Chapter 3

Chapter Objectives
An overview of the rural economic scenario
The impact of economic growth on rural incomes and
purchasing power in rural India
The rural infrastructure and potential applications for
marketing
Key government initiatives and impact of economic
reforms on rural economy

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Economic Scenario
Rural economy shifting from a barter economy to a cash
rich economy
The allocation for rural development has gone up from Rs.
8,900 crores in the 7th Plan to Rs. 1,20,000 crores in the 10th
Plan
The flow of agricultural credit up from Rs. 32,000 crores in
1997-98 to Rs. 1,05,000 crores in 2004-05
The Human Development Index improved by 26% in the
80s and another 24% in the 90s
The Human Poverty Index reduced from 53% in 1981 to
44% in 1991 for rural closing the gap with urban

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Share of the Sectors
Primary sector – agricultural and allied activities such as
livestock, fisheries and forestry
Secondary sector – mining and manufacturing
Tertiary sector – services such as transport,
communications, trade, financial services and community
services
Percentage share of different sectors in GDP (at 1993-94
prices)
Year Primary Secondary Tertiary
1950-51 57.2 14.8 28.0
1980-81 39.7 23.7 36.6
2001-02 23.9 26.6 49.5
Source: National Account Statistics, 1951-2001

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The Transition of the Rural
Economy
Transition at three levels resulting in higher employment
and productivity
The farm sector now contributes to only 53% of the rural
economy
1.
1. Non-food
Non-food grain
grain crops,
crops,
1.1. Food
Food grain
grain crops
crops cash
cash crops
crops
2.
2. Off
Off land
land allied
allied
2.
2. On
On land
land activities
activities activities
activities like
like
livestock and
livestock and
fisheries
fisheries
3.
3. Farm
Farm activities
activities 3.
3. Non-farm
Non-farm activities
activities
including
including
manufacturing
manufacturing and and
services
services

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 Rural
Rural
Economy
Economy

Non-farm
Non-farm Sector
Sector
Farm
Farm Sector
Sector (Formal
(Formal and
and
Agri
Agri & Allied
& Allied informal)
informal)

Rural
Rural
Agriculture
Agriculture Industries
Industries Rural
Rural Services
Services

Animal Agro
Agro Processing
Processing
Animal Husbandry
Husbandry Retailing
Retailing and
and
(Dairy, (Sugarcane,
(Sugarcane, Oilseeds
Oilseeds
(Dairy, goats,
goats, Trading
Trading
poultry) etc.)
etc.)
poultry)
Manufacturing
Manufacturing Community
Community andand
Horticulture
Horticulture (Handloom,
(Handloom, Handicrafts
Handicrafts Social
Social Services
Services
etc.)
etc.)

Forestry
Forestry Mining
Mining && Transport
Transport &
&
Quarrying
Quarrying Storage
Storage
Communicatio
Communicatio
Fishing
Fishing Construction
Construction nn

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Farm Sector
Agriculture contributes 24% to GDP and has been growing at an
average of 5% between 1992-93 and 1997-98
The agricultural sector registered a growth of 9.1% in 2003-04
with food grain production touching 211 million tonnes
India is the largest milk producer in the world and the second
largest inland producer of fish.
India has emerged as a leading tractor producing country.
As a result share of animal power has reduced from 45.3% in
1971-72 to 9.5% in 2001-02
Consumption of fertilisers has grown by 300% between 1980-81
to 2001-02
The gross irrigated area has grown from 29% in 1980-81 to 38%
in 1996-97

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Rural Enterprise
There are 1.7 crore enterprises in the rural sector
employing 3.8 crore workers in 1998
Rural non-farm employment has grown from 18.4%
in 1983 to 23.8% in 1999-2000
The major activity groups in non-farming are:
Retail and wholesale trade
Community and social services
Manufacturing
The migration in urban areas has come down from
62.2% in 1990 to 56.5% in 2000
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Size and Distribution of Rural Assets
Percentage Distribution of Households and Assets in India
Rural (%) Urban (%)
Asset Group Households Assets Households Assets
<20,000 27.0 2.4 33.5 1.4
20,000 -50,000 23.8 7.5 17.2 3.9
50,000 – 1,00,000 20.9 14.0 16.0 8.0
1,00,000 – 2,50,000 18.8 27.3 19.0 20.8
2,50,000 and above 9.6 48.8 14.2 65.8
All Classes 100.0 100.0 100.0 100.0
Source: Reserve Bank of India, All India Debt and Investment Survey, 1991-92, RBI Bulletin
May 1999

Rural spread is not as skewed as urban in terms of assets

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Land Ownership
Landholding Pattern
No. of landholdings Area in million hectares
Size Category
in millions (per cent) (per cent)
1970-71 1990-91 1970-71 1990-91
Marginal (Below 1 ha) 36 (51) 62 (58) 15 (9) 25 (15)
Small holding (1 to 4
24 (34) 34 (33) 49 (30) 67 (41)
ha)
Medium (4 to 10 ha) 8 (11) 8 (7) 48 (30) 67 (27)
Large (10 ha and
3 (4) 2 (1) 50 (31) 29 (17)
above)
TOTAL 71 (100) 106 (100) 162 (100) 166 (100)
Source: Reserve Bank of India, All India Debt and Investment Survey, 1991-92, RBI Bulletin
May 1999

Increasing population has led to fragmentation with average landholding

declining from 2.28 hectares in 1970-71 to 1.57 hectares in 1990-91

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Rural Income
Per capita income for the rural sector has gone up
from Rs.5,783 to Rs 9,481 in 1999-2000
The urban rural disparity has reduced from 2.45 to
2.04
The distribution of landholding and cropping pattern
are the two key determinants of farm profitability

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Wage Workers
Rural Income Rural Employed Per Capita Per
Workforce
Rs. Billions Millions (%) Annum Income (RS.)
Self Employed 43% 40% 10,150
Wage Earner 10% 33% 2,860
Agricultural 53% 73% 6,855
Formal 31% 15% 19,514
Informal 16% 12% 12,595
Non-agriculture 47% 27% 16,464
TOTAL 7,006 312 9,481
Source: MART Research on NCAER data and Census 2001

1. The lowest wages are in Orissa and the highest in Kerala

2. The top slot is occupied by formal non-agriculture and the lowest is
the agricultural wage earner

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Rural Expenditure
 The rural spending per person
at Rs. 5,830 is a little above half
the urban spend of Rs. 10,260
 Due to the higher population
the total spend is much higher
in rural
 Bulk of the expenditures are
daily or irregular
 99% of the households report
one unusual expenditure in last
six months either for medical
reasons or births, weddings, etc.

Source: Rural Finance Access Survey,

World Bank NCAER 2003
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The Rural Infrastructure
Road Connectivity
A good indicator of the ‘inclusionary’ aspect of
development
At the village level of less than 1000 population it has
gone up from 36.5% in 1991-92 to 49.2% in 1996-97
Kerala has the highest road length per hundred square
Kms.
Post Offices – 1,38,756 in rural India. On an average
each post office serves 6,614 people within an area of
21.17 square kilometers

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The Rural Infrastructure
Communication
 Radio with 149 medium wave, 55 short wave and 123 FM transmitters
covers 98.8% of the population in the country
 Television
 Doordarshan with 1042 terrestrial transmitters reach over 87% of
the population.
 A high degree of community viewing in the rural sector
 Press and Print Media
 The reach is barely 15% in the rural sector
 Telecom – By 2004, 80% of villages had been connected through 5.4
lakh Village Public Telephones
 Tele density is only 1.74% in rural against 26.2% in urban in 2005
 Mobile - 15% of the mobile users were in rural area in 2005
Electrification
 By 2002 86% of the total villages had been electrified

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Social Infrastructure
Health
 Sub-Centres (1,37,292) are the contact points between
primary health care and the community
 Primary Health Centres (22,807) are the first contact points
between a village and a medical officer
 Community Health Centres (3,027) are established and
maintained by state governments. They have thirty indoor
beds and all basic hospital facilities
Education
 The total number of educational institutions in rural India
including colleges are 1,228, 501 (Source: Census 2001)

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The Rural Infrastructure
Public Distribution System
 Distribution of essential commodities through Fair Price
Shops on a regular basis
 PDS has a network of about 4.76 lakh Fair Price Shops of
which nearly 80% are in the rural sector
Agri Infrastructure
 Government intervention is limited to protecting the
interests of the producers, consumers and promoting the
organised marketing of agricultural commodities
 Government also provides assistance in setting up
warehousing through Food Corporation of India, Cotton
Corporation of India and Jute Corporation of India

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Mandis Haats and Melas
Mandis – These agricultural markets are set up by
state governments to procure agricultural produce
Total Mandis – 6,800
Most agricultural areas with population more than
10,000 have Mandis
Average population catered to each Mandi – 1.36
lakhs

18
Mandis Haats and Melas
 Haats – periodic markets Categories of Outlets %
 A place for political, social, and 39.5
Agricultural products
cultural contact
Manufactured goods 24.3
 Most of these are held once a
week; others twice a week Processed foods 13.2
 Total Haats – 47,000
Handlooms and handicrafts 8.4
 Average number of visitors –
Services 3.3
4,600
 Average sale per day – Rs. 2.25 Fish, meat and poultry 3.2
lakhs Forest products 2.1
 Number of stalls/Haats – 300+
Others 6.0
 Villages covered per Haat – 15 to
20 Source: MART study

19
Mandis Haats and Melas
 Melas – fairs and festivals
Categories of Outlets %
 A place for entertainment and shopping
Manufactured goods 42.5
 Number of Melas
 500 major ones Processed foods 19.5
 25,000 total Handlooms and 15.6
handicrafts
 Average number of visitors – 7.5 lakhs
Agricultural products 5.6
 Average number of outlets - 850
 Average sales – Rs. 2.5 crores Services 4.2

 Melas may be classified as: Entertainment 4.0

 Religious, cultural or commercial
Others 6.0
 Local, regional or national
 One day, short duration or long duration Source: MART study

20
Commercial Infrastructure
Regional Rural Banks
 Authorised capital Rs. 5 crore
 The issued and paid up capital is shared in the ratio of 50:15:35 by the
Central Government, the State Government and the commercial bank
 As of 31st March 2003 there are 14,777 RRBs in the country
Scheduled Commercial Banks with 37,098 branches in rural
India
Cooperative Banks – 3 tier pyramidal cooperative credit
structure with state (30 with 847 branches) at the apex level,
district(368 with 12,652 branches) at the intermediate level and
primary agricultural cooperative society (98,247) at the village
level

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Government Policies and Reforms
Pradhan Mantri Gramodaya Yojana – a fund for the
development of infrastructure in rural sector
Pradhan Mantri Rojgar Yojana – employment opportunities for
rural
Sampoorna Grameen Rojgar Yojana – for employment
opportunities
Rural Housing for providing Housing for All
Swarnajayanti Gram Swarozgar Yojna – self employment of the
rural poor
District Rural Development Agency – principal organ at the
district level for overseeing the implementation of various anti-
poverty programmes

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Institutional Finance in Rural India
NABARD is the main Government body for
Providing refinancing assistance for financing farm
mechanisation
Issue of Kisan Credit Cards. At the end of December
2005 there were 55.6 million Kisan Credit Cards
Setting up of Agriclinic and agribusiness centres by
agriculture graduates
Refinance Schemes for financing Farm Service Centres

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Land Reforms
Redistribution of ownership based on social justice and
optimum land utilisation
 Surplus land from large landowners distributed amongst landless
 Rent regulation
 Protection of interests of tribals
 Development of public land for the poor
 Make land accessible to women
Land ceiling imposed at three times the economic holding
10 acres of best land or 18 acres of average land fixed as
the ceiling

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