Resilient rural demand may aid India’s economy, says Citigroup

Last Updated 26 June 2020, 11:16 IST

By Anirban Nag

Rural demand is showing signs of supporting India’s economy, with Citigroup Inc. seeing bumper crops, a favorable monsoon and government handouts helping villages outpace recovery in urban areas.

Some high-frequency indicators such as tractor, two-wheeler and fertilizer sales show villages are performing much better than towns and cities, Citi’s Chief India Economist Samiran Chakraborty wrote in a report to clients. It helps that the government infused around 1.5 trillion rupees ($19.9 billion) into the rural economy after March through various welfare programs and state-sponsored buying of crops, he wrote.

“Government has also announced a targeted intervention for providing employment opportunities in rural areas to returning migrant workers in six states,” Chakraborty said. “Around 500 billion rupees would be spent over the next 125 days on public works in selected districts where migrants have returned.”

Though, it’s not clear, whether this is additional expenditure or comes from already budgeted allocation for various programs, he said.

The government last month announced 21 trillion-rupee worth of measures to support households and businesses offset the economic loss from the Covid-19 shutdown. The world’s largest lockdown is set to push the economy toward its first contraction in more than four decades this year.

Of the measures announced, a provision of 2 trillion rupees, or equivalent to 1% of gross domestic product, was made to farmers through credit cards, Citi said. The steps, along with the ongoing crop sowing season, have led to a sharper drop in the jobless rate in rural India -- home to more than two-thirds of the country’s 1.3 billion citizens.

Rural unemployment rate has fallen from a peak of 26% in the first week of May to around 7.3% in the week ending June 21, which is near the pre-lockdown levels, according to the Center for Monitoring Indian Economy Pvt. In comparison, jobless rate in cities is still above pre-lockdown levels at 11.2%, having been at 8.2% in February.

“We think that the rural set-up is more amenable to social distancing and hopefully the spread will be limited in those places,” Chakraborty wrote, referring to the coronavirus cases. “On balance, we continue to expect a relatively stronger rural growth this year.”

(Published 26 June 2020, 11:16 IST)

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