Socio-Economic Survey | Agriculture Optional Notes for UPSC PDF Download

Introduction

Despite the existing economic challenges in rural India, the Union Budget for 2023-24 did not provide substantial measures to boost economic growth. Instead, it reduced the funding for subsidy programs, with a few critical schemes receiving only minor increases in their allocations.

How has the Union Budget Fared for Rural India?

• Agriculture and Allied Activities: The allocation for agriculture and allied activities, including PM KISAN, has seen a slight increase from Rs 1.36 trillion crore in FY23 to Rs 1.44 trillion crore in FY24, marking a 5.8% rise.
• Agriculture Research and Development: The allocation for agriculture research and development is Rs 9,504 crore, which is higher than the Rs 8,658 crore allocated in FY23. However, this amount represents only 0.4% of the agricultural gross value added, whereas other countries allocate 1-2% of their agricultural Gross Domestic Product (GDP) for this purpose.
• Agricultural Subsidies: The budget for food subsidies has been reduced by 31% in this budget, with an allocation of Rs 197,350 crore, down from Rs 287,194 crore in the previous year. Fertilizer subsidies have also been cut by 22%, resulting in an allocation of Rs 175,099 crore. Subsidies for Liquified Petroleum Gas (LPG) for the economically disadvantaged have been reduced by 75%, with an allocation of Rs 2,257 crore. Additionally, the budget for cotton procurement by the Cotton Corporation under the Price Support Scheme has been reduced to Rs 1 lakh from Rs 782 crore in 2022-23.

What is the State of Rural Economy?

• Key Statistics:
  • According to the Economic Survey for the year 2022-2023, 65% of India's population resides in rural areas, and approximately 47% of the population relies on agriculture for their livelihoods.
  • In contrast to the widespread belief that agriculture dominates the rural economy, over two-thirds of rural income now originates from non-agricultural activities.
  • The Economic Survey reports that the agricultural sector has seen an average annual growth rate of 4.6% over the past six years. However, various factors are placing pressure on both the agriculture sector and rural incomes.
• Economic Situation: Before the Pandemic:
  • The National Statistical Office's Situation Assessment Survey (SAS) for agricultural households in 2018-19 highlighted an unprecedented economic crisis in India. This crisis was driven by diminishing demand and supply disruptions.
  • Prior to 2014, warning signs of distress were evident due to a significant economic slowdown, escalating input costs linked to rising wages, issues with the implementation of fertilizer-subsidy reforms, and higher fuel prices.
  • The consecutive droughts in 2014 and 2015 further exacerbated the situation.
  • However, before the agricultural sector could recover in 2016, the disruption caused by demonetization left many farmers struggling to sell their produce.
  • Subsequently, the economy faced a sharp deceleration, followed by the impact of the COVID-19 pandemic.
• After the Pandemic:
  • Per capita incomes in real terms for the year 2021-2022 remain below the levels observed in 2018-2019.
  • The overall growth rate between 2016-2017 and 2021-2022 is the lowest, at 3.7%, for any five-year period in the past four decades.

What are the Challenges to the Rural Economy?

• Inflation:
  • Higher inflation in rural areas has eroded the purchasing power of the rural population.
  • Real wage growth in rural areas has been negative due to the impact of high inflation.
  • Weak rural demand has been a concern for industries like fast-moving consumer goods and other consumer durables. However, there are some emerging signs of improvement.
• Agriculture Sector Issues:
  • Agriculture serves as the primary livelihood source for numerous rural households in India.
  • Challenges such as a lack of irrigation facilities, inadequate access to credit, low prices for agricultural products, and unpredictable weather conditions can lead to crop failures, mounting debts, and declining incomes for farmers.
• Lack of Rural Employment Opportunities:
  • The limited availability of employment opportunities in rural areas has compelled people to migrate to urban areas in search of work, resulting in social and economic disruptions for rural communities.
• Poor Infrastructure:
  • Rural areas often lack access to fundamental amenities like water, electricity, healthcare, and educational facilities. This deficit hampers the potential for growth and development in these regions.
• Inadequate Social Protection:
  • The absence of sufficient social protection mechanisms, such as health insurance, old-age pensions, and disability benefits, has increased the vulnerability of rural households.
• Lack of Fiscal Autonomy:
  • Panchayats have restricted authority when it comes to setting tax rates and establishing revenue bases, as these parameters are largely determined by the state government.
  • Consequently, there is a significant vertical gap and substantial conditional grants, limiting the fiscal autonomy of Grama Panchayats and providing only minimal room for borrowing and development.

Way Forward

• The Economic Survey 2022-23 underscores the necessity for a strategic shift in response to pressing challenges like climate change, escalating input expenses, and limited productivity. This calls for increased investment in infrastructure and research and development (R&D), alongside a reconsideration of subsidies. Furthermore, there is a crucial need to diversify agricultural focus towards millets, pulses, oilseeds, horticulture, animal husbandry, dairying, and fisheries.
• The survey also emphasizes the importance of addressing the rural non-farm sector and implementing policies that rejuvenate incomes and employment opportunities for Micro, Small, and Medium Enterprises (MSMEs).
• In India, states bear a significant portion of government spending, particularly in education, health, and public capital expenditure. Collaborative efforts between the central government and states are vital to enhance income levels, livelihoods, inclusive growth, and sustainability in the agriculture and rural sectors.