A preliminary review of India’s rural economic crisis: stagnant wages, piling debt and waning demand

ABSTRACT

Aggregate growth numbers for India present a positive outlook as its economic momentum builds back and the economy displays full recovery following the Covid-19 crisis. It consequently reflects the Indian economy’s underlying resilience and ability to resuscitate its overall growth, driven by the rebound in private consumption despite the strong global headwinds and widening external deficits. However, its rural economy indicators point to a contradictory set of circumstances since this segment has been afflicted with persistently stagnant real wage growth in agricultural and non-agricultural occupations. It is further accompanied by the pileup of past debt for this section of the population, accumulated in the slowdown years of the post-demonetization phase, which has resulted in a continual weakening of rural consumption demand. The purpose of this research note is to provide a preliminary review of a deep-rooted crisis in India’s rural economy. This crisis is not merely an outcome of Covid-induced and inflationary factors, but rather dates back to the post-demonetization period. The data uncovers an enduring vicious spiral for the rural population group that not only questions the consumption stimulus to growth, but also imperils the resilience and economic prospects of the Indian economy.

KEYWORDS:

• Rural economy
• India
• stagnant wages
• unsecured debt
• decelerating demand

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1 RBI Bulletin (Monthly), RBI Monetary Policy Reports (Half-Yearly) and RBI Economic Review (Annual).

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Notes on contributors

Isha Gupta

Isha Gupta is an Assistant Professor at Ramanujan College, University of Delhi. She is an economist-in-training with a dedicated research focus on applied macroeconomics, growth modeling and structural transformation in low-income economies, especially India. She has been the recipient of multiple fellowships, scholarships and research grants that lend weight to her diverse research profile. She has published in a range of Scopus/Web of Science Journals, presented in several international conferences, and participated extensively in sponsored International/National summer schools & workshops.