When the farm sector cooled, construction rode to the rescue

New Delhi: Construction turned out to be the proverbial white knight for rural jobs in the financial year ended 31 March, when agriculture output growth sagged following patchy rains. The result: Little pressure on guaranteed rural jobs, the usual refuge in the countryside when farm sector slumps, official data showed.

Despite the slowdown in the farm sector, only 27.72 million persons demanded work every month on average in FY24 under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), barely changed from 27.63 million in FY23.

Agriculture, which accounts for about 15% of India's GDP, is forecast to grow only 0.7% in FY24 due to El Nino, a weather phenomenon that weakens monsoon winds and hurts precipitation, compared to an upwardly revised 4.7% output growth in FY23, according to the government’s second advance estimates.

Sachchidanand Shukla, group chief economist at Larsen & Toubro Ltd, said it is clear that a lot of construction activities and the pick-up in the real estate sector have been extremely supportive of job growth, including for semi-skilled and unskilled work.

“Historically, construction has been the biggest job creator in rural areas. Besides, elections usually coincide with buoyant capital and revenue spending at both state and central level, giving a boost to job creation. We have seen five state elections last year in the run-up to the forthcoming national election. The initial forecasts of monsoon in FY25 are promising. Also, the programmes and other measures to be announced in the full budget to be presented after the elections are expected to further support consumption," Shukla added.

The finance ministry’s monthly economic review for February, too, said that the forecast for a normal monsoon in FY25 will likely boost rural consumption demand.

MGNREGA guarantees at least one hundred days of wage employment every financial year to every rural household whose adult members volunteer for unskilled manual work, a crucial safety net for rural households when no better employment opportunity is available.

Total employment availed in terms of person days till the afternoon of 31 March of FY24 stood at 3.085 billion, a little more than 4% increase over 2.956 billion in FY23, data from the rural development ministry showed. Person days are the total days of work availed by all persons who volunteered for it.

What coincided with the farm output decline in FY24 is a robust 10.7% growth in the construction sector, following a 9.4% expansion the year before, bolstered by the government’s generous capital expenditure (capex) for infrastructure creation. After raising effective capex by about 25% in FY23 and by more than 28% in FY24, the Centre has further increased it by 17% to ₹11.1 trillion in FY25, budget documents showed.

Emails sent to the finance ministry and the rural development ministry seeking their comments remained unanswered till press time.

In FY24, the total spending for rural jobs is projected to be ₹86,000 crore, slightly below ₹90,806 crore spent in FY23. For FY25, the government has allocated ₹86,000 crore for the rural jobs scheme. The allocation is typically recalibrated depending on the actual demand for such jobs jobs.

Experts said the social security net offered by the scheme for the rural poor and the unemployed played a critical role after the pandemic. As the economy gradually gets back its strength, it is likely the reliance on government-sponsored 100 days of work will decline and rising private capex will start generating higher-paid, longer-duration work, especially in the manufacturing sector, said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

“Though reliance on NREGA may decline over the next one to two years, its relevance is going to remain for a longer time. It is estimated that for the Indian economy to completely get back to the pre-covid trajectory and recoup its lost GDP (during months of lockdowns), it could take another five to seven years clocking an average real growth of 8%. Till then, there will be sections of the rural population who will need social security schemes like NREGA to prevent them from plunging into levels of abject poverty,” said Chaudhuri.

Economic think tank National Council of Applied Economic Research's director general Poonam Gupta said in an analysis on Sunday that markers like Purchasing Managers' Index, GST receipts, core sector data and bank credit growth corroborate the optimistic GDP growth outlook of 7.6% for FY24, as per the second advance estimates.