Impact of COVID-19 Mitigation Policies on India’s Rural Economy

July 27, 2020
Vikas Rawal

[This is the fourth article in the series on the ongoing economic crisis in India]

The unplanned lockdown which was imposed in the last week of March, without any preparation or advance warning, has resulted in a massive upheaval in the economy. The informal sector of the economy, and that includes the bulk of the rural economy, has been hit the most. Given that the lockdown was imposed just as rabi crops were starting to be harvested, the impact was most severe on the production and marketing of rabi crops. Delays in harvesting and marketing increased costs of storage and preservation, and fall in prices resulted in massive losses to farmers. Many farmers suffered crop losses because of inability to take the produce to the market in time. Supply chain disruptions were most severe in the first few weeks but continued to plague food supply till date. Even after the national lockdown was relaxed after May, frequent closures because of spikes in Covid-19 infections have continued to disrupt supply chains.

Disruptions in supply chain and fall in mandi prices resulted in much lower market arrivals of crops this year. If we compare with the last year, between March 22 and June 30, the shortfall in market arrivals was 40 per cent for wheat, 51 per cent for Chana, 31 per cent for Tur, 48 per cent for Mustard, 34 for cent for cauliflower, 32 per cent for cabbage, 25 per cent for green chilli, 39 per cent for mango and 17 per cent for banana. A similar situation is seen for almost all the other rabi crops. Public procurement covered only wheat farmers in a few States (Punjab and Madhya Pradesh, and to some extent Haryana and Uttar Pradesh). Wheat producers in other States as well as farmers who grew other crops suffered as farmers’ prices of various agricultural commodities fell after the lockdown was announced. The media has been replete with stories of farmers abandoning perishable crops, milk and other produce because of low prices.

The sudden imposition of the lockdown, uncertainty about how long the lockdown and other restrictions were going to stay, and lack of social security coverage forced vast numbers of migrant workers to leave the cities they were living in and return to their native villages. The estimates of number of migrants who returned to their native villages due to the lockdown vary between 50 lakhs and 3 crores. Many of these workers are primarily rural residents who migrate to cities seasonally and do not have an established base in these cities. They do not have ration cards and are not covered by any other welfare schemes in these cities, and were the most vulnerable sections in the cities. This large scale migration of workers also created an imbalance in labour markets in States from where workers left as well as in States to which they returned. In states such as Punjab and Haryana, where migrant workers are used in large numbers in harvesting and post-harvest operations as well as in the mandis, faced lack of availability of workers. On the other hand, return of migrant workers, predominantly male, in Uttar Pradesh and Bihar meant a sudden increase in labour supply, displacing women and other vulnerable workers, and putting downward pressure on wages. Similar situation at the district level was seen in States like Maharashtra where a lot of rural to rural and rural to urban inter-district migration takes place.

Failure in providing relief to the rural poor

Not only was the government completely unprepared to deal with the crisis, it kept dilly-dallying in providing relief to peasants and rural workers who were struggling with loss of livelihoods and incomes. Most of the Rs. 2,00,000 crore package that the government announced comprised either monetary measures or schemes meant to benefit businesses or old welfare schemes repackaged as Covid-19 relief. For example, the first instalment of the transfers under PM-KISAN was already due and was counted in the COVID-19 relief package. The additional resources that were being provided for welfare spending were grossly overstated. In reality, spending on major welfare schemes has increased only marginally and is likely to have come about either as a result of budgetary window-dressing or through cutting corners in spending on other welfare schemes.
The National Food Security Act (and the new PM Garib Kalyan Anna Yojana) for distribution of food grain and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for work to needy people are the two most important social security schemes of the government in rural areas. Let us look at the performance of these during the crisis.

Foodgrain distribution during the COVID-19 crisis

As per the National Food Security Act (NFSA), the government is supposed to provide subsidised grain to 3/4th of the rural population and half of the urban population. Government announced that, during the lockdown, it will double the grain entitlement of all the households covered under NFSA by providing an amount equal to the NFSA entitlement for free through the PMGKAY. This was initially announced for a period of three months (April-June) and, at the end of the three-month period, extended for another five months.

Government uses population estimates for 2011 to estimate its commitment in this respect. Accordingly, about 2.39 crore households (covering 9.93 crore persons) have Antyodaya Anna Yojana Cards and 71.1 crore persons are covered under Priority Household (PH) cards. The total monthly grain entitlement of these 81 crore households under NFSA is 43 lakh tonnes.

It must be noted that the government has not accounted for the increase in population in determining coverage under NFSA. As per the population projections of the Census of India, 75 per cent of rural population and 50 per cent of urban population in 2020 amounts to 89.52 crore persons. In other words, the government is providing subsidised grain to 8 crore persons less than what is mandated under the NFSA. If the government was fulfilling its statutory obligations under NFSA, it should have been allocating 48 lakh tonnes of grain every month rather than 43 lakh tonnes that it currently provides as the NFSA entitlement.

Secondly, over the last three months, the government has distributed 31 lakh tonnes less grain than it had promised. Data presented in Table 1 clearly show that, instead of distributing 43 lakh tonnes every month under each scheme, the distribution of grain has been significantly lower. In April, only 26 lakh tonnes of grain was distributed under PMGKAY. In May and June, the shortfall was very significant in both NFSA and PMGKAY. The total allocation under the two schemes was only 72 lakh tonnes in April, 79 lakh tonnes in May and 76 lakh tonnes in June.

Table 1: Amount of grain distributed under NFSA and PMGKAY, April-June (lakh tonnes)

Source: Compiled on July 18, 2020 from

MGNREGS during the COVID-19 crisis

The lockdown has resulted in a grave crisis of livelihoods for rural wage labourers as they mostly work on casual contracts. It should be noted that the lockdown was imposed when the levels of rural employment were already dismal. The lockdown has intensified the unemployment situation to a level that has not been seen after independence.

According to national surveys conducted by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in the country increased from 8.7 per cent in March 2020 to a whopping 23 per cent in April 2020. In April, only 30 per cent of the population was employed in any gainful activity (Vyas, 2020). Although the unemployment rate has fallen to some extent in June, the levels remain extremely high.

In such a situation, employment creation through MGNREGS could have been a lifeline for the rural households. However, the sudden announcement of lockdown ground the MGNREGS to a halt. For about a month, no employment was created through the scheme and it was only on April 20 that the government came out with a notification that exempted the MGNREGS work from the lockdown restrictions.

The officially recorded demand for MGNREGS employment in May 2020 was 45 per cent higher than the demand in May 2019 and 72 per cent higher in June 2020 than in June 2019. The actual demand for employment is likely to be much higher as a majority of workers are unable to formally apply for work on their own. Public outcry because of an explosion of unemployment in the wake of the lockdown forced the government to increase the spending in the scheme in May and June to some extent. On May 15, the Finance Minister announced an additional allocation of Rs. 40,000 crore for MGNREGS.

However, the current level of budgetary allocation (Rs. 90,000 crores including the additional allocation) is grossly insufficient for meeting the current demand for employment under MGNREGS. About half of this allocation has already been spent by the third week of July. This is despite the fact that, as per the data available on July 21, of the 7.9 crore persons who were recorded to have demanded employment, 1.43 crores were not provided any employment, and the rest were provided an average of only 28 days of employment in three months.

For MGNREGS to meet the massive demand for the remaining months, a considerable increase in budgetary allocation is required. As of now, 14.2 crore households have MGNREGS job cards. In addition, 70 lakh additional households have pending applications for job cards. If all of these households have to be provided 100 days of employment, government will need to allocate about Rs. 4.5 lakh crores for MGNREGS.

A serious problem of MGNREGS in recent years is that the systems of social audit have been seriously weakened and implementation of MGNREGS has become increasingly bureaucratised. In many States, gram sabhas are either not held at all or are simply conducted as a formality by government appointed resource persons and observers. In most States, mass organisations and social movements, which used to provide an oversight by participating in the process of social audit, have all been sidelined. There is no independent evaluation or verification of muster-rolls and data being reported on the works being done through the scheme.

There is also a possibility that, in absence of possibility of independent verification at a large scale during the lockdown, the level of employment creation through MGNREGS during the lockdown is being overstated. The central government issued a notification to exempt MGNREGS from lockdown restrictions only on April 20th. One would expect that some more days would have been lost before actual execution of work under the scheme would have started. Despite that, in several panchayats, the NREGA website has recorded more than 10 days of work per job card for April. This points to the possibility that employment creation may be overstated during the lockdown period. This possibility needs to be independently investigated.

Pushing neoliberal reforms in the midst of the crisis

While the farmers are struggling to cope with this crisis, the focus of government’s action has been to seize the opportunity provided by the lockdown (and consequently, the limited possibilities of resistance by farmers) to introduce reforms that would have been politically difficult to bring about through the normal legislative processes. On June 3, the Union Cabinet approved three ordinances which have rendered the entire system of regulation of agricultural marketing and food supply in the States ineffective. These ordinances were promulgated by the President and notified on June 5.

The first ordinance introduced changes to the Essential Commodities Act (ECA). As per this ordinance, any regulation of supply of cereals, pulses, oilseeds, edible oil, onion and potato can only be done under “extraordinary circumstances”, which have been specified very narrowly and do not even include an epidemic. Further, no stock limits can be imposed on these commodities, allowing any amount of hoarding, so long as the price rise is less than 100 per cent for perishables and less than 50 per cent for non-perishables relative to levels during the previous twelve months (or the average of the last five years). Further, the act exempts everyone involved in any operation between farm and final consumption from regulation of supply or imposition of stock limits.

The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, has made all State-level APMC Acts irrelevant by allowing barrier-free trade within and between States outside the premises of the markets notified under APMC Acts. The ordinance not only opens a way for big traders to have bilateral negotiations with farmers, which is bound to be disadvantageous to small producers, but also takes away the rights of the States to either tax such traders or to intervene in dispute resolution. The States are dis-empowered from acting in the interest of farmers of the State, and any such action can only be taken by the Central government.

It is useful to remember that the system of regulated mandis was introduced in most States since the 1960s as a mechanism to prevent traders from using their monopoly control and power within the village to coerce farmers to sell the produce at low prices. Most States have State-level Acts through which these agricultural markets are established and regulated. While implementation of the acts as a deterrent against malpractices in the markets or hoarding has not been without problems, bypassing these acts altogether and formalising the bilateral negotiations outside the provisions of the APMC Acts will only strengthen the monopoly power of corporate buyers, traders and commission agents.

The third ordinance, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, has been introduced to facilitate and regulate contract farming. This Act also takes away all powers of the State governments to regulate contract farming in the States, and turns State governments into merely an extension of the Central government that will be given “directions, as it (the central government) may consider necessary…for effective implementation of the provisions of this Act and the State governments shall comply with such directions”. Further, all such contracts are exempted from any regulation under any State-level acts.
It is a travesty that these changes are being presented by the government as ‘reforms’ being introduced in the interest of farmers. In fact, the objective of the reforms proposed by the Finance Minister is not to provide choice to farmers but to provide an opportunity to big corporate buyers to buy the produce without having to go through auctions. It will pave the way for corporate penetration in agriculture through systems such as contract farming. The fact that these reforms are being introduced hurriedly through ordinances, bypassing the State legislatures, shows that the government wants to take advantage of the limited possibilities of protests by farmers during the lockdown to introduce changes that are likely to be unpopular.

Has unlocking ended the crisis of rural livelihoods?

Although national restrictions on agricultural and most other economic activities were removed by the end of May, the rural economy continues to be in the grip of a deep crisis. What are the factors that continue to plague the rural economy?

First, farmers have incurred massive losses in the Rabi season. This has not only hit rural demand very badly, it has become a constraint on the ability of farmers to invest in the kharif crops.

Secondly, overall crisis in the economy has meant that farm-gate prices of several commodities like milk continue to be very low. While prices of produce have fallen for many commodities, input costs for farmers have increased greatly. The sharp increase in diesel prices because of increased excise duty would result in a significant increase in cost of cultivation. Fodder and cattle feed prices have also increased considerably in many areas. Disruptions in supply chains could result in localised shortages in availability of inputs such as fertilisers forcing farmers to incur higher costs in obtaining them.

Thirdly, high cost of cultivation is not adequately covered by the prices that farmers get for their produce. Although government announces MSP for a number of crops, public procurement of crops other than rice and wheat is negligible. Even in case of rice and wheat, a majority of farmers are deprived of the benefit of public procurement. Lack of public procurement could result in a serious crisis if producer prices in the open market remain low during the kharif season. This is a highly likely scenario in the current overall economic situation unless public procurement is expanded significantly. Considerable advance preparation and investment required for expanding public procurement to crops other than rice and wheat is missing.

Fourthly, although the national lockdown has ended, the COVID-19 infections have continued to spread at a fast pace. In many states, there is also an increase in the spread of COVID-19 infections in the smaller towns and villages. This has necessitated imposition of local-level or State-level restrictions on mobility and economic activities. These restrictions are extremely disruptive of supply chains as well as for mobility of workers. The uncertainty and lack of transparency in imposition of such lockdown have created an uncertain economic environment which affects rural poor most adversely.

Finally, the situation in respect of non-farm employment remains grim. A large proportion of rural workforce that commuted to nearby towns to work in non-agricultural activities such as construction labour, loading and unloading labour, street vendors, shop assistants, mechanics and petty shopkeepers continue to be out of work. Even those who have resumed their work are having to make do with irregular employment and considerably lower incomes. Although forced to return to their native villages because of the lockdown, most of the return migrants are struggling with lack of employment in their villages.

Dealing with these challenges would require intensification of struggles against this anti-people government. This remains the foremost task for the organisations of peasants and workers in the country.