It has become a routine for commentators to talk about a “rural distress” and base it as the sole basis of an electoral forecast. It is hilariously amusing as well as concerning to note the growing divide between the fate of Rural India and what the commentators sitting in Delhi make of it.
An article published by The Print, authored by Shivam Vij, talks about why Prime Minister Modi may lose the election due to a prevalent “rural-distress” which may dampen the electoral spirits of NDA in 2019 just as it did in 2004.
The entire analysis is just wishful thinking on the part of Shivam Vij as he picked up the data point from at least a year ago when we were just witnessing the revival of the rural economic activity post the initial transition period of demonetization and GST.
It’s almost hilarious to pick up a data value from a year ago and construct an analysis for the coming year and base the outcome of the State Elections as an indicator of the existence of a “rural-distress” or the absence of it.
As far as the electoral contest is concerned, I believe the outcome on 11th December would invariably give a sound answer to these commentators as the rural sweep is well on the cards across the three states that were mentioned by the author. But the issue is not about whether there will be a rural sweep or not, but the issue is on this ill-founded pessimism on the Indian Economy at a time when our fundamentals are strong. In a separate article I will certainly provide my projections for the Financial Year (FY) 2018-19 but let me provide a very brief response to the article.
The article in question talks about an economic slowdown that is being projected for the year ahead. Will there be a slow-down in the economy? Compared to the GDP growth rate of 6.7% in FY 2017-18, growth will only accelerate in FY 2018-19. Q1 FY 2018-19 estimates were at 8.2% which clearly shows that there’s no case to argue for an Economic Slowdown in the year FY 2018-19.
Yes, global growth will slow-down in this fiscal but then, the last couple of years saw a marginal increase in exports so the impact of a global slowdown may not be as severe as being projected. The reason behind this is the strong growth in demand that India has witnessed this fiscal and a bulk of this demand has come from the rural areas. The article also cites Increasing Oil Prices to be a downside risk to India’s growth, but it conveniently ignores the moderation in the international oil prices and the impact of India’s treaty to purchase Oil from Iran along with the waiver from sanctions that the US has provided to India.
Clearly, the author does not understand macroeconomics and has failed to provide an argument so as to why a slowdown is possible in this fiscal. In fact, the projected forecast for the FY2018-19 is of 7.2-7.5% GDP growth rate which is considerably higher than the 6.7% FY 2017-18estimates, so the entire argument of a slowdown is façade and should not be taken too seriously.
Another issue he highlighted was on the rural wage growth rate using the CMIE data. Let us debunk this myth. The real rural wage growth for men and women has been positive which means that even after inflation adjustment, the incomes increased between January 2017 and January 2018. With an increase in nominal wages and low inflation, real wages are bound to increase compared to the year before.
Even though the growth rate slowed a bit in January 2018 from January 2017, given that it’s still positive it shows that the wages are growing. Another thing worth noting is that PM-ASHA has come into effect so the growth rate in real rural wages have started to accelerate since the last month. This in itself represents the fact that the data point considered in Shivam Vij’s article published in The Print does not take due cognizance of such facts and latest available data. As a result, it would be unwise to draw any inference based upon the data point used by the author in their original article.
Besides, another important issue is of low inflation, as highlighted in the original article. Without due consideration of why there is low inflation, he has made an assessment on rural distress. The price realization and farm income have gone up in this Kharif season due to PM-ASHA which means that food inflation should have gone up. Despite that, the reason why the key inflation indicators remain is due to the fact that GST has reduced the effective tax rates on most commodities.
It is this fact along with the structural transformation that the Indian Economy is undergoing which is ensuring that the inflation figures continue to remain consistent within the 5% mark. The increase in the sale of tractors along with the strong rural demand further indicates the absence of a rural distress.
The entire narrative of rural distress is a convenient illusion of those who are trying to speculate a repeat of 2004 like outcome in 2019, but what they seem to undermine is the impact that schemes like Ujjwala, Swachh Bharat, Saubhagya electrification scheme, PM Awas Yojna and Ayushman Bharat are going to have in transforming the lives of the poor who reside in Rural India.
I may not be surprised if, on the 11th December, we witness a strong rural sweep, a trend which may very well continue in 2019. For all the wishful thinking of such analysts, it is about time they go to the ground and see what the pulse of the people is, for Delhi gives a very wrong idea of what people of India feel.