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Road To Boost The Rural Economy; Via Digital And Road Connectivity

It is said that almost half of the Indian habitations are still unconnected from big cities. Hence, improper road connectivity is one of the major reasons which led rural India from registering growth in rural areas.

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India is a country where a large section of its population lives in rural areas, however, many of them are still isolated from the mainstream, without any benefits of the country's economic growth. 

However, in past years, rural India has witnessed a rise in Micro, Small and Medium Enterprises (MSME) which further contributed to the overall economic growth of the country. 

It is said that almost half of the Indian habitations are still unconnected from big cities. Hence, improper road connectivity is one of the major reasons which led rural India from registering growth in rural areas.

Talking about how important it is for a country like India to have rural connectivity to boost small businesses and ultimately the rural economy, Suvodeep Rakshit, Vice President and Senior Economist at Kotak Institutional Equities, "India requires both physical and digital connectivity to boost rural productivity, increase rural job opportunities, and connect local businesses to urban activity centers. Faster and easier access to towns and cities will ensure higher income opportunities for farmers as well as manufacturers. Plus the process of enhancing rural connectivity would also ensure rural employment and income opportunities."

The Union Government and the Asian Development Bank (ADB) recently signed a $300 million loan as additional financing to boost up the rural connectivity to increase the rural economy in Maharashtra. 

"Multilateral agencies' loans and low-cost loans help in augmenting public infrastructure. While the union and state governments provide for infrastructure expansion in their respective budgets, external agency financing is also an important aspect of long-term infrastructure financing. This also assumes importance when states have seen some natural calamity and require additional funding capacity to rebuild the affected infrastructure," said Rakshit. 

The additional financing for the ongoing Maharashtra Rural Connectivity Improvement Project will help improve an additional 1,100 rural roads and 230 bridges for a total length of 2,900 kilometers (km) in 34 districts. The ongoing project with $200 million financings, approved in August 2019, is already improving and maintaining the condition and safety of 2,100 km of rural roads across Maharashtra, the Finance Ministry said in a press release.

Rakshit added, "Expanding public works in the rural economy along with enhancing connectivity (digital and physical) with urban/semi-urban centers should be of primary importance. Existing rural employment generation programs that aim to provide a buffer in periods of economic slowdown need to be strengthened. Post-Covid these schemes have been able to absorb some of the labor shocks that were visible in India."

Apart from road connectivity, rural India also needs to have digital connectivity, by which they can expand their businesses. 

As per the World Bank, India had 20.95 ATMs per 100,000 adults as of 2019, very low when compared to other countries. While over 65 per cent of the Indian population resides in rural India, rural areas account for only 20 percent of all ATMs in India. 

Talking about the importance of rural digital connectivity, Sanjeev Kumar, CEO, Spice Money said, "The COVID-19 pandemic has been a great learning platform for many industries and financial services are one of them. The fact that movement was practically restricted challenged every industry to find their new normal. This event catalyzed the greater adoption of digitalisation in financial services. The adoption of technology in financial services is only going to increase especially in a country like India where there has been a major push by the current government for the financial inclusion of the underserved. The recent launch of e-RUPI is a great validation of the government’s focus on digitalising financial solutions."  

Rakshit also added that financing constraints are the most important constraints in rural public infrastructure expansion. However, reprioritization of spending at both center and state levels can help in allocating higher budgetary spending to rural areas. "This can have a multiplier effect with incomes and productivity enhancements. Given the Covid-led scarring of the economically weaker sections of the population, employment generation with steady income streams would help in reshaping the rural households’ income and saving patterns," Rakshit said. 

Meanwhile, Kumar said, "The challenge in rural areas is slightly different. It lacks basic banking infrastructure. There is still a long way to go before digital banking facilities are accessible to all marginalised segments. However, Fintech companies can address the lack of basic banking infrastructure problems in rural India. One such area is ATM penetration in the country. India remains one of the few countries among emerging economies that has a narrow penetration of ATMs."