Record crop production is unlikely to push rural demand, a report by India Ratings & Research (Ind Ra) said on Thursday.
The government on May 25 estimated record foodgrain production of 30.54 crore tonnes during FY 2020-21. This is nearly 80 lakh tonnes higher than FY20. Also, agriculture and allied activities has been only sector in the economy registering growth during all three quarters of FY 21 and expected to do the same during fourth quarter (January-March).
Pandemic impact
In its report Ind-Ra said impact of second wave of pandemic on the economy will be felt more through the loss of demand impulse than supply-side disruptions. Also, “the loss of demand-side impulse is expected to be more pronounced in rural areas than in urban areas, notwithstanding Indian Meteorological Department’s forecast of a near normal monsoon in 2021,” it said.
Over 60 per cent population and nearly 50 per cent workforce depend on agriculture and allied activities. Second wave has impacted rural area. The report said that even if agricultural output/income remains intact, there is a strong likelihood that the expenditure behaviour/pattern of rural households will be different. With rising Covid infections, households in rural areas would be more concerned about the rising and/or an expected rise in health expenditure and would cut down on non-essentials.
The share of government in the current expenditure on health in India is only 27.1 per cent and an overwhelmingly large share of 62.4 per cent. “According to an estimate over 60 per cent of the rural households with hospitalised cases borrow, sell their assets (including gold) or rely on contributions from friends and relatives to pay for inpatient care,” the report said.
Non-farm activities
Another problem is not only farm, but non-farm activities have also been affected. Non-farm activities require high human contact, be it work of carpenter, blacksmith, auto/tractor/cycle repair, construction, transport, storage etc. Thus, even the employment offered under the Mahatma Gandhi National Rural Employment Guarantee Scheme in rural areas may be less effective, if family breadwinners fall to Covid-19 infection. “The slowdown in non-agricultural activities and in turn on non-agricultural income will have a serious impact on rural demand, since non-agricultural income constitute nearly two-third of the rural income,” the report said.
It also highlighted issue of rural wages. In fact, the largest chunk of rural population consists of daily wage earners and not farmers. Rural wage growth both for agricultural and non-agricultural activities has declined lately. According to the report, average agricultural wage growth during November 2020-March 2021 declined to 2.9 per cent from 8.5 per cent during April-August 2020. Similarly, during the same period, wage growth for non-agricultural activities dropped to 5.2 per cent from 9.1 per cent.
It concluded that while demand for agricultural credit and agricultural inputs such as fertiliser/pesticides could remain strong in view of third consecutive year of near normal monsoon, the demand for FMCG products, automobiles especially tractors and two-wheelers is expected to suffer.