Giving Compass' Take:

• Pravesh Sharma shares five steps to revive India's rural economy by boosting supporting farmers, encouraging exports, and engaging labor. 

• What role can funders play in advancing these steps? 

• Read about the impact of COVID-19 in rural India

1. Expand NREGA and fund it liberally
Around one-third of the farms in India are essentially unviable from an investment point of view because they are small holdings. These marginal farmers and agricultural labour may produce enough for subsistence, but most are dependent on wage labour. They will hence need a safety net to survive the economic effects of the pandemic. The primary instrument we can use to provide this net, is the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA), which should be liberally funded in the coming year. And if it means printing money to make the funds available to support this critical employment guarantee scheme, then the government must do it. Money in the hands of people will also spur demand, foremost of which will be demand for food, which in turn will incentivise agricultural production.

2. Provide finance directly to the farmers
When we consider the larger farms, the ones that serve the food needs of the nation, the critical input is going to be capital. While non-banking financial companies (NBFCs) are becoming significant lenders in the agricultural space, we don’t have the luxury of getting into fresh mobilisation and experimentation with new models of credit at the moment. That can be a medium-term outcome.

Today, however, it is absolutely critical that the government delivers finance directly to the farmers through the primary agricultural co-operative societies, commercial banks, a special line of credit, and Kisan credit cards.

3. Explore exports aggressively
The severity of COVID-19 is far greater in the countries of Europe and increasingly, North America.

Agricultural value chains and production systems in countries like Italy, France, and Germany, which are major agri-goods producers, have been severely impacted and are likely to take a while to recover. India has been more fortunate in the sense that our rural areas seem to have escaped the worst of it. Our agri-production systems will recover faster than that of Europe, and this needs to be leveraged.

This could therefore be an opportunity for India to tap the world food market as a supplier.

4. Use the surplus labor to build rural infrastructure
It’s going to take a fair amount of time before industries like real estate, tourism, restaurants, and the rest of the low-grade-service industry recovers and stabilises. This means that much of the migrant labour—which is usually employed in these sectors in urban India—will likely remain in their villages for at least the next 18-24 months.

This supply of labour in rural India should be seen as an opportunity to upgrade our rural infrastructure. We’ve already seen the benefits of rural roads—enabling access to markets, schools, and healthcare facilities to remote areas. The time has come to replicate this to building other physical infrastructure: Schools, ICDS centres, and most importantly, primary health infrastructure, which does not exist in most parts of central and northern India.

5. Create an enabling policy environment
The final and most important step in reviving the rural economy is an integrated policy package which looks at the entire rural situation holistically. While agriculture is certainly the primary engine of the rural economy, we also need to look at non-farm sectors like handlooms, handicrafts, and rural SMEs to unlock the full potential of employment and income generation.

Read the full article about India's rural economy by Pravesh Sharma at India Development Review.