Strength of Rural Economy Recognized Finally

Rural economies could potentially boost global growth by $2 trillion by 2030.-The Economist

Unleashing Rural Economies, sponsored by Syngenta, highlights the overlooked value of rural economies. The research modelled how global GDP, rural GDP and rural populations could evolve up to 2030, according to various scenarios. This includes rural growth being unleashed as policymakers implement measures to stimulate development and overcome underlying barriers.

Getting the right drivers in place could boost rural growth by over 13% above its current trajectory. Re-positioning rural development as a source of growth has the potential to unlock $2 trillion of annual economic output globally by 2030. Rather than from a mere poverty alleviation or food security perspective, rural economies have the potential to significantly improve the long-term economic growth of nations around the world.

EXECUTIVE SUMMARY

The Economist Intelligence Unit’s scenario model, developed for this report, demonstrates that promoting rural development has the potential to unlock US$2trn of annual rural output across the globe by 2030—boosting baseline rural GDP of US$14.8trn by 13.4%, to US$16.8trn. Rural economic development holds the key to ensuring that the nutritional needs of a growing global population are met, and poverty in rural areas is eased, narrowing the gaps between rural and urban populations. By promoting rural development, governments not only have significant scope to unlock economic growth, they also have the potential to change fundamentally the structure of the economy. Yet, a number of obstacles stand in the way of stronger rural economic growth. In this report, our focus on six nations—Angola, Argentina, China, France, India and Nigeria—highlights some of these key barriers: 

 Policy. A lack of focus on rural development is exacerbated by the absence of political will, weak rule of law and poor enforcement of rural policy. 

 Land rights. Restrictions on land use or land rights and lack of adequate land documentation result in significant under investment in the agricultural sector. 

 Operational infrastructure. Transportation, power and water infrastructure are often lacking; investment is needed in rural supply chains, productivity improvements, roads and irrigation. 

 Social infrastructure. Investment in healthcare and education, as well as in broadband Internet and mobile-communication networks is needed to make rural areas more attractive. 

To probe the untapped potential of the world’s rural economies, we modeled how GDP, rural GDP and rural populations evolve up to 2030, according to three scenarios: 

1. A scenario extrapolated from our baseline long-term forecast. 

2. A scenario in which rural growth is unleashed as policymakers around the globe implement measures to stimulate rural development, following a hard landing in 

3. A scenario that assumes a gradual decline in rural economies’ contribution to GDP growth. This long-term forecasting model includes variables ranging from trade to population growth at country level. In turn, these variables produced output data in three key areas: GDP, rural GDP and rural population. We then produced country-specific forecasts under each of the three scenarios, forming the forecast basis of this research.-

INDIA-

India’s government has invested heavily in rural areas in the past decade, strengthening road networks, power and communications infrastructure, and education and healthcare facilities. “The facilities we associate with normal towns and cities can now be found in villages and fringe areas,” points out M V Rao, director-general of the National Institute of Rural Development in India. Nevertheless, while India’s 850m rural population amounts to 68.7% of the country’s 1.24bn total, rural inhabitants are continuing to move towards the cities. 

Poor local governance is one factor hampering rural development, according to experts interviewed for this research. India’s constitution provides for powers in 29 areas—for example, local planning, education, and healthcare—to be devolved to local-government institutions, or panchayats. However, “The local panchayat institutions have not been able to function to their full potential,” observes Mr Rao. The Roadmap for the Panchayati Raj (2011–17)1 , published by the government of India, highlights a lack of adequate devolution to many regional authorities, excessive bureaucracy, and a heavy dependence on government funding among the reasons that local government tends to be ineffective.

A further hurdle to development in rural India is the lack of an organised supply chain. “Where I work, in the eastern part of India, the organised sector penetration in dairy is just about 10%,” says Srikumar Misra, founder and CEO of Milk Mantra, an Indian dairy company. The remaining dairy production, he says, goes through informal networks, preventing farmers from benefit ting from transparency and market pricing. “Unless these producers are connected to the processors or the markets through organised value chains, their growth becomes completely stunted and is absolutely unreliable as a sustainable economic model for them,” he says. 

Moreover, to unlock potential growth in India’s rural economies, further investment is needed in food-processing and supply-chain infrastructure, according to experts. “A lot of agricultural produce does not reach consumers in time because there are transportation and storage bottlenecks,” points out Mr Rao, who estimates that up to 40% of perishable commodities and food grains are wasted. What is needed is “larger markets, storage facilities, processing facilities and also cold storage for perishable commodities like fruits, fi sh, and vegetables,” he says. 

Another requirement to bolster rural economies is further investment in irrigation, including improved management of rainwater. According to Mr Rao, better management of water resources would enable many farmers to plant a second crop, where today almost 60% of the land cultivated in India is single-crop. “When we look at the poverty map of India and the single-crop map, wherever there is single crop, you can also see the poverty zones,” says Mr Rao. “A second crop will defi nitely improve living conditions.” Provisioning the infrastructure to enable this would unlock growth, reduce poverty and improve the quality of life in rural areas. In the hard landing that triggers the scenario modelled by 

The Economist Intelligence Unit for the “unleashing” of rural growth, India sees considerable outfl ows of foreign capital, weakening the rupee and eroding the current account surplus. Real incomes are reduced across the board, causing tensions amongIndia’s rural population. In response, India’s government implements further initiatives to ease rural poverty, including investment in rural infrastructure. In addition, laws against foreign investment in retail are repealed or reformed. Farmers receive a greater share of the final sale price of agricultural commodities, pushing up profitability and engaging market forces to reward productivity increases.

The growth path under the baseline scenario and the unleashing scenario appear largely similar over the forecast period (see Chart 6). One reason for this is that our baseline forecasts for India reflect our expectation that reforms will open up growth and prosperity in the urban economy in the medium-to-long term. As a result, the baseline scenario’s embedded optimism concerning India’s long-term reform keeps the rate of real GDP growth above the unleashing scenario over the entire forecast period, unlike the cases of the other countries modelled. 

Another reason for this is that the hard landing in China, the basis for our unleashing scenario, triggers a decline in India’s GDP growth in the first part of our forecast period, but further reforms provide the conditions for the rural economy to regain lost ground. Such reforms could pave the way for a stronger rural economy beyond our forecast period than under the baseline scenario. India has the potential to nearly double its annual rural GDP in the years to 2030 (see Table 6). Policy measures to promote rural development have the potential to drive rural GDP to US$1.48trn by 2030, fully US$710bn more than under our “business as usual” assumption of US$768.7bn—and more than the entire GDP of the country today. If this comes to pass, the structure of India’s economy also shifts, with 39.8% of economic output stemming from rural areas, versus just 18.6% according to our “baseline” scenario. Under our unleashing scenario, as China experiences a hard landing, the comparatively depressed state of manufacturing increases the appeal of rural employment, causing urbanisation to slow. According to our forecasts, rural population levels rise slightly, to 69.5% by 2030 from 68.7% in 2013. Conversely, in the baseline scenario, the rural population slides to just 51.4% of the total by 2030. While the shifts in growth are clear, the opportunities for more inclusive growth, which can be provided by a shift empowering rural residents, are less obvious.

Collection- Vidyanand Acharya