Mint’s rural distress index is below its median value, but it conceals varying distress levels across states
Uttar Pradesh chief minister Yogi Adityanath’s announcement of farm loan waiver has given credence to similar demands from across the country. Those making these demands include political parties, protesting farmers and even the judiciary. An earlier Plainfacts column had pointed out how farm loan waivers can be counter-productive in the long run, a fact which is often overlooked while seeking temporary relief, which loan waivers bring. This larger point, however, does not undermine the need for providing relief to India’s distress-ridden rural economy.
In April 2015, Mint had developed a quarterly index of rural distress to measure the relative well-being of India’s rural economy. The index seemed to peak during drought years, which underlines the importance of monsoon for India’s farming and rural economy. Updating the index for latest available data, we find that rural distress index, which had reached its second-highest level in March 2015, has been falling since then and was less than its median value in December 2016, the latest quarter for which data is available.
Mint’s index of rural distress is based on year-on-year growth of agricultural GDP, rural wages and domestic tractor sales (due to lack of export data, sales till September 2003 include exports). The index is a simple average of normalised (on a scale of 0 to 1) values of three items in such a way that higher values signify increased distress, with 0 and 1 signifying minimum and maximum distress.
The trend is expected given normal rainfall last year after two back-to-back weak monsoon years. A look at trends in individual constituents of the index shows that a pick-up in agricultural GDP growth and improvement in tractors sales has a greater role in recovery than rural wage growth. It is to be noted that rural wages include wages in the non-farm sector as well. This is in keeping with the logic that a normal monsoon after two back-to-back rainfall deficient years has led to a rejuvenation of cultivation activity, even as non-farm rural activity is still in recovery mode, partly due to demonetisation which is expected to have led to a bigger deflationary impact on the non-farm sector, as was argued in an earlier Plainfacts column.
How does one explain this macro picture with growing demands for farm-loan waivers? Does this mean that the ongoing protest by Tamil Nadu’s farmers does not reflect the ground reality?
Please click here to read more.