Majority of India’s urban pockets struggled to stay afloat after the first wave of Covid-19 hit the country in 2020, its rural economy managed to remain buoyant. Rural India hit historic high tractor sales in FY21, reflecting the prosperity that the country’s villages were basking in. But within a year’s time, things seem to have changed. After withstanding the first wave, rural India could not escape the wrath of the second Covid wave and the sporadic lockdowns, and has been grappling since last year. Today, just like the rest of the country, it is plagued with high inflation, high unemployment, dipping wages and inequality. Tractor sales are down, so are two-wheeler sales. Fast-moving consumer goods (FMCG) demand, a key indicator of rural buoyancy, has also been witnessing a continuous slump. Fixing the deteriorating health of the rural economy, which accounts for 30 percent of the nation’s GDP and 46 percent of its national income, will soon take center stage as the 2024 General Elections close in with the Narendra Modi-led National Democratic Alliance eyeing a third term at the Centre.

The declining farm and non-farm wages and the demand situation are under strain. The average nominal agricultural wage growth in April-November 2021 fell to 2.3 percent from 6.6 percent around the same months in 2020. The 2020 figure had seen an uptick from the 5.8 percent that was recorded in the same period in 2019. Similarly, the non-farm wage growth declined to 1.8 percent in April-November 2021 from 7.9 percent in April-November 2020. The heat wave that pounded several parts of India this summer made matters worse for the farmers as it shrunk the size of the wheat grain by 10-15 percent. Despite high wheat prices in the market, the shrinkage has impacted the price that the farmers would have been able to quote in the market otherwise. The massive demand for Indian wheat in global markets after the supply chains got impacted by the Russia-Ukraine war. Wheat was being exported at Rs 24,000 to 25,000 per tonne (Rs 2,400 to 2,500 per quintal), which is 19 percent higher than the government’s set minimum support price (MSP) of Rs 2,015 per quintal. But right when the farmers were beginning to gain from the demand influx, the government announced a ban on wheat exports citing food security risks.

Agriculture aside, the issues might persist as the manufacturing and services sectors, which account for 50 percent of the rural GDP, are still struggling. The cash-strapped micro, small and medium enterprises that dominate in these sectors are fighting to recover from the pandemic punch. Looking at all these factors, it is clear that the Modi government would have to pay special attention to the ways in which consumption can take off in rural India, in its fight to win another term. The economic collapse of neighboring Sri Lanka seems to have left the Reserve Bank of India concerned with the apex bank looking inwards at India’s own fiscal prudence in a recent report. The result left the states, especially West Bengal, Kerala, Punjab, Rajasthan, and Andhra Pradesh, at the receiving end of fiscal scrutiny as the RBI flagged concern over their finances. Taking an overall view, the apex bank said that fiscal conditions among states in India are showing warning signs of building stress. This has reignited the debate on how growth itself should be measured. Rising expenditure on non-merit freebies; expanding contingent liabilities, and the ballooning overdue of DISCOMs – warranting strategic corrective measures. Stress tests show that the fiscal conditions of the most indebted state governments are expected to deteriorate.

India may increase rural spending by nearly 50% to 2 trillion rupees ($24.51 billion) next fiscal year, according to government unnamed sources. The Indian government had allocated 1.36 trillion rupees towards the rural development ministry for the current fiscal year but it could end up spending more than 1.60 trillion rupees, to spur growth in the rural sector. Rural areas were under pressure from rising prices and limited non-farm job opportunities, forcing more people to sign up for the government’s job scheme more.
The rural unemployment rate has remained above 7% for most of the months in the current fiscal year, according to data from the Centre for Monitoring Indian Economy (CMIE), a private think-tank.PM Modi, however, has a mixed record of managing the economy lately and he has been criticized for rising unemployment. Joblessness is one issue which can put the government on the defensive by snowballing into a major electoral issue. India’s unemployment rate, according to Centre for Monitoring Indian Economy (CMIE) data, increased to a one-year high of 8.3 percent in August, as the unemployment numbers rising to 394.6 million.

Rural unemployment rate has come down as delayed monsoon increased agricultural activities towards the end of the monsoon season, it is not clear how the urban unemployment rate will play out in the coming months. In March this year, the government had announced filling up of 1 million vacancies in the Central government within the next 18 months. As per the data provided by the government to the Parliament, there are 4.04 million sanctioned positions in the Central government as on 1 March 2021, with only 3.06 million employees. Indian Prime Minister Narendra Modi revels in his image as a strong and decisive leader. But the premier was forced to make a stunning U-turn recently and abandoned controversial farm laws after year-long protests — a move one analyst called a “public policy failure.” This was one of Modi’s biggest policy reversals since assuming power in 2014. The rare apology was a humbling moment for the prime minister, who learned there are drawbacks to his strongman approach. This is not Modi’s first public policy failure, though certainly it was the most public reversal,” said Akhil Bery, director of South Asia Initiatives at the Asia Society Policy Institute. The political cave in on the agriculture reforms “did show that there are limitations to his power,” he told CNBC.

A hallmark of Modi’s governing style has been the use of executive power, with little public debate for “big bang” reforms or policy declarations. As we look at some of the notable attempts to use executive power in this manner, there is hardly any space for successes. Whether [it’s] land use changes, modifications to India’s citizenship rules or agricultural reforms, the government has been forced to either stall or reverse its proposed policies. These policy missteps couldn’t come at a worse time for the prime minister as India heads to the polls in Gujarat and before that in recently held Himachal polls. Modi remains India’s most popular leader. According to the data intelligence agency Morning Consult, his popularity is still the highest among the world leaders they track, and he maintains a strong base of support in India. Despite his current political problems, Modi is a highly skillful politician who is good at reinventing himself to protect his carefully crafted persona, said Milan Vaishnav, a senior fellow and director of the South Asia Program at the Carnegie Endowment for International Peace. Another factor working to Modi’s advantage is India’s divided opposition, which has failed to capitalize on the prime minister’s political stumbles.

One thing seems clear, however. Modi is unlikely to moderate his hardline approach in the run-up to the state elections. This is evident in the current tone and tenor of the campaign so far,in Gujarat and before that in Himachal. The governance style Modi has adopted in Delhi has been honed after a dozen years in Gujarat and seems intrinsic to who he is as a person and a leader. Coalition-building and diffusing power are simply not compatible with his style. The prime minister will not abandon his hardline tactics in order to limit the political damage to his image. What recent events in India show is that political leaders in India can be defeated, even if they are personally very popular.