India's rural growth story faces a pandemic roadblock
Rural demand may be fuelling India’s growth story in the lockdown period but the recovery will face heightened challenges due to the pandemic leaving its imprint on the hinterland and the gradual slowdown in government expenditure, which is to the tune of Rs 35,000 crore per month.
Experts believe agricultural activity has so far been sustained by the government’s support to schemes such as MGNREGA wages, PM Garib Kalyan Anna Yojana and direct cash transfer to women's Jan Dhan accounts.
But expenditures on these have been front loaded, implying a greater proportion of the Covid stimulus on rural schemes will be handed out in the beginning of the process.
Once that is withdrawn and the supply chain is not improved, the stress on the agriculture part of the rural economy will start showing, a Credit Suisse analysis of rural economy shows. However, the agriculture part of the rural economy consists of only 29%.
At least 71% of the rural economy that consists of non-agricultural activities such as finance, construction, manufacturing are still not out of the woods, and their recovery may be at risk if the virus spreads quickly in the hinterland.
While manufacturing and communication services contribute 19% each to rural GDP, construction contributes 8%, financial services and public administration contribute 9% each.
Nearly half of India’s 6.33 crore registered micro, small and medium industries — most of which are in the manufacturing sector and currently struggling to stand on their feet amid the pandemic — are located in rural areas.
Data from the construction sector, another indicator of non-agricultural rural economy, shows though demand for cement has shown signs of revival in June in July, construction equipment sales volume has fallen 70% year-on-year in the April-June quarter and utilisation nearly halved.
Lower demand for construction equipment implies lower investment in rail, road and other infra building activities in rural and urban areas.
Motorcycle sales in June fell over 35% year-on-year. Demand for motorcycles comes mainly from the rural belt in India.
Even on the agriculture side, out of over nearly three crore families in rural India — who demanded work under the MGNREGA rural employment programme that provides 100 days of employment/year to rural households — only about two crore families actually received work.
Recent data on agricultural prices, including milk, meat and poultry products, vegetables and fruits, suggests a sharp collapse in prices received by producers in rural areas.
“The rural demand won’t be at the optimal level, but it would be better than the past couple of years. The revival of demand would be only for those associated with agricultural activity and not broad-based,” Sunil Kumar Sinha, Principal Economist and Director Public Finance of IndRa, told DH.
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