Rural demand not enough to revive economy: Experts

Although the rural sector has seen kept India somewhat afloat amid the coronavirus pandemic, economists note that it does not ensure any significant boost to the economy.

Quoting senior economists, The Economic Times reported, “while improvements in rural demand will increase the sector’s share in quarterly figures of gross domestic product, those are insufficient to further cushion the impact of the pandemic and take the economy to ‘near-zero’ growth this fiscal year.”

Ind-Ra analysis of the Agri GVA performance of the states last month said that India would likely see 270 basis points (bps) incremental growth in agricultural gross value add (GVA) to 17.3 per cent of the economy this year.

“The growth in the rural sector is the reason we are estimating not more than a 9-10 per cent contraction in FY21,” global chief economist at Dun and Bradstreet Arun Singh told the publication.

The Ind-Ra report added that in spite of the pandemic and the ensuing lockdowns, agricultural activities have not been hit very badly, raising hope that rural demand may drive the recovery, which is over-optimistic.

"We believe rural demand will perk-up somewhat, but will not be able to offset the shortfall in urban demand because the share of agriculture in GVA of the economy has ranged between 14.6 per cent and 17.8 per cent during FY13-FY20 and is expected to be 17.3 per cent in FY21, up from 14.6 per cent in FY20,” the report warned.

Also read: Higher rural demand unlikely to offset urban plunge: Report

Earlier in August, India Ratings and Research (Ind-Ra) had said in a report that rural demand could contribute towards recovery in the economy but could not be a substitute for urban demand. While the industrial and services sectors are still struggling to recover from the adverse impact of Covid-19, the agriculture sector could become an engine for economic recovery, it had noted.

“Positive growth in the rural sector forms a very critical part of our projections but if the improvements in rural demand do not hold out, these estimates will deteriorate further,” CARE Ratings chief economist Madan Sabnavis told the publication.

Also read: Rural demand to aid economic recovery but can't substitute for urban demand: Report

Agricultural activities, being under essential commodities, were least impacted by the nationwide lockdown. Also, until date, the spread of Covid-19 has been limited in rural areas, thus not impacting the labour force and the overall production levels.

“Q2 did not see a significant migration back to work whereas Q3 and Q4 will see this trend in a much larger way, which means the headcount in rural areas will go down. In those terms, one can expect the growth in rural demand to not be sustainable at such high levels,” he added.

The rural unemployment rate also fell from a peak of 26 per cent in the first week of May to around 7.3 per cent in the week ending June 21, which is near the pre-lockdown levels, according to the Center for Monitoring Indian Economy Pvt.

(With agency inputs)