Six months after Covid-19 hit India, there is a sliver of good news from the rural hinterland. Some economic indicators suggest a bounceback may be in progress. Fertiliser sales jumped 83 per cent in April-June to a record 111.61 lakh tonnes despite the nationwide lockdown. This time around, the all-India planting area of paddy, at 22.02 million hectares, was higher by 17.3 per cent on year, as on July 24. Most of the farmers in West Bengal, Uttar Pradesh, Punjab, Haryana, Chhattisgarh, Odisha, Andhra Pradesh and Telangana are dependent on rice for their income. Sowing is up nearly 39 per cent. Tractor and two-wheeler sales are approaching levels of the previous year. Daily tractor registrations are close to 90 per cent of FY20’s daily average. Total tractor sales (domestic plus exports) during July 2020 were at 25,402 units, up 27 per cent from 19,992 units for the same period last year. Two-wheeler sales also suggest a rebound, Bajaj Auto sold 146,695 motorcycles this June, 73.5 per cent of the 199,340 units sold in the same month in 2019. However, Hero MotoCorp, the world’s largest two-wheeler manufacturer, sold 514,509 units of motorcycles and scooters in July 2020, a decline of 3.97 per cent as compared to July 2019, suggesting that the growth in June was a combination of pent-up demand and the need for personal mobility solutions.
Ashish Kale, president of the Federation of Automobile Dealers Association, says there has been a genuine improvement in sentiment because a number of positive factors have come together in rural India. “The rains have been good, the central government is investing, sowing has been excellent and migrant labour has returned to work in the fields,” he says. While some of the sales can be ascribed to pent-up demand, they are also being driven by a combination of available cash and existing need, he adds. Yet, the Society of Indian Automobile Manufacturers predicts a 26-45 per cent slide in sales this year. According to Kale, automotive dealers in rural areas are facing a supply crunch, some models of two-wheelers are in short supply. A potentially positive note is that the increasing sales in this category are despite a lack of available financing, with the spread of the coronavirus, more people are investing in their own means of transport.
However, experts caution that a prosperous agri sector does not necessarily indicate a recovery of the rural economy. “Non-agri activities [account for] two-thirds of rural incomes,” points out Arun Singh, chief economist at Dun & Bradstreet India. The rural sector’s contribution to India’s overall manufacturing and construction output is about 50 per cent. “Unless manufacturing and construction revive, the rural economy will remain subdued,” he warns. A recent report by Neelkanth Mishra, managing director, India strategist and co-head of equity strategy for Asia Pacific at Credit Suisse, also warns that the rapid spread of Covid-19 to Tier 3 and 4 cities could stall this growth.
ROBUST SALES GROWTH
Meanwhile, leading FMCG (fast-moving consumer goods) players such as Dabur, Parle Agro, Marico, Godrej and ITC have reported robust sales in rural and semi-urban markets. “For Dabur, the rural market has been growing [faster than] the urban market. This was the case all of last year and remains so [this year],” says Dabur India chief executive officer Mohit Malhotra. “We are planning to expand our rural footprint from 52,000 villages in March 2020 to 60,000 villages by 2020-21,” he says. Dabur is also looking to expand its product basket with affordable packs across categories to push demand growth. An analysis by Nielsen shows increasing consumption levels, though 60 per cent of the households it polled said Covid-19 had hit their income, 39 per cent said they were spending more on household goods.
The return of workers to the market is visible in the improved employment rate. According to the Centre for Monitoring Indian Economy, rural unemployment fell from 24.37 per cent on April 12 to 7.62 per cent on June 28. Urban unemployment also fell, from 23.17 per cent on April 12 to 10.69 per cent on June 28. “Bharat is doing better than urban India,” says Nilesh Shah, managing director, Kotak Mahindra Asset Management. “I wouldn’t be surprised if the growth of agriculture in 2020-21 is positive. We have seen growth in GST collections, from Rs 32,000 crore in April to Rs 91,000 crore in June, the economy is trying to recover.”
Together, indicators like these suggest that India’s rural economy, which makes up 46 per cent of the national income, could take up some of the economic slack from Covid. Rural India is home to more than 67 per cent of the country’s consumer base but accounts for only 36 per cent of the FMCG sector’s overall sales. Analysts predict that with migrant labour back in their hometowns and a slew of policy interventions targeted at generating income and employment in rural areas, there will be increased demand for FMCG products in these areas. Businesses are accordingly expanding their rural footprint. Nadia Chauhan, joint managing director and chief marketing officer at Parle Agro, says, “While we were initially impacted by the sudden lockdown, [sales] have now touched 100 per cent of last year’s base for the same month. The [share] of rural areas has increased from 41 per cent in 2019 to 46 per cent in 2020.”
THE RURAL GLOW
Agriculture and allied activities could be the Indian economy’s only bright spot this year, as the pandemic has slammed the brakes on industry and services. Agriculture includes a number of sub-sectors, including foodgrains, livestock products like meat, milk and eggs as well as fishing and aquaculture. Foodgrains are the largest component, though livestock also plays a crucial role in driving agricultural GVA (gross value added) growth. Foodgrain and milk production are expected to do well this year, though meat, eggs, fishing and aquaculture may remain depressed. As of 2018, the share of agriculture in India’s GDP had declined to 14 per cent, though over half the country’s population is dependent on it.
Driving the optimism is a bumper rabi crop, a massive procurement drive by the government and concerted policy interventions to put more money in the hands of the rural poor. The latter include the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, under which farmers receive Rs 6,000 per year, and an increased focus on MNREGA. According to the Union ministry of consumer affairs, food and public distribution, the government’s wheat procurement this year set an all-time record of 38.2 million tonnes as on June 16. In all, 4.2 million farmers benefitted, with Rs 73,500 crore paid as minimum support price for wheat. D.K. Joshi, chief economist with Crisil, predicts a 2.5 per cent growth in this sector. “This is unlike the situation in previous recessions, where agriculture [suffered].”
In Rajasthan’s Sherpur village, nearly every household has at least one MNREGA cardholder, employed in digging or construction work from 7 am to 1.30 pm and earning about Rs 4,500 per month. Across India, 130 million workers have benefitted from the job scheme, which has emerged as a last resort not only for unskilled workers but also for many educated and highly skilled workers who have lost their jobs thanks to the pandemic. The increase of Rs 40,000 crore to the budget allocation for MNREGA, announced by finance minister Nirmala Sitharaman under the Rs 20 lakh crore Aatmanirbhar Bharat Abhiyan, takes the total allocation to over Rs 1 lakh crore. “In rural India, there are two gods, one is the god above, and the other is the government,” says Pradeep Kashyap, founder of MART Global Management Solutions, a major player in the rural marketing sector. “This time, farmers believe that god has been kind and that god will continue to be kind. It’s a rare run.” Credit Suisse’s Mishra also points out that a low virus case-load drove a rapid revival in non-agri activities. And while the 39 per cent year-on-year growth in MNREGA person days shows good fiscal support, the fact that workers are taking up work at Rs 200 a day shows a shortage of good jobs.
Economists and experts also say agriculture reform measures in the Aatmanirbhar Bharat Abhiyan stand out. The proposed new law, which allows farmers to choose who they want to sell their produce to rather than remaining captive to the APMC (Agricultural Produce Marketing Committee) markets, was long overdue. Over the years, these markets had left them vulnerable to price manipulation by traders and commission agents. An analysis by Crisil notes that the amendment to the Essential Commodities Act to deregulate food items is aimed at improving price realisation for farmers. According to a survey of 230 farmers conducted by MART Global between June 13-15, 63 per cent of respondents said they found the income support under PM-KISAN to be helpful, 40 per cent said the ability to sell their produce to any buyer was helpful, and 27 per cent said they were helped by the abolition of the mandi tax.
Other major changes are also afoot in rural India. The country recently emerged as the world’s largest producer of milk, while India’s horticulture output surpassed grain production in 2019, the first time ever, 310 million tonnes of horticultural produce against 290 million tonnes of foodgrains. This will also have a positive effect on incomes, as prices for horticultural produce tend to be higher than for cereals. (A kilo of wheat costs Rs 16-18, while a kilo of mangoes costs a minimum of Rs 50.) Another factor fostering positive sentiment is the setting up of an agriculture infrastructure fund with a corpus of Rs 1 lakh crore. This will be used to provide financial support to agriculture entrepreneurs and to develop logistics facilities for farmers.
THAT BEING SAID…
There are also caveats to the prospects for agricultural growth. The locust attack in India around the beginning of 2020 has severely affected crops in Rajasthan. The kharif season is looking bleak. Other environmental factors have also played a big role, for instance, states like West Bengal and Odisha were severely impacted by super cyclone Amphan in May, and millions of Assam’s citizens were affected by the recent flooding in the state.
Many ask if the optimism on the rural front could be a stepping stone for India’s economic revival in the post-Covid phase. While a comprehensive recovery is still a long way off, and will require much more, the current optimism is certainly something the Centre and states can build on, if only to turn the page on the gloomy economic narrative caused by the pandemic.