Financial Daily from THE HINDU group of publications
Thursday, Dec 16, 2004
Industry & Economy
Rural consumption 50% more than urban
Chennai , Dec. 15
THE share of agriculture in GDP has been declining. It was once around 50 per cent.
By 2001 it was down to 22.7 per cent. However, as pointed out by the RBI's Vyas Committee, the share of the country's rural population has remained constant over the past decades, at roughly 72 per cent.
Based on this and armed with the assumption that agriculture accounted for the bulk of rural income, the Committee went on to stress the implications of the large and growing gap between rural and urban per capita income for the overall growth of the economy, due to the market constraint.
This statement of the shape of things today and in the years to come is not easily reconciled with statements made by a number of top corporate executives, including those from Hindustan Lever and Godrej, about the rapid growth of the rural markets, which already account for about half of their total sales in many product categories.
Three possible explanations suggest themselves. One is that non-agricultural GDP accounts for a larger proportion of rural income than is commonly supposed.
This possibility is supported by the fact that the National Sample Survey (NSS) based estimates on average per capita incomes in rural and urban areas show a much less unequal picture than the one suggested, off-hand, by the Vyas Committee as shown in the accompanying table.
The second is that large amounts of money running into hundreds of thousands of crores of rupees find their way each year into the rural economy as a result of the CentralGovernment's various income support programmes for rural areas.
The third point is that it is misleading to draw conclusions about the size and potential rates of growth of the rural markets for India as a whole, or in its various States, on the basis of differences in the rural and urban per capita income alone.
The large proportion of the population resident in rural India which `drives down' rural incomes, also acts as a multiplier when one aggregates across incomes in the two markets.
The moral of the story is that even if the prospects of a sizable breakthrough in the rates of growth of agricultural GDP are as bleak as is widely supposed, the demand constraint posed by rural areas on the overall rate of growth of the economy may not be nearly as formidable a problem.
In any case, so far as easing the rural demand constraint to the overall growth of the economy is concerned, simplifying and streamlining rural income support programmes would pay greater dividends.
Hundreds of thousands of crores of rupees is a huge sum. A small improvement in net funds delivered would make a large difference to purchasing power. And leave abundant room for an encore the next year and in the years to follow.
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