Rural distress: Modi suffered in 2024 how Vajpayee did in 2004

Remember why the Atal Bihari Vajpayee government's "India Shining" campaign failed in 2004? It failed because India was not shining in its villages. "Abki baar 400 paar" failed similarly, albeit to a mitigated extent, in 2024. Addressing rural distress and revitalizing the agricultural sector is critical for sustaining India’s economic growth and ensuring political stability, which the Narendra Modi government did not appreciate as the Lok Sabha election approached.

In the 2024 Lok Sabha elections, the BJP-led National Democratic Alliance witnessed a significant decline in rural and semi-rural constituencies, winning 221 seats compared to 251 in 2019. Meanwhile, the INDIA bloc captured 157 rural constituencies, signalling a shift in the rural political landscape.

Rural distress in run-up to elections

India’s economy showed mixed signals in FY24. While the GDP grew by 8.2% driven by manufacturing and mining, the growth in the farm sector’s gross value added (GVA) dropped sharply to 1.4% from 4.7% in FY23.

According to Amol Agrawal, a professor at Ahmedabad University, this disparity between GVA and GDP could be attributed to reduced government spending on subsidies despite robust tax flows, especially GST.

Rural distress emerged as a key factor influencing the BJP’s electoral losses. Factors such as low private consumption, sluggish agricultural growth, food inflation, and a surge in demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) played crucial roles.

Modi’s administration faces pressing rural challenges. Data points to a slowdown in average agricultural growth and persistently high food prices. Experts suggest that the government needs to allocate more funds for rural jobs and subsidies and boost public investment in agriculture.

DK Srivastava, chief policy advisor at Ernst and Young, highlighted the need to address food inflation and rural distress to maintain fiscal balance and promote growth.

Despite strong GDP growth of 7.8% in Q4 FY24, the agriculture sector and private consumption lagged. In the farm sector, growth was just 0.6% in Q4. Rural demand indicators further underscored the economic strain.

Tractor sales fell by 8% in FY24, and two-wheeler sales by leading manufacturers also declined. The FMCG sector, represented by Hindustan Unilever, reported a 6% drop in net profit in Q4 due to weak rural sentiment.

Demand for work under MGNREGA surged by 48.8% in April, with 30.2 million people seeking jobs. Despite this, the budget allocation for MGNREGA remained unchanged at Rs 86,000 crore for FY25.

Srivastava emphasised the need for policymakers to reassess MGNREGA and subsidy allocations to address rural distress adequately.

High food inflation forced the government to take measures to control prices, affecting staple items like onions and rice. Retail inflation reached a 15-month high of 7.44% in July 2023, driven by surges in vegetable and cereal prices.

Onion prices peaked at Rs 55.12 per kg, while rice inflation hit 13% year-on-year in December 2023. These fluctuations impacted farmers’ incomes, a critical vote bank.

GST collections in states like Uttar Pradesh revealed consumption intensity disparities. Poor agricultural performance and high food inflation weakened purchasing power, slowing private consumption.

According to Lekha Chakraborty from the National Institute of Public Finance and Policy, enhancing public investment in agriculture and addressing credit access and cost is vital. Market interventions through price mechanisms alone may not yield the desired outcomes.

Addressing rural distress and revitalising the agricultural sector are critical for sustaining India’s economic growth and ensuring political stability. As the Modi government navigates its third term, these challenges will be at the forefront of its policy agenda.

Only time will tell how effectively these issues are managed to bring about positive change for India’s rural populace.