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The concept of Rural Economy

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 Content

  1. Introduction
  2. Size and structure of the Rural Economy
  3. The Role of the Agricultural Subsector
  4. The role of the Non-agriculture Subsector

Introduction 

Given that the majority of villagers' residents depend on agriculture, India is known as an agricultural nation. The economy of the nation is based on agriculture. The largest portion of the country's overall economic growth comes from the agriculture sector. The Indian hamlet has maintained a self-sufficient and independent economy for several centuries. The main focus of economic planning during the past forty years has been on rural reconstruction and development, which has quickly altered the rural economic structure of India.

Land reforms, agriculture, animal husbandry, supplies and marketing, village industries, rural leadership, village administration, and other areas have all undergone these transformations. A cultivator is able to benefit from new technology facilities in his agricultural activities with the aid of the rural development programs. These farmers now employ high-yielding seed and fertilizer kinds, as well as contemporary agricultural tools.

India's economy is primarily of a rural nature. This is demonstrated by the fact that in 1991, around 5,80,000 communities made up nearly 74% of the country's population, and that about two-thirds of its workforce was employed in agriculture and related rural activities. In 1994-1995, at factor cost at the present rates, agriculture and related sectors generated roughly 29% of India's GDP.

Rural development is a sine qua non of national development in an overwhelmingly agrarian nation like India, and agricultural development is a requirement for rural development. Consequently, in such a nation, agricultural development ought to serve as the cornerstone for overall national development.

Since the Physiocratic era, the importance of agriculture in the growth of the economy has been acknowledged and explored. The Physiocrats held that only the agricultural sector had an economic surplus over its production costs, making it the sector that was most strategically important for economic growth. They viewed trade and manufacturing as unproductive in the sense that the value of the raw materials handled by these industries increased only to the extent necessary to cover the costs of labor and capital incurred during production. The value of agriculture to economic growth was likewise acknowledged by classical writers. It is currently thought that Adam Smith's fundamental growth model was built around the agricultural sector. He believed that an agricultural surplus needed to sustain non-farm production was crucial for economic growth.

Size and structure of the Rural Economy 

The rural sector and the non-rural sector are the two main economic segments that make up India. The agricultural subsector and the non-agricultural subsector are the two main subsectors that make up the rural sector. The agricultural subsector includes farming and related industries like forestry, fishery, poultry, crop husbandry, animal husbandry, and dairying. The non-agricultural subsector includes commercial, industrial, and service-related economic activity. In this context, "industry" refers to cottage and village industries, khadi, handloom, handicrafts, etc., "business" refers to small businesses, the trading of general goods, small shops, petty traders, etc., and "services" refers to the delivery of inputs, marketing of agricultural and non-agricultural products, etc. Farmers, agricultural and nonagricultural laborers, craftsmen, dealers, moneylenders, and those working in the provision of services including transport, communications, processing, banking, and education and extension are some of the major stakeholders in the rural sector.

A crucial life support system is provided by forests, which are a very valuable renewable resource. The population's rapid expansion has led to an increase in demand for woods. Out of the 75 million ha of land that Landsat recorded as forest, only 64 million ha really support the forest cover, and of these, only 35 million ha have sufficient cover, making up just about 11% of the country's current overall geographic area. According to the National Forest Policy from 1988, the nation as a whole should strive to keep around one-third of its land covered in forests. The diversity of biological and genetic life found in forests is a gift from nature to humanity. Afforestation is necessary to restore the forests that are being destroyed by the ever-increasing biotic pressure, not only for environmental reasons but also to meet local demands for firewood, small timber, feed, defense, and industry.

For agriculture to reach its full potential, water is essential. India has an abundance of water resources. India has abundant water resources, with a surface flow of roughly 188 million ha meters and an average annual rainfall of about 120 cm. The entire amount of water that can be used is 114 million ha, of which 69 million ha are surface water and 45 million ha are ground water. Additionally, the Central Ground Water Board estimates ground water at 80 million acres, up from its prior estimate of 45 million. The total irrigation potential is assumed to be 114 million ha pending the firming up of these figures. Fisheries in India contribute significantly to the rural economy by increasing food availability, creating jobs, and earning foreign cash. India has a maritime coastline that is 12,700 km long, a maritime area that is 4.52 km2 and an exclusive economic zone that is 200 km2.

Energy consumption is a significant factor in rural development. The rural economy lacks energy. Meeting the rising demand for energy from businesses, industry, transportation, agriculture, and homes will be a difficult undertaking. Energy demand patterns are also evolving throughout time. The consumption of petroleum products, natural gas, and electricity is increasing, according to analysis of total commercial energy consumption. It will be necessary to take action to reduce energy intensity across many industries by altering technology and business procedures. It will be necessary to optimize the substitution of different fuels. Maximizing the utilization of renewable energy sources at a price that is affordable to low-income groups in both rural and urban areas will need to be the main focus. Efficiency, conservation, and demand control should receive top priority in order to reduce output's energy elasticity.

Source of Foreign Exchange

Foreign currency, which is required to import capital goods for the fast increasing industrial sector, can be earned from agriculture. Approximately 18 to 20 percent of the entire value of Indian exports were agricultural products. Through increased exports and the displacement of existing and potential imports, agriculture contributes to the net foreign exchange earning.

Market for Industrial Goods and Services

Many of the goods and services made in the secondary and tertiary sectors have a ready and large market in the agricultural sector. Pesticides, insecticides, farm equipment, pumping sets, feed for cattle and poultry, feed for fish, pipelines, fencing materials, veterinary medicines, and cars are all examples of these kinds of goods. People in rural areas also buy goods made by the industrial sector. In fact, a lot of big companies now want to sell their goods and services in rural areas. So, more money and buying power for farmers is a good way to spur industrial growth. Several economists have said that the main problem with industrial development in low-income countries is that people in rural areas don't have enough money to buy things. If the lack of a mass market is slowing down industrial development, the solution is to give rural people more money to spend. But there is a clear conflict between the need to improve agriculture's contribution to the capital needs for overall development and the focus on increasing farm purchasing power as a way to speed up industrialization. The conflict is not easy to solve.

Source of Cheap Food

An important sign of economic growth is a big rise in the demand for food. Aside from changes in demand that happen on their own, the annual rate of increase in the demand for food is given by D = p + ng, where p and g are the rates of growth of population and per capita income, respectively, and is the income elasticity of demand for food. 

India's population has grown by 2.14 to 2.88 percent per year on average over the last 10 years, and real per capita income has grown by only 3 percent per year. This means that India's food demand is growing by about 4 percent per year (assuming the income elasticity of demand for food to be 0.6). If food supplies don't grow at the same rate as demand, food prices are likely to go up by a lot. This could lead to political unrest and put pressure on wage rates, which would hurt industrial profits, investment, and economic growth. When food prices go up by a certain percentage, the effect on inflation is much worse in a developing country like India than in a country with a high income. This is a simple result of the fact that food is the most important wage good in low-income countries, where 60–80% of total consumption spending goes to food compared to 20–25% in developed economies. So, if food production isn't good enough in developing countries, there are serious consequences.

The Role of the Agricultural Subsector

The rural sector was the most important part of India's economy. No national development program will ever work if it is not built on this foundation. More specifically, the rural sector, and especially its agricultural subsector, helps India's economy grow and develop in the following ways.

Contribution to GDP

The agricultural subsector was a proud part of India's economy, and it will stay that way for the near future. At current prices, agriculture made up 34.7% of the GDP in 1980-1981, but by 1994-1995, that number had dropped to 28.7%. In fact, agriculture's share has been slowly going down since 1950-1951, when it was 56.46 percent. The fact that agriculture's share of GDP is going down doesn't mean that agriculture is getting worse. Instead, it means that the secondary and tertiary sectors of the economy are growing faster. And one would expect this as the process of economic development goes on. This has happened in all of the world's developed countries. In general, the more developed a country is, the less of its income comes from agriculture. For example, agriculture only made up 2% of the GDP in the UK, 3% in the USA, and 4% in Japan in 1995. (World Bank 1997 : 236-37). As a way to wrap up, we could say that agriculture is the most important part of India's economy, so development must directly affect agriculture if it is to affect most of the people in the country.

The main source of income and jobs

A strange thing about India's economy is that a very high percentage of the country's people live in rural areas. In 1951, this number was about 83%, and in 1991, it was about 74%. In the same way, the share of the agricultural sector in GDP has been going down over time, but the number of people who depend on agriculture has stayed pretty much the same, at around 60%, since 1961. According to the 1991 Population Census, 59% of all workers in the country were in agriculture, with 35.2% of them being farmers and 23.8% of them being farm workers. This means that agriculture is the main way for about two-thirds of India's people to make a living and find work.

Where the materials come from

India's most important industries, like sugar, cotton, jute, textiles, leather, tobacco, and edible oils, get most of their raw materials from agriculture. Agriculture is also a source of raw materials for many other industries, such as preserving and processing fruit, dal mills, handloom weaving, making gur, and crushing oil. So, the rate of growth in all of these industries depends on the rate of growth in the agricultural sector, and the development of agriculture is a requirement for the development of all of these other industries.

The role of the Non-agriculture Subsector

In most developing countries, like India, the number of people working in rural areas is growing quickly, but there are fewer jobs available. As there is less land for farming to grow, there needs to be more non-farm jobs. If rural poverty isn't to get worse, there needs to be more non-farm jobs. Given the expected growth and make-up of large-scale urban industries, it is unlikely that they will be able to take on the growing number of workers moving from the country to the city. As we move into the 21st century, we need to slow the spread of cities, which has high social and environmental costs like traffic, population growth, and skyrocketing land prices. Expanding the rural non-agricultural sector, which focuses on small, labor-intensive businesses, gives the poor, such as small farmers, landless people, and women, more ways to make money and makes it possible for them to keep their incomes from going up and down too much.

From region to region in India, the rural non-agricultural subsector is very different in terms of how important it is and what kinds of economic activities it includes. In a broad sense, this subsector is made up of non-agricultural businesses that are done in villages and range in size from small households to small factories. Some examples of these are small-scale manufacturing and processing businesses, trade, transportation, construction, and different kinds of services. Household industries have gone down over time, while small-scale industries that don't involve households have grown. Cottage businesses that rely on part-time family labor are less efficient than small-scale, full-time, specialized businesses in rural areas. As the cost of labor goes up, businesses that can't divide their work continue to have a lower cost. Rural towns that serve as trading and distribution hubs for both city and farm goods then become places where things are made.

For rural development to happen, it's important that the non-agricultural and agricultural sub-sectors in rural areas work together. The increase In the non-agricultural subsector, income from farming creates a bigger market for consumer goods and agricultural inputs made by the non-agricultural subsector. In the rural non-agricultural subsector, raw agricultural materials are processed. How income is split in agriculture affects how much money is spent on locally made goods versus goods that are brought in from cities or other countries. It's higher among small or medium-sized farmers than among the wealthy.

In India, cottage and village industries have been an important occupation of landless and other poor people in villages of ages. Agriculture and rural industries actually go hand in hand with each other. The Khadi and Village Industries Commission (KVIC) has decided that the government should help 95 village industries. These businesses can be put into the seven following groups:
  1. Mineral-based industries. 
  2. Forest-based industries. 
  3. Agro-based industries. 
  4. Polymer- and chemicals based industries.
  5. Engineering- and non-conventional energy based industries. 
  6. Textile industry other than khadi 
  7. Service industry
The non-agricultural subsector of India's rural sector is also a big part of India's economy because it gives the landless a way to make money and find work. About 16–17% of the 27 crore rural workers were in the nonagricultural subsector, which employed about 4.5 crore people.

The Nayak Committee, which was set up in 1992 to look into the SSI sector's need for institutional credit and other related issues, found that it would be safe to assume that most of the rural SSI sector's financial needs were met by private sources, such as moneylenders. It noticed the following about the SSI sector as a whole:
(a) SSI units have been moved away from major cities and metropolitan areas;
b) Even though the amount of credit has gone up, the share of the small sector and village industries has been terrible; and
c) The increase in the flow of credit hasn't kept up with the growth of forward and backward links that help businesses do well.

Credit is only one of the things that are needed for industrialization. Entrepreneurs will only be able to put together viable business plans and get institutional financing if they have access to raw materials, skilled labor, and marketing support on a regular basis. The Nayak Committee suggested, among other things, making a separate fund for modernization, research, and marketing, giving technocrat entrepreneurs help getting their projects off the ground, and collecting detailed data on village and small-scale industries. In rural areas, it is hard for businesses to grow because the infrastructure isn't good enough. Electricity, transportation, communication, and the availability of ancillary and allied services, such as suppliers of raw materials and other inputs, semi-skilled and skilled laborers to fix problems with machinery, marketing and credit support agencies, etc., are all important for the growth of industries. When they aren't there, small units of production tend to cluster around the edges of cities. The Sivarman Committee has suggested that the state governments should be in charge of supporting the extension of industries in rural areas by building infrastructure and supplying raw materials, among other things. Banks find it frustrating that they can't help rural businesses grow because there aren't any agencies that can provide these important services and are trusted.

The income generated from various activities in this subsector is more evenly distributed than that generated in the large-scale manufacturing subsector. Besides, due to the low capital requirement per worker, the subsector can generate more jobs with a given amount of capital than the corresponding large scale factory industries. (extracted from Singh:1999)

Reference

  1. Singh, K (1999), Rural Development: Principles, Policies and Management, Sage Publications, New Delhi – pp- 20-30 
  2. Tadaro, M.P (1977), Economic Development in the Third World, London, Longman : pp-16-18 
  3. Dutta, S (2009), Democratic Decentralisation and Grassroot Leadership in India, Mittal Publications, New Delhi 
  4. Nawar, S (2009), Rural Development and Cooperation: Think Tanks, Biyani Group of Collage Publications, Rajasthan 
  5. Gaur, K.D (1992), Dynamics of Rural Development, Mittal Publications, New Delhi
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