Live Mint, January
Pradeep S Mehta
government must take appropriate steps to reinvigorate the rural economy for
both economic and political reasons
But for Prime
Minister Narendra Modiís relentless campaigning, inability of the Congress to
highlight limitations in the National Democratic Allianceís (NDAís) urban
development model, the role of None of the Above (NOTA) option, and copious
amount of luck, the Bharatiya Janata Party (BJP) would have lost its Gujarat
bastion. While it has traditionally been a darling in urban areas, the poor
performance of the BJP in rural areas is telling. In predominantly rural areas,
the Congress won 62 seats, against the BJPís 43. This is despite the pro-poor
rhetoric of the government.
While the BJP might have saved face owing to urban support in Gujarat, this was
substantially due to the personal connect of the prime minister and the lack of
alternatives, which may not be the case in the forthcoming state elections in
2018, particularly in Rajasthan, Madhya Pradesh, and Karnataka, and more
importantly, in the general election of 2019. Creating a connect with urban and
semi-urban trading community may particularly be difficult owing to continuing
challenges with the goods and services tax (GST) regime.
It also appears that more young and first time voters are, albeit
unsurprisingly, getting disenchanted with the BJP and attracted to other
options. It is this set of voters which also migrates from the rural to urban
belts in search of employment opportunities, putting pressure on urban
resources. The competition for opportunities available in urban areas is
expected to increase, which might add fuel to the building discontent, costing
the BJP its urban support base. Coupled with this, an already dissatisfied rural
voter might cost it an election.
A two-fold strategy would be required to avoid such collapse. First, the
government should stop testing the patience of its urban voters. It needs to
address genuine challenges faced by small and medium-sized traders in compliance
with GST- related procedures, claiming refunds and credits, and address concerns
around potential hounding by the National Anti-Profiteering Agency, and the
e-way Bill. While the government has claimed making significant advancements in
ease of doing business, the ground realities do not appear to support such
claims. Availability of land, skilled labour and finance is still a challenge
and avoidable compliance costs put immense burden on small industries and
traders. Government obsession with technology-enabled start-ups, wherein success
stories are few and far between, has completely ignored small-scale frugal
innovation, such as low-cost farm mechanization equipment, which is awaiting
support to scale up.
Second, the government must take appropriate steps to reinvigorate the rural
economy for both economic and political reasons. This involves removing
artificial barriers to growth of agriculture, and ensuring adequate
opportunities exist for income generation in rural non-farm sector. Investments
must be made in export-oriented agriculture value chains, modern storage and
warehousing facilities, and knee-jerk reactions adversely affecting agriculture
export must be avoided. The distortions in pricing of fertilizers and
agriculture procurement, and restrictions on agriculture futures, need immediate
review and correction.
In summary, the government will need to dismantle the disincentives to
prosperity in rural and urban areas. Both areas suffer from different types of
disincentives and thus, different strategies will need to be devised to deal
with each of them.
So, is the government working in this direction? It appears not. Recently, the
government has decided to reimburse banks the merchant discount rate (MDR) in
respect of debit card/ BHIM Unified Payments Interface/AEPS (Aadhaar enabled
payment system) transactions of less than Rs2,000 for a period of two years,
with the objective of promoting adoption and usage of digital payments. It is
estimated that the total MDR support would be Rs2,512 crore.
This measure assumes awareness and willingness of consumers and merchants to
adopt digital payments, availability of basic infrastructure, and existence of
payment acceptance infrastructure, which is unfortunately not the case. A deeper
analysis would reveal that such distortion of market-based incentives might be
counter-productive in the long term. As realized on the first anniversary of
demonetization, the digital villages have reverted to old ways of using cash.
Despite digitization being a laudable objective, the country is currently
grappling with more serious challenges, such as employment generation. And the
government has recently announced a paltry package of Rs2,600 crore for a period
of three years for employment generation in the leather and footwear industry, a
move which clearly indicates its priorities.
At best, the government appears to be playing to the gallery and score points
for its short-sighted efforts to promote digital payments in predominantly urban
areas. The government must realize that tinkering with processes of doing
business resulting in gains on global indices is not enough.
If it really wants to recover lost ground, it will need to help the rural and
urban poor populace realize its untapped potential by implementing
transformational changes in social sectors. This would include investment in
areas like education, health and social security. Without these, Indiaís growth
story is expected to be non-inclusive and short lived, similar to the fate which
the government is staring at currently.
Pradeep S. Mehta is secretary general of CUTS International.
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