India's rural distress just went from bad to worse

• The latest estimates from the government portend a contraction in agricultural prices in 2018-19
• Worst year for farmers' pricing power in a decade, according to a report
• Both consumption and Modi's political capital likely to be hit

More than three years ago Indian Prime Minister Narendra Modi promised that he would double the income of the country's farmers by 2022. As his five-year tenure nears an end, the growth in prices of agricultural commodities has hit it's lowest point in a decade.

The latest set of growth estimates from the government are set to discolor India's image as the world's fastest-growing economy.

"The most striking fact is that agriculture deflator for FY19 at –0.1% is lowest in 10 years, indicating continued distress (or low demand) in rural areas," Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, said in a report released on 7 January. The deflator is a measure of inflation. The data essentially reflects how much of the clocked growth is due to rise in prices.

The estimate from India's chief statistician has pegged agricultural GDP growth at a measly 3.8% for 2018-19 compared to 4.5% a year earlier. However, there is a troubling detail: "We believe that the estimate is primarily due to growth in allied activities (livestock, forestry and fishing)," Ghosh's report warned.

In effect, Indian farmers are looking at a second straight year of below-par performance. That combined with tepid wage growth will further stoke the discontent among rural voters, much to the worry of the Modi government.

Cost of the crisis

The concern for the Indian government is both economic and political.

Farmers in financial distress will consume even less and that will further squeeze overall economic growth, which, at this point, is heavily dependent on services and consumption.

Both manufacturing and fresh investments have been uninspiring so far. New projects fell to an appalling 14-year low in December 2018. Capital investments have remained the government's prerogative as private investors shied away from betting big bucks.

The slowing rural consumption has been visible in the recent slowdown in two-wheeler sales and budget cars, which derive traction mainly from the affordability for Indians in smaller cities and villages.

High interest rates and soaring fuel prices in the recent past have also dented people's purchasing power while their ability to afford increase prices has been limited, as reflected by the latest estimates.

Additionally, Indian government's attempts to fix the narrative with recent hikes in minimum support prices have clearly not had a reasonable impact yet.

All of this has led to growing resentment among rural voters; something that was a crucial factor in the ruling Bharatiya Janata Party losing three state elections in late 2018. Dearth of private investments and the consequent lack of jobs have left people with few alternatives.

As of Tuesday (January 8), farmers organisation have joined hands with 150 million workers who have gone on a 2-day strike to protest the government's "anti-labour" policies.

Modi has five months from now to calm irate voters before he faces the national test in May 2019. After all, 67% of India's population does not live in cities.