Omkar Goswami & Rama Bijapurkar: Rural India's not just agriculture

On July 11, Business Standard published Abheek Barua's article on rural India "The 1.9 per cent growth economy" The gist of it was:

Rural India is nothing but agriculture; and since agriculture has been growing at a mere 1.9 per cent since 1995-96, so is the rural economy. Therefore, per capita rural income has fallen in the recent past.

"We have a dual economic structure in which a 1.9 per cent growth economy supports more than 60 per cent of the population, and a 7.3 per cent growth economy supports the remaining 40 per cent" [Barua's quote].

The rural-urban chasm is not only deep but also "has grown substantially over the past few years".

For cell phones, other durables, consumer goods and services, penetrating the rural market will be limited by poverty and lack of growth, and that "companies might find themselves reaching saturation point much sooner than expected."

This gives a misleading picture of the economy, and would perhaps have been understandable if it had been a populist politician that had equated the rural economy with agriculture to say that two-third of India's population live on only 22 per cent of the country's income, while a third live in cities and lord over 78 per cent of the GDP.

Since April last year, we have constructed what is probably the most comprehensive picture of India's rural economy "" a digitised database of economic, demographic, consumption data that has been extracted and harmonised across various sources, goes back over two decades, down to 530 districts.

All the evidence that we have collected, processed and analysed tells us that rural is much more than agriculture.

This is true not just for the present, but has been so for quite some time. In 1993-94, the Central Statistical Organisation conducted its last rural-urban classification of India's net domestic product (NDP, which is GDP minus depreciation).

It showed that rural India accounted for 54 per cent of the country's NDP, while agriculture contributed to 31 per cent of India's GDP. So, even if one were to account for depreciation, the rural economy of 1993-94 was quite a bit more than just agriculture, forestry and fishing.

The share of rural economy is more or less the same seven years later. Our analysis shows that in 2000-01, out of India's NDP of Rs 1,062,400 crore at constant 1993-94 prices, the share of rural India was 52 per cent.

This is how rural NDP played out in 2000-01: agriculture accounted for 46 per cent; industry took up another 21 per cent; and services 33 per cent. Between 1993-94 and 2000-01, rural NDP at constant prices grew at an average of 6.2 per cent per year.

Since agriculture grew at around 2 per cent during this period, clearly the rural economy has been much more than just agriculture.

There is a lot of other evidence as well that demonstrates the growth of non-agricultural activities throughout rural India.

According to the Annual Survey of Industries, even in 1993-94, rural India accounted for 29 per cent of the country's organised manufacturing units; 30 per cent of its employees; 32 per cent of its output; and 30 per cent of its net value added.

In 2000-01, over a rising base, rural India could speak of 36 per cent of organised manufacturing establishments, 38 per cent of its employees, 43 per cent of output; and 41 per cent of net value added.

Consider also the Census of India. In 1991, 30.6 per cent of rural households had permanent (or "pucca") houses. By 2001, this had risen to 41 per cent, over a base that was growing at 1.7 per cent a year.

Between 1991 and 2001, households using LPG for cooking rose from 1 per cent to almost 6 per cent, with Himachal Pradesh leading at 22 per cent.

In 2001, almost a fifth of rural households owned TV sets, and the rural regions of 10 states were significantly above the national average. Between 1991 and 2001, the percentage of rural households with electricity connections rose from 30 per cent to 43.5 per cent and 11 states ranked well over the national rural average.

In 2001, over 30 per cent of rural households kept their funds in banks or postal savings accounts. All this doesn't square up with the age-old image of rural India "" that of highly indebted, underfed peasants ploughing handkerchief-sized fields under the blazing heat of the mid-day sun.

That may be still be partly true of agriculture; but not of the rural economy.

We won't inundate you with more evidence. Instead, let's make three points. One, there's more to rural than just agriculture; it has a thriving and growing manufacturing and services sector.

Two, between 1993-94 and 2000- 2001 per capita rural income grew at the same pace as urban income. The reason why total urban income was greater has much to do with higher population growth.

Three, there is considerable pent-up demand for goods as well as services such as education, telecom, medical treatment and financial products.

Those in the top quartile of rural India have been discontinuously higher spenders than the average, spending at least Rs 180,000 crore (NSS, 55th round) in 1999-2000, with expenditure patterns that are pretty similar to urban India.

Consider this: services can't constitute 52 per cent of GDP on the rump of only the urban populace.

Rural India is morphing more rapidly than one thinks. Barua might discover it if he looks at some more data, or visits 20 randomly-chosen rural districts, as we have.

Omkar Goswami is an economist and chairman, CERG Advisory Private Ltd, & Rama Bijapurkar is a well-known marketing and brand consultant.