Reforms in the rural sector


The lockdown and loss of jobs in urban areas, has resulted in a large-scale reverse migration of workers to rural India. There is no exact estimate of the returning migrants but some estimates peg it around 27 million.

This will add to the existing population in rural areas which is home to 70% of Indians. The migrants who return home after almost two months of lockdown, with little income, would require additional help. Remittance income to rural India would have also dried up. Good monsoon and new government schemes will ensure that rural areas will grow at a better rate than the overall economy.

Major Reforms

1) Amendment to Essential Commodities Act: Along with the Rs.20 Lakh Crore stimulus, the Government of India issued an ordinance to amend the 65-year-old Essential Commodity Act (ECA). Till now, as per the Act, there were strict limits on stock-holdings, domestic sales, and exports. However, this was cited as a hurdle not only in incentivizing farmers to produce more but also to make investments in food processing and cold storage facilities to enhance efficiency. To enable farmers to increase domestic sales, and to export more as also to incentivize investment in modern techniques, the Act was amended by withdrawing these limits except during exigencies.

2) Reforms in Agriculture Produce Marketing Committee (APMC) Act: The APMC Act had imposed restrictions on the sale of farm produce. For instance, farmers had to sell their produce at designated mandis even if another mandi was nearer. Moreover, they could do so only through licensed traders and had to auction their produce. Very often these traders/middlemen acted as cartels leaving little for the farmer. With the amendment, farmers are allowed to sell to anyone, and selling at a mandi is optional. They can enter into a contract directly with a big corporate (contract farming) to sell the produce which they could not do earlier. Thus, the absence of middlemen ensures that while farmers get good prices, customers are also not charged exorbitantly.

3) Electronic National Agricultural Market (E-NAM): This has been in the works for quite a few years and is aimed at enabling mandis and farmers to be connected electronically so that farmers can sell their produce anywhere in India. This reform will also avoid middlemen and reduce the cost of transportation and storage. This will ensure better price discovery for ‘Agri produce’, leading to a unified national agricultural market.

4) Periodic Revisions in Minimum Support Prices (MSP): As farmers are usually impacted by vagaries of monsoons and seasonal fluctuations, the Government of India sets a minimum floor price for procurement of various commodities like wheat, pulses, paddy, etc. As market prices are below the Minimum Support Prices many a time, this will protect farmers from losses. These are re-set at periodic intervals.

5) Additional Support to MNREGS: The Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), was started by the UPA government. It is being continued with modifications by the NDA. The scheme provides 100 days of mandatory work in rural areas. Recently the per day wage was hiked from Rs.182 to Rs.202, an additional Rs.45,000 Crore support has been earmarked as part of the Rs.20 Lakh Crore fiscal package. The total allotment during FY 21 for the scheme thus works out to Rs.1 Lakh Crore.

6) Portability of ration cards: Under ‘one nation one ration’ scheme, migrants will be permitted to draw ration anywhere in the country irrespective of where they hail from. Besides, their families have also been permitted to draw ration using balances from the same card within the limit. Moreover, 5 kg of Wheat and 1 kg of Chickpea would be given free to those who do not hold a PDS card, estimated to cost Rs.3,500 Crore benefitting 8 Crore people.

Factors impacting rural consumption

Monsoons: Monsoons are projected to be above normal which will have a bearing on agricultural output. Agri GDP growth could be above 3% when the overall economy is expected to witness a contraction of 5%. This could in turn boost rural consumption.

Reverse migration: Migrants moving back to rural areas are likely to stay back for some time. They may also gain from seasonal employment in rural areas. This will aid rural consumption.

Good rabi harvest: The Rabi harvest has been quite good as per December 2019 data. For instance, area sown under wheat has shown an increase of 9 %. Besides, expected good monsoons should boost Kharif output as well. The government has hiked the minimum support prices of several commodities which should also augment rural incomes and consumption.

Government schemes: The series of new Government schemes such as PM Kisan, Fasal Bima Yojna, PM Garib Kalyan Yojna, and increased allocation of Rs.45000 crore to NREGA, are other factors boosting consumption. As part of fiscal package, Rs.1.7 Lakh Crore is set aside for farmer welfare most of which are for various government schemes.

Though the agriculture segment will grow faster than the overall economy, it will not be able to compensate for the output loss in other sectors and the consequent income loss to the reverse migrating laborers. However, the reforms will go a long way towards our aim of doubling farmers’ income.

The various Government schemes are as below:

Sectors and companies that will be impacted


1) Rural consumption will spur economic growth in the coming year. Explain

2) How amendments to APMC Act help reduce farmer stress?

3) How does E-NAM help farmers?

4) In what way does amendments to the Essential Commodities Act help the rural economy?

3) The ‘one ration one nation’ scheme has been a game-changer. Discuss.


  1. Ministry of Agriculture, Government of India
Dr. Madhavankutty G
Dr. Madhavankutty G

Prior to joining ET Prime, was Senior Economist with Bank of India. Prior to that was an Economist in Andhra Bank (now Union Bank of India) and also served in ICFAI University as a research fellow.
Also a Member of the IBA Monetary Policy Group, and was a visiting faculty in Economics area at NMIMS University, Navi Mumbai and K.J.Somaiya Institute, Mumbai.
Holds a Masters in Business Economics and is a Certified Associate of Indian Institute of bankers (CAIIB)


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