As the economic pain deepens for rural poor, how can we rapidly and inclusively rebuild rural India?

Charcha 2020 is a platform for India’s development sector to come together and engage on the most pressing human development challenges.

The rural development event at charcha 2020 was hosted by The/Nudge Centre for Rural Development and it followed the theme of ‘holistic and inclusive rural development’. The sessions discussed how rural India can respond to COVID-19 with the support of different stakeholders in the sector (govt, NGOs, financial service providers, local community institutions, etc) and how we can support an inclusive and holistic rural development.

Download the full Insight report on Charcha 2020, covering 16 events and 150+ hours of discussion.

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Rebuilding rural livelihoods post COVID-19

‍Around two-thirds of India’s population is in rural areas and a large proportion of this population lives in poverty. There is an urgent need to focus on economic revival of rural India to cope with the large scale reverse migration to India’s villages. In the immediate term, this means ensuring the direct benefit transfers and ration reach households and enabling households to benefit from MGNREGA and self-help groups to access capital. In the long run, this requires large scale reforms in agriculture as well as investments in other areas of the rural economy to vitalise non-farm livelihoods in rural India. Improvements to farm, near-farm and non-farm workers’ productivity should be central to the design, in order to harness the full potential of rural India and create local employment opportunities.

India has exceeded agricultural productivity goals, and has decided agro-ecological advantages over China but we lag considerably in our investments in allied sectors.

Innovations in food processing, discovery and linkage to markets, value-added farm by-products, digitisation and mechanisation initiatives and value recovery from farm waste will be key in both employment generation, and in increasing wage levels in rural economies. Reviving rural livelihoods is achievable if the banking sector releases liquidity into the rural economy through the SHGs, which remains our biggest channel right now for revival.

Rural Entrepreneurship

‍Rural development policies need to create the right conditions for micro entrepreneurship to flourish.

Models that de-centralise production, create opportunities for hyperlocal problem solvers and promote sustainable practices should get a boost. The capacity to create and innovate, and the ability to be resilient is inherent in rural India, but there are structural gaps such as under-capitalisation of the near-farm sector and in skill development for FPOs and small business owners. Creating sustainable women-led value based institutions and creating social, financial, human and economic capital so that communities can sustain themselves in the long run should be able to address these bottlenecks. Holistic rural development models that strengthen communities, strengthen education and health infrastructure, managing natural resources and increasing value chain opportunities need to be funded and social entrepreneurs need encouragement and support to further innovation.

There is a risk in framing the problem statement as ‘how do we create rural jobs?’ Directing incentives and interventions at creating rural jobs has marginal returns. Instead, we need to fix structural gaps (infrastructure, transport, logistics etc), which could be common to urban and rural areas. Sector specific laws and regulations that constrain our rural enterprises need to be revisited to spur rural economic growth.

While the poor are adept at managing their household finances, their ability and skills to grow their micro-enterprises, managing people, managing accounting and cash flows is inadequate. Focusing on building these skills especially among women is a role that our skill development ecosystem must play.

Inequality and Gender in rural India

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Improvement in standard of living, as measured by consumption of commodities, has created an illusion of equality. A rural woman may use the same shampoo as her more privileged, urban counterpart — but does not have the same access to opportunities in education, healthcare and economic security. While the urban women strive to break the glass ceiling, poor rural women struggle with sticky floors. Challenges are very different for the rural woman, and requires the participation of families and communities to overcome. Economic empowerment is key but women need empowerment on many levels — starting with the self, and culminating in an equal voice in government and local administration. As we rethink the relationship of the state with the citizen, there is a need to look closely at the identity of a woman farmer, her access to markets and capital, and her participation in local governance structures. COVID-19 has shown that our lens to view inequality needs to shift from income inequality, to inequality in economic security and social protection.

Rural Finance

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Government has taken steps to boost liquidity in the farm sector through refinancing of financial institutions, additional Kisan credit cards, etc. However, its adequacy and efficacy on the ground will be a function of timely execution. Unlike the manufacturing or services sector, demand for financing in agriculture will remain stable irrespective of whether it is viable for the farmer. Despite the increase in credit flow, the growth in gross capital formation in agriculture is disappointing. There is also a pattern of over-financing in short-term debt in several states. When this is juxtaposed with the agrarian distress experienced by farmers across India, it points to structural inefficiencies and leakages in capital reaching the right target audience and on time because of too many ifs and buts in between. Other factors like land holdings, soil quality, reach of irrigation, market linkage structures enabling price realisation need to be addressed in addition to rural financing.

Government has taken steps to boost liquidity in the farm sector through refinancing of financial institutions, additional Kisan credit cards, etc. However, its adequacy and efficacy on the ground will be a function of timely execution. Unlike the manufacturing or services sector, demand for financing in agriculture will remain stable irrespective of whether it is viable for the farmer. Despite the increase in credit flow, the growth in gross capital formation in agriculture is disappointing. There is also a pattern of over financing in short-term debt in several states. When this is juxtaposed with the agrarian distress experienced by farmers across India, it points to structural inefficiencies and leakages in capital reaching the right target audience and on time because of too many ifs and buts in between. Other factors like land holdings, soil quality, reach of irrigation, market linkage structures enabling price realisation need to be addressed in addition to rural financing.

Focusing on making agriculture remunerative and investing in high value agriculture is central to rural development. There has always been a disconnect between financial capital availability, which has predominantly concentrated in urban centers, and human capital availability, which is abundant in rural India. We need to address structural gaps that prevent capital flow to rural areas to truly leverage our human capital.

Challenges and the way forward

India has achieved significant progress in building community institutions of the poor having included over 7 crore Self-Help Groups however these institutions are evolving and as they evolve the role of institutions for the poor need to evolve too. As the institutions grew, creating community resource persons to service communities meant we have also created institutions by the poor. We have a responsibility to continue to catalyse innovations in rural India while maintaining the quality of these institutions and the autonomy of the poor. While we have taken ambitious goals in creating farmer producer companies, we need to answer whether we should target economic impact before creating social impact or social institutions first for economic impact later.

While the former model has seen success across the world the latter has a risk of creative multiple layers of structures without viability in sight.

Access to finance and access to markets are key to reviving agriculture. Fault lines in access to markets were completely exposed with COVID-19. Regulatory reforms need to be geared towards building resilience in the supply chains and empowering the farmer with multiple options in selling their produce. While recent regulatory reforms are promising, their benefits will take time to materialize, for private investments to come in and for alternative markets to form. Ease of doing business at a block or taluk level needs to be improved drastically. The state should invest in providing credible information systems to break the oligopoly and information asymmetry that plagues the rural value chains. Information on commodity pricing, weather etc should be treated as public good and made accessible without barriers.

India has made big strides in rural development and inclusion in the past 10 years with the Jan Dhan — Aadhar — Mobile trinity. However, the current pandemic has highlighted the situation that the ultra-poor still don’t have bank accounts or access to the relief measures such as direct cash transfers. A key agenda in rural development should be to reach these invisible populations. Direct Benefit Transfers have worked well but we haven’t reached an inflection point. India needs investments in digitisation, financial literacy, infrastructure for the last mile.

Experts across various sessions viewed agriculture today, as over-regulated, and advocated a model where government serves as a facilitator to provide amenities such as water and electricity, access to land and forest rights of communities, etc. Over time as agriculture becomes remunerative, the farmer will be empowered to access private services instead of depending on government subsidies and support. This will also lead to sustainable agricultural practices.

Written by John Paul, Head, The/Nudge Centre for Rural Development

Download the full Insight report on Charcha 2020, covering 16 events and 150+ hours of discussion.

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As published on Medium on 22nd June, 2020

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