Over the past month or so, leading economic indicators have pointed towards a two-paced recovery. Sales of tractors and two-wheelers, proxies of rural demand, appear to have rebounded strongly, indicating that the pickup in rural areas has been swifter than in the urban centres which have borne the brunt of the COVID-19 pandemic. In large part, this optimism over the relatively stronger rural recovery stems from the healthy performance of the agricultural sector which was excluded from the lockdown restrictions. As per CARE Ratings, the agriculture, forestry and fishing sector is likely to grow by 3.5 per cent in the first quarter of the current financial year. This, as reported in this paper, implies that for the first time since quarterly estimates of growth have been published, the farm sector is likely to register positive growth even as the rest of the economy (barring the government sector) contracts. The last time the economy had contracted was in 1979-80 by 5.2 per cent, but that year, agricultural GDP had also registered a contraction.
The strong performance of the farm sector has been on the back of a good rabi harvest — the Agriculture Ministry has pegged the output of wheat, chana and other rabi crops at 151.72 million tonnes, up 5.6 per cent from last year. Further, a favourable monsoon season — rains were 7 per cent above the long-term average as on August 21 — also bodes well for agriculture. Total area under kharif coverage was up 9 per cent as compared to the previous year. Higher food inflation in some commodities may also lead to greater realisations for farmers. This rise in agricultural activity, coupled with higher allocations to the MGNREGA (total outlay under the scheme has risen to a record high of Rs 1 lakh crore this year) also appears to have led to a sharp drop in rural unemployment during this period, as observed in the CMIE data. However, healthy growth of the farm sector, even if it continues, is unlikely to offset the economic losses suffered by other parts of the economy. The declining share of agriculture in rural household incomes — sectors like construction now account for a sizeable portion — implies that prospects of a broad-based rural recovery remain uncertain. As the Reserve Bank of India noted in its annual report, fuller recovery in rural areas is being “held back by muted wage growth which is still hostage to migrant crisis and associated employment losses.”
As rural households depend on sectors like construction, manufacturing, wholesale and retail trade to a greater extent than before, how these activities shape up will determine the pace of revival of the broader rural economy. This in turn depends on the trajectory of the pandemic and is a consequence of how economic activities shape up in urban areas. It is possible that heightened risk aversion, self imposed restrictions, and localised lockdowns continue to be a drag on activities in urban areas, impinging upon rural economic activity as well.