial crunch as the pandemic had rendered them jobless. And the only option for them was to return home. So, when thousands of these workers rushed to catch trains to get back to their villages, it led to chaos and confusion. But what went unnoticed amid all the noise is a huge divide — one so far and deep that it can tilt the country’s economic balance.

The mechanics of migration
For starters, there are two categories of people who migrate from rural India to the cities: ones with no means to survive in their villages and hence moving out in search of a livelihood, and others who migrate to enhance their income levels.

What is often forgotten, however, is the fact that the cities need them as much as these workers need the cities. Not surprisingly, there were efforts from the corporate sector to stall the pandemic-triggered reverse migration due to the crucial role played by these migrant workers across industries – from construction to hotels.

The sheer size of this movement of workforce can impact the economy. According to the census data of 2011 (there is a dearth of reliable data on migration), 17.8 million migrants moved from rural to urban areas. Of course, the actual numbers today would be much higher.

Now, with the pandemic throwing their lives off the track, the latter group of migrants, who moved to the cities in search of better incomes, is unlikely to return anytime soon while the former will have to brave inertia even after normalcy returns. And it is destined to have a prolonged impact on the economy — both rural and urban.

Migrants have a high marginal propensity to consume and reverse migration will dent consumption, which will be disastrous for the economy. Meanwhile, rural distress is set to increase as the workforce, which has returned to villages, would put a huge burden on the already-crumbling rural economy.

The line that separates states
Of late, economic growth has been skewed with the rural-urban divide and the gap between agricultural and non-agricultural sectors widening. The rate of urbanisation remains low at 31% in India, and in states such as Bihar and Odisha it is mere 11% and 17%, respectively.

Low urbanisation implies lower incomes and productivity. Hence, a high degree of reverse migration to these states means more labour flocking to an already unproductive ecosystem, forming the perfect recipe for rural distress.

Meanwhile, an analysis of farmers’ average income shows that in poor states such as Bihar and Odisha it is merely one-fifth of their urban counterparts. Small size of land holdings is another area of concern. According to a study by the Institute of Economic Growth, 69% of agricultural holdings in the country are less than one hectare in size, thereby making them unviable. Needless to say, this is a major trigger for mass migration from rural areas of these states.

In contrast, states such as Kerala and Tamil Nadu not only witness low levels of outmigration, but also see large-scale inward migration from Bihar, Odisha, and West Bengal. Why does that happen?

Productivity woes
To begin with, non-farm income is the operative word here. In Kerala and Tamil Nadu, the share of rural non-farm income in total income is significantly high at 22% and 15%, respectively, as compared to the nation-wide average of 8%.

Rural areas have historically recorded low productivity as they only account for 48% of the country’s GDP but employ 70% of its workforce, leading to under-employment and disguised unemployment.

Data released by the National Accounts Statistics (NAS) in 2017, the Periodic Labour Force Survey 2017-18, and NITI Aayog, shows that the rural share in national output and employment has been declining since 1970-71. While the rural contribution to India’s net domestic product (NDP) declined sharply from 62.4% in 1970-71 to 47.7% in 2015-16, the pace of decline in the share of workforce, from 84.1% to 70.9%, was less steep.

The declining contribution from rural areas in national output without a commensurate reduction in its share in employment implies a redundant rural workforce with low productivity. This signals that the overall economic growth was driven by capital-intensive sectors which didn’t generate significant employment. And now, the lockdown-induced reverse migration will only accentuate this ‘rural overpopulation’ and make life more distressing for them, especially since their annual per-capita income at INR40,500 is less than half of the INR98,400 earned by their urban counterparts.

One of the most notable aspects during 1970-71 and 2015-16 (as per the NAS report of 2017) was that the share of rural areas in total manufacturing output doubled and exceeded that of the urban areas’, constituting 51.2%. However, the rural share in manufacturing jobs declined 4.1% during this period.

The estimated employment elasticity of the manufacturing sector is 0.09, which means the sector would have to grow at about 11% for a 1% increase in employment opportunities, according to an analysis by IndiaSpend. That rate looks impossible, at least at this juncture, and hence it may be safe to conclude that manufacturing activity will not be able to absorb the returning workforce from the cities.

The construction sector, however, has shown a different trend. In rural areas, employment in construction sector rose almost 13 times during the past four decades, leading to a significant increase in its share in rural employment from 1.4% in 1971-72 to more than 10.7% in 2015-16. This was much higher than the growth in the share of construction output in the overall rural GDP during the same period, which was 3.6%. And this was probably because of the availability of low-skilled labour in rural India.

In the services sector, rural areas lost to the cities by a big margin, accounting for roughly 25% of the overall output, according to NAS 2017 data.

It is indeed a matter of serious concern that rural jobs are concentrated in low-skilled sectors such as construction rather than manufacturing or services. It is even worse, given that the construction sector is witnessing muted growth amid Covid-19 and therefore its ability to absorb the incoming migrant workforce from urban areas will be limited.

The low productivity of the rural economy also stems from reliance on agriculture. According to latest data, agriculture constitutes 39% of NDP of the rural economy, though this is a sharp decline from 72.4% in 1970-71. Manufacturing and services contribute only 18% and 27%, respectively, to the rural economy.

Moreover, the employment elasticity of the agriculture sector (rural plus urban) is estimated at 0.04, which means a 1% increase in agricultural employment requires the output to grow by 25%, says the IndiaSpend study, quoting a Reserve Bank of India paper. This looks difficult as the average growth rate of agriculture sector has been below 4% since early 2000.

Further, according to the Labour Force Survey of 2017-18, only 12.4% of rural households were engaged in any form of regular wage or salaried employment while the share of casual labour and self-employed rural households were 52.2% and 25%, respectively. On the other hand, in urban areas, 41.4% of households had a daily wage or salary while casual labour and self-employed households constituted 11.8% and 32.4%, respectively. Hence, it is no surprise that urban migration was rampant over all these decades and by the same logic, returning migrants will see a significant decline in their incomes and living standards.

Of all interstate migrants in India, 37% are from Uttar Pradesh and 14% from Bihar, according to census 2011 data. These two states also have 25% of India’s total rural unemployment and are impacted by extreme poverty. Reverse migration, thus, would have serious adverse impact on these regions.

That brings us to the question: how to rectify this imbalance?

Bridging the gap
A multi-pronged approach is required to attack a problem as huge as the urban-rural divide. Here are six key measures that need to be taken immediately:

1. The low share of rural jobs in manufacturing and services sectors underlines the need for skill-development programmes. More initiatives in this regard will go a long way towards increasing non-farm GDP income and employment in rural areas.

2. The share of salaried or daily wage employment in rural areas is a mere 12% as against 41.1% in urban India. This calls for a continuous assessment of schemes such as MNREGA in terms of coverage, employment days, and fixation of daily wages.

3. In several states such as Bihar and West Bengal that witness a high rate of outmigration, urbanisation is too slow. This lowers productivity. Better road connectivity and faster construction of highways and roadways will boost urbanisation and create employment besides enabling hassle-free transport of agricultural produce.

4. As government think tank Niti Aayog had suggested in 2016, steps should be undertaken to develop a land-lease market. This would solve the bottlenecks associated with small per-capita land holdings.

5. A major pending task is access to banking services for the entire populace. Even now, more than 40% of Indians do not have access to banking facilities and are under the clutches of money lenders. The country’s credit-GDP ratio is at 50% as against China’s 200%. Once banking facilities are ensured for all, direct-benefit transfers will become fully efficient.

6. The Agricultural Produce Market Committee (APMC) Act must be amended to ensure that farmers can sell directly to customers without going through mandis and middlemen. This will significantly enhance farm incomes and reduce migration to congested cities.

The bottom line
While discussing ways to boost the rural economy, it is worthwhile to revive the debate on the government’s ambitious target to double farm incomes.

A host of schemes — such as PM Kisan, MNREGS, and Garib Kalyan — have been introduced by the government to put money directly into the hands of the farmers. However, these are at best sporadic measures taken during times of distress and are more in the nature of cash transfers. To achieve doubling of farm income and sustain it objectively, India needs a holistic income scheme on the lines of the universal basic income (UBI) model.

As we highlighted in an earlier article, Finland is the only country that has done some degree of experimentation with UBI — or a government guarantee that each citizen receives a minimum income enough to cover the basic cost of living.

The model indeed faces huge implementation challenges. But then, these are unprecedented times and we may have to tread the path less travelled.

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