Causes for Fiscal Distress in Rural India

While there have been several media reports about how the precarious fiscal position in Rural India has lead to a slowdown in the FMCG sector of India, causing the food giants Britannia and Parle to slash production and jobs, respectively, the reasons behind the rising fiscal distress in rural India must be understood if we are to initiate any reform measures.

What are the reasons for fiscal distress in rural India?

• Rural wage growth has stagnated in real terms and it is simply that the laborers are not getting adequate money to spend on provisions beyond the basic necessities.
• While significant income and consumption data for rural India was not available, as per the latest available figure (June 2019), the daily average rural wage in India was Rs 328.
• A significant divergence has also been obtained in the values of wholesale food inflation, rural food inflation, and urban food inflation. In May 2019, while the urban food inflation grew a solid 5.4%, the rural food inflation growth was barely 0% which is highly unique.

What can be reasons for the divergence in urban and rural food inflations?

The divergence in urban and rural food inflation is highly unique but not uncommon. It usually occurs when there a supply shock at a pan-national level or a strike/blockade has prevented the movement of farm & dairy products from the villages to the cities, creating a surplus in the villages and a scarcity in urban areas.??