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

Rural demand can contribute towards recovery in the economy but cannot be a substitute for urban demand, according to a report.

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, India Ratings and Research said in a report.

It, however, said a large part of the rural demand, notwithstanding the encouraging sales number of motorcycles/tractors in June 2020, comes from consumer non-durables.

"Since the share of agriculture in the country's gross value added is about 17 per cent, we believe rural demand at best can extend support to consumption demand, but cannot be a substitute for urban demand," the rating agency said in a report.

It expects the first quarter 2020-21 GDP growth to come in at negative 17.03 per cent. The current account in the June quarter is expected to record a surplus of around USD 18 billion.

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The report said one sector that has largely not been impacted either during the lockdown or even thereafter is agriculture. The agency expects the agriculture sector to grow at 3.5 per cent year-on-year in 2020-21.

After several years, the agricultural sector has witnessed three consecutive good harvests — rabi 2019, kharif 2019 and rabi 2020.

Moreover, the adequate pre-monsoon rainfall followed by the timely arrival of monsoons in most parts of the country has led to an increase in the total kharif sowing area in 2020 in comparison to the last year.

As per the latest data available, the actual rainfall during June 1-August 25, 2020, for the country as a whole has been 7.4 per cent above the normal, and the total area sown under kharif crops as on August 14 stood at 101.6 million hectare (mha), a y-o-y increase of 8.5 per cent.

"The rainfall and area sown so far indicate that the country is headed towards a good 2020 kharif harvest, notwithstanding the floods in several areas," the report said.

However, the flip side of high agricultural production levels could be lower prices of agricultural commodities impacting agricultural income itself.

The government, therefore, needs to have a well-crafted strategy in place, both to continuously monitor the progress of the kharif crop and prevent the distressed sale of kharif harvest, the report said.

Besides agricultural output, it is believed that many factory workers who returned to their rural hometowns in the wake of nationwide lockdown will add to the rural demand, it said.