By Raj Gonsalkorale

—One that lifts the economic strength, financial, health and education status of the rural sector in Sri Lanka through participation, decision making and ownership by the rural community

While centre driven and managed high level economic changes, both structural and financial, are necessary, an assumption that the benefits of such changes will flow to the periphery through a trickledown theory does not necessarily work. Sri Lanka’s rural population is around 80% of the total population and compared to the average financial status of urban population, the rural population is at a much lower ebb. In addition, access to services, in particular to health services and education, is disproportionately lower to the rural population. No doubt, successive governments have from time-to-time devised strategies to address this disparity, but overall, the results have had marginal beneficial outcomes judging by statistics that still show that the rural sector lags far behind the urban sector. According to institutions like the World Bank, the income gap between rural households is roughly LKR 69,517 per month, which is only about 60% of the LKR 116,670 averaged by urban households, and while rural living expenses are lower in absolute terms, they consume a much larger percentage of total income. Rural households frequently spend 60% to 70% of their earnings strictly on food and basic agricultural inputs (like fertilizer and fuel), and Urban families face high costs for rent and utilities but possess a larger discretionary surplus. Rural families live with virtually no financial buffer, leaving them highly vulnerable to climate shocks, crop failures, and inflation. Plain logic tells us that lifting the economic strength of the rural sector which represents roughly 80% of the population and land mass. is not just an issue of income, but of national economic growth and stability.

In respect of healthcare infrastructure, tertiary and specialized healthcare facilities (like national hospitals and cancer care) require rural patients to travel long distances to Colombo or major provincial capitals, incurring massive out-of-pocket transport costs. In addition, primary care facilities need an upliftment to match urban facilities, with rural clinics often lacking vital medicines, diagnostic equipment, and consistent power or clean water supply, forcing reliance on overstretched regional dispensaries. The present government plans to set up 2,000 “Arogya” Health and Wellness Centres under the “Healthy Sri Lanka” national initiative and also plans to equip them with medical equipment, ambulances and specialist medical care, is a laudable initiative, but as with any plan, the quality of outcomes will be the determinants of impact on the rural community. In the area of education, out of over 10,000 government schools in Sri Lanka, only about 1,000 are classified as 1AB schools (schools that offer Advanced Level classes up to the science stream). Most of these fully equipped science and math facilities are concentrated in urban or major zonal centres, leaving rural areas with very sparse access. Rural schools frequently suffer from acute shortages of qualified teachers, computer labs, and English-language resources. This forces rural children into arts streams, perpetuating a cycle of low-wage employment.

What is the rural sector?

The Department of Census and Statistics defines the rural sector as any residential area that does not fall under the urban sector (areas governed by Municipal or Urban Councils) or the estate sector (plantation areas over 20 acres with 10 or more residential workers). The following information has been collected and collated via Google searches. It noted several sources including agencies like the World Bank and research publications in ResearchGate and the Institute of Policy studies among others.  These demonstrate an urgency to develop and improve the rural sector.

Characteristics of the Rural Sector

• Dominance: It accounts for the vast majority of Sri Lanka’s land area and roughly 70% to 80% of the total population, depending on the census year.
• Livelihood: Agriculture, smallholder farming, and informal local trade heavily drive the rural economy.
• Administration: These regions are typically administered locally via Divisional Secretariats and Grama Niladhari divisions rather than municipal or urban bodies.

Poverty Statistics

• The Vulnerability Bulk: Around 77% to 79% of Sri Lanka’s multidimensionally poor and vulnerable individuals reside within the rural sector.

Agricultural Dependence

• Economic Backbone: Smallholder agriculture serves as the primary livelihood for rural households. Nearly half of all poor rural residents are small-scale farmers.
• Crop Production: Rural agriculture provides 80% of Sri Lanka’s domestic food requirements. Cultivation relies on rice paddy, vegetables, spices, and secondary crops like maize and millet.
• Export Cultivation: Smallholders dominate major commercial crops. They contribute 70% of national tea production and manage 62% of the land dedicated to rubber cultivation.
• Climate Risk: Rural economic security is highly volatile. Livelihoods suffer frequent disruptions due to climate shocks, extreme weather, and unpredictable crop price changes.

Demographic Trends

• Population Concentration: Roughly 80% of Sri Lanka’s total population resides in areas classified as rural.
• Labor Force Dynamism: While overall national unemployment trends around 3.7% to 4.0%, youth unemployment in rural zones is a disproportionate challenge, spiking to more than three times the national average rate.

Assessing the Rural Economic Footprint

The rural sector’s share of national wealth is reflected through three primary economic proxies:

1. Provincial GDP Gaps (The Macro Picture)

• Western Province Dominance: The Western Province (which contains Colombo and is highly urbanised) consistently generates nearly 42% of Sri Lanka’s total GDP.
• Rural Provincial Output: The remaining eight predominantly rural provinces must share the remaining 58% of the national GDP. For example, the highly rural Northern Province accounts for just about 4.4% of total output.

2. Household Income Distribution

• Total National Income Share: According to the Institute of Policy Studies (IPS), the richest 20% of households control more than 50% of the country’s total income. Conversely, the poorest 20% receive just 5%.
• Sectoral Income Disparity: Because nearly 81% of the country’s poor live in rural areas, the vast majority of national income flows to urban hubs. Urban households maintain a significantly higher median gross income compared to rural smallholders.

3. Primary Sector Contribution

• Agriculture Share: Even though approximately 80% of the population is classified as rural and heavily reliant on farming, agriculture itself accounts for only about 8.4% of Sri Lanka’s total GDP.
• The Value-Add Gap: The bulk of economic value is generated by the services (54.6%) and industrial (25.4%) sectors, which are predominantly anchored in urban or semi-urban area

One primary reason perhaps for the rural sector to remain largely where they are is the general non-involvement of the sector in planning and managing, and above all, the absence of ownership of rural upliftment strategies by representatives drawn from different sectors in the rural sector. The centre appears to be the sole planner and manager of strategies for the rural sector. This article attempts to argue that a third way” from an economic and financial context has to be found where these factors are more closely aligned to the challenges in the rural sector by involving this sector in decision-making processes. While it is not the intention of this article to delve into constitutional matters, suffice to say that constitution changes are imperative if the required shift is to become a reality. In this regard, readers are referred to an article titled Contours of a new Constitution with a difference for the future, not the past (https://www.ft.lk/Columnists/Contours-for-a-new-constitution-with-a-difference-for-the-future-not-the-past/4-723830) which argues for political decentralisation to the local government level.

Why Lifting the Rural Sector is Urgent

• Preventing Macroeconomic Collapse: Sri Lanka’s food security depends entirely on rural smallholder farmers. When the rural economy breaks down, food inflation skyrockets nationwide.
• Halting Urban Congestion: Severe rural underdevelopment drives rapid, unsustainable migration into urban centres like Colombo, straining city infrastructure, waste management, and housing markets.
• Breaking Generational Poverty: Over 77% of the nation’s poor reside in rural areas. Leaving this population financially stagnant locks the country into a low-middle-income trap by suppressing domestic consumer demand.

Given the above status of the rural sector in the country and some key reasons noted as to why lifting the rural sector is urgent, the direction of the country’s financial strategies needs to be looked at from a different prism if the overall economic situation of the country is to be improved in a sustainable way. Sri Lanka’s nominal GDP is approximately US $108.8 billion, with a real GDP growth rate of 5.1% in the first quarter of 2026, as stated, the rural economy accounts for about 8.4% of the total GDP. Roughly four-fifths of the country’s rural poor depend directly on the agricultural and rural sector for their livelihoods and food security for the country is almost entirely rural sector based. In the light of this situation, considering the importance of the rural sector for the food security of the country, and the demographic spread in the country (Rural sector being 80% of the population) , its only logical to explore ways and means of improving the GDP position in the rural sector, and improving agriculture management expertise, productivity and means of mitigating adverse climate conditions, all of it being done with a view to increasing the GDP of the sector, and thereby of the country as a whole.

While restructuring State Owned Enterprises (SOEs), addressing ways and means of overcoming the loss-making record of State enterprises including Sri Lankan Airlines and the Ceylon Electricity Board (which collectively accounted for losses in excess of Rs 60 Billion last year), the rural sector should not be indirectly penalised for these losses considering their total non-involvement in these and other loss-making State entities.

Is centre based financial wealth providing benefits to the rural sector?

While there would be other contributors, the following data indicates key contributors to the wealth measures of the country

Colombo Stock Exchange (CSE)’s -Total aggregate equity value of listed corporate private sector which has a current value of approximately US$ 22.9 billion (roughly Rs. 6.8 to 7 trillion) and total private sector banking deposits, the most direct measure of liquid cash wealth held by Sri Lankan citizens and private corporations reaching approximately Rs. 17.7 trillion with roughly Rs. 12.1 trillion in Term/Fixed Deposits and Rs. 5.5 trillion in highly liquid CASA (Current and Savings Accounts). The inward foreign direct investment (FDI) stock at US$ 18.23 billion. While specific rural sector/centre wealth is not available, going on the basis of GDP figures, it appears that wealth accumulation is very much centre based. This leads one to ponder what could be done to lift rural wealth and what strategies should be adopted to do this.

Measures that can and should be taken

To bridge this gap permanently, policy interventions must shift from short-term welfare to structural economic empowerment. Being predominantly an agriculture-based economy, modernisation (drip irrigation, weather-forecasting apps, and organic-chemical balanced inputs), more research to increase output, better irrigation to maximise water resources, improved land utilisation to produce more with less land, are some of the measures that should be factored in to increase agriculture wealth. Another key imperative is to restructure supply chains by establishing direct-to-market logistics networks and eliminating middlemen to ensure growers get the best price possible for their produce.  Establishing climate-controlled storage hubs, introducing value adding mechanisms like canning and establishing export processing zones and promoting direct foreign investments in rural sector-based projects would assist in lifting the economic profile of the rural sector.

Besides agriculture, consideration could be given for raising the platforms in education standards by building “Smart School Hubs” in rural districts, ensuring rural students have equal access to STEM (Science, Technology, Engineering, Math) streams without needing to migrate. Regional Healthcare upgrades are also essential and upgrading provincial hospitals to full tertiary care capabilities so that life-saving surgeries and specialized treatments do not require travelling to Colombo and other major cities. Agriculture is not the only wealth accumulation enterprises that needs consideration. Special economic zones (SEZs) offering tax incentives for light manufacturing, textile, or eco-tourism businesses to establish bases in rural provinces that create stable, non-agricultural corporate jobs and expanding high-speed fibre internet into rural towns, setting up community digital hubs to train rural youth in IT, graphic design, and remote freelancing are areas that should be considered.

Expansion of the agriculture and industrial base will require private sector investments, both large, medium and small. In many instances, small and medium scale investors in particular will rely on obtaining such investments from entities like the Sanasa bank and SME units in other larger banks. However, institutions like the Sanasa bank will have to be remodelled to support these investors and be joint participants in ventures rather than being just money lenders.

The Sri Lankan government has launched a national movement and development program, Praja Shakthi (meaning “Community Strength” or “Community Power”) as its flagship policy and program for rural empowerment and eradicating rural poverty. This is a very worthwhile program, and it needs to be supported. However, the government could consider its core goal as uplifting the economic strength of the rural sector rather than just uplifting local communities and eliminating poverty as such a renewed goal will make the entire project more meaningful and attuned to very specifically lifting the sectors GDP, and through that, the national GDP as outlined in this article. Not only the rural economy, but this program should upgrade the rural education and health service as well. It is understood that this project connects over 14,000 Grama Niladhari divisions via a digital platform to mobilize local production and find markets for rural goods, and 13,977 Community Development Councils have been successfully established at the grassroots Grama Niladhari Division level. It is also understood that out of the Rs. 25,000 million total budget allocated for the 2026 Poverty Alleviation Programme, the government has already approved and deployed Rs. 23,000 million (roughly $71.4 million USD). These funds reportedly have been decentralized and forwarded directly to District Secretaries to fast-track regional implementation.

The concept outlined in the Prajashakti program provides the framework for rural sector upliftment. However, it should be recast to signify the economic and service provision goals of the sector and the role that the population of the sector could play to achieve this goal. They would then be proud co -owners of a resurgent Sri Lanka.