India looks at poor farmers to rescue its coronavirus-ravaged economy

By Anurag Kotoky and Swansy Afonso

India’s economy left cratered by the pandemic is drawing energy from one of its invisible and often-neglected engines: farmers.

Business leaders, policymakers and politicians alike are pinning hopes on the rural sector as bountiful rains have set the stage for another year of record crops. Higher disposable incomes with farmers are expected to boost demand from automobile to cement to gold jewellery.

That contrasts with the urban areas, where companies are still struggling to boost their sales following the pandemic that has hit business activities, hurt demand and caused labour shortage. The adverse impact of the world’s strictest lockdown in March continues to haunt, but the hinterland is holding out hope.

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Maruti Suzuki India Ltd. and the local unit of South Korea’s Hyundai Motor Co., the two main players in India’s car market, said October sales were the best-ever for any month. Hero MotoCorp Ltd., the world’s largest maker of motorcycles and scooters, as well as smaller rival Bajaj Auto Ltd., reported record sales, as rural markets provided a cushion against a downturn in cities.

Bharat Petroleum, the nation’s second-biggest fuel retailer, said its sales in urban pockets had almost halved, prompting it to quickly focus on the rural and highways segments to contain the market share loss. “We want to capture the rural presence and the Indian rural growth,” said N. Vijayagopal, the company’s finance director.

Flash in the Pan?

Demand for everything from tractors to jewellery notwithstanding, rural India alone may not be able to underpin a recovery in the economy that’s headed for its worst annual contraction on record, according to top company officials and analysts. With more than eight million reported infections, the South Asian nation is the second-worst-hit by the pandemic after the U.S. and risks remain.

While demand is “good,” and is likely to remain so for the rest of the year due to a good monsoon, it’s difficult to predict sales beyond that, RC Bhargava, chairman of automaker Maruti, told reporters. A rush to own private vehicles as people move away from mass transport will be over by January, he said.

Automobile inventories had piled up in anticipation of strong sales during the October-November festive season. Sales were already going through their worst slump even before the virus, and pent up demand during the nationwide lockdown led to increased sales on a lower base.

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“I would not really bet on the mass consumer coming back in a hurry because so far I am not seeing any evidence of it,” Rajiv Bajaj, managing director at Bajaj Auto, told CNBC TV-18. “I’m extremely concerned, I’m very anxious.”

Rural demand will perk up somewhat, but will not be able to offset the shortfall in urban demand because the share of agriculture in gross value added of the Indian economy ranged between 14.6% and 17.8% during 2012-13 to 2019-20, according to India Ratings and Research.

Some experts highlighted that India is witnessing an uneven recovery, where upper-income groups are seeing a rapid and strong improvement in their economic conditions, while those with lower incomes are losing ground.

“I must say that while parts of the marketplace are coming back to normal, it still is a reasonable K-shaped recovery,” said Dipak Gupta, joint managing director at Kotak Mahindra Bank Ltd. “Unfortunately, the upper part of the K-curve is still small as compared to the lower part.”

--With assistance from Nupur Acharya, Anirban Nag, Pratik Parija, Rahul Satija, Vrishti Beniwal and Debjit Chakraborty.