At least 23 million migrants are returning to India’s villages. Can the rural economy keep up?

The country’s villages are already grappling with hidden unemployment.

Rural India is incapable of absorbing the estimated 23 million interstate and intrastate migrant labour who might return home from urban areas due to the Covid-19 lockdown. This is because the rural economy is already overburdened, excessively dependent on agriculture, and has widespread hidden underemployment, data show.

Restarting the Mahatma Gandhi National Rural Employment Guarantee Scheme, more commonly kownn as MGNREGS, and boosting micro, small and medium enterprises – both measures announced for Covid-19 relief – could help bring the rural economy back on track, but will not be enough to solve the reverse migration problem, our analysis shows.

First off, the exact scale of reverse migration is not available in the public domain. As many as 17.8 million migrants moved from rural to urban areas within and across states for jobs, according to Census 2011 data, the latest available. Between 2001 and 2011, the number of people migrating for work from rural to urban areas grew at the rate of 2.8% every year, data show. Based on this, nearly 23 million rural migrant labour could return to their homes in the face of the lockdown.

Hidden unemployment

Contributing less than half – 48% – of India’s net domestic product in 2015-’16, the rural economy supports 70% of India’s population, according to National Account Statistics from 2017 and the government’s latest labour survey from 2017-’18. This creates substandard living conditions in rural areas, with an annual per capita income of Rs 40,928 in 2015-’16, less than half the urban per capita income of Rs 98,435, data show.

The productivity of each person in rural India is low. About 71% of India’s total workforce is in the rural economy but as the contribution to the economy is 48%, the productivity of the rural workforce is lower than that of the workforce in urban areas.

The introduction of more capital and technology should improve labour productivity. But in rural areas, labour productivity has instead slightly reduced over the years.

The productivity gap is defined as the difference between the rural economy’s share in the total net domestic product and its share in the total workforce. The higher the difference between the two, with the net domestic product being higher, the greater is the labour productivity. The productivity gap in 1970-’71 was below 12%, which rose to about 13% in 2017-’18, data from the 2015-’16 national accounts and the 2017-’18 labour survey show. Despite the increase, this gap remains small, implying hidden underemployment. In such a situation, the rural economy cannot gainfully employ returning migrants.

Over-dependence on agriculture

The rural economy is also over-reliant on agriculture and lacks diversification, due to which it will be unable to create more employment in rural areas, data show. Agriculture is the predominant sector in India’s rural economy, making up the largest part – 38.7% – of the 2015-’16 net domestic product, data from the National Account Statistics, cited above, show.

This has decreased from 1970-’71, when the share of agriculture was about 72.4%.

The employment elasticity for the sector – combining the rural and urban economy – was estimated at 0.04 during 1999-2009, according to a 2014 study by the Reserve Bank of India, which means that with 1% growth, the sector generates a job growth of just 0.04%. In other words, to create a 1% rise in employment, the sector would have to grow by about 25%.

This seems improbable, as between 2004-’05 and 2017-’18, the agricultural sector clocked an annual average growth of 3.34%, according to calculations based on data from the Central Statistical Organisation.

Ordinarily, manufacturing, comprising 17% of the net domestic product, and construction, comprising 10%, could help absorb the additional labour in rural areas. But in India, although the share of manufacturing in the rural economy has grown to 17% in 2015-’16 from 5.9% in 1970-’71, and the sector itself has grown at an average rate of 15% between 2005 and 2012, it is not large enough to absorb returning migrants.

The share of employment of the manufacturing sector has remained 8%-8.5% between 2005 and 2012, data from the NITI Aayog show. The estimated employment elasticity of the manufacturing sector is 0.09, which means that the sector would have to grow at about 11% for a 1% increase in employment.

The construction sector has better potential to absorb returning labour–its estimated employment elasticity was 1.13, which means that a 1% growth in this sector could raise employment by 1.13%, data show.

Stressed economy

Just over a third, or 36%, of the rural population was working or available for work in 2017-’18, according to calculations from the Periodic Labour Force Survey, based on the 365 days preceding the survey. The remaining 64% of the population–mostly children below the age of 14 years and the elderly–is dependent on them.

Of those who are part of the labour force, 5.8% – 15.8 million – were unemployed for the major part, according to calculations based on data from the Periodic Labour Force Survey. Of those who were employed, only about 4.6% had regular salaries while about 90% did not even have a job contract. Most of the rural workforce does not have social security benefits that are available to organised sector workers.

Poorer states

Those states that have higher out-migration also have higher unemployment, so that their economies will find it even more difficult to absorb returning migrants. Of all interstate migrants in India, 23% are from Uttar Pradesh and 14% from Bihar, according to data from Census 2011. The rural unemployment rate in these two states – 7% in Bihar and 6% in UP – is higher than the Indian average of 5.8%, according to the Periodic Labour Force Survey.

Uttar Pradesh makes up about 15% of India’s total rural unemployment and Bihar 10%. These two states are also marred by a high rate of rural poverty – 37% of India’s poor live in Uttar Pradesh and Bihar, according to 2011-’12 data from the Planning Commission, the most recent available.

Besides Uttar Pradesh and Bihar, rural labour from other states such as West Bengal, Madhya Pradesh and Odisha migrates to Maharashtra, Gujarat, Punjab and other states for employment. Most of these source states are poor: 35% of the rural population lives below the poverty line in Odisha, 35.7% in Madhya Pradesh, and 22% in West Bengal, Planning Commission data show.

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Does Karnataka’s rural economy have space for returning migrant workers?

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.