Agri productivity, urbanisation to drive rural India: Report

Boosting agricultural productivity, diversifying sources of income and urbanisation may help drive the growth of rural India over the coming years, says a report by Goldman Sachs.
In the report titled 'India: A Tale of Two Economies - Rural and Urban', Goldman Sachs said urban economic growth continues to remain steady and rural growth is recovering due to improving consumption. However, rural investment remains weak.
"While overall rural growth has recovered over the past two months, this has mainly been driven by an increase in rural consumption, even as investment trends remain subdued," it added.
"We think that an above normal monsoon and fiscal support to rural areas could be key swing factors driving rural activity in FY2017. However, a good monsoon is only likely to provide a temporary boost to rural economic growth. For a more permanent impact on growth, we believe reliance on monsoon rains must be reduced," it said.

A three-pronged approach -- boosting agricultural productivity, diversifying sources of rural income and urbanising rural areas -- is needed to achieve more sustained growth in the rural economy, it added.
"Investments are required in irrigation, storage and transportation for better connectivity from farms to markets," the report said.

To create more stable income sources, reduction in overall reliance on farm income and agriculture is necessary, it added.
"Diversifying income away from agriculture into industry and services can help boost rural economy's labor productivity," the report noted.
Building better road connectivity in rural areas, electrifying villages, improving internet connectivity, converting thatched roof structures into more durable housing and ensuring adequate power supply could help lift rural incomes and standards of living, it added.

The report estimated that a 1 percentage point increase in rural economic growth increases overall economic growth by 70 basis points and headline inflation declines by 40 basis points over a period of three quarters.
"We believe that if government policies were to focus more on rural investment via the three-pronged approach discussed above rather than on consumption, rural growth could be lifted in a more sustainable way," it said.
The gap between rural and urban economic growth touched 6 percentage points in end-2015, reflecting weak rural activity, but has since narrowed due to improving rural consumption trends.
With 50 per cent of consumption coming from rural areas and more than 70 per cent of the workforce employed in rural India, lifting rural economic growth is critical to the overall growth of the country, it added.