Chennai, NFAPost: Any two or three consecutive good harvests generally translate into a robust rural demand. So, the hope is that while the industrial and services sectors are still struggling to recover from the adverse impact of COVID-19, the agricultural sector could become an engine for economic recovery, says Ind-Ra.
However, a large part of the rural demand, notwithstanding the encouraging sales number of motorcycles/tractors in June 2020, comes from consumer non-durables. No wonder, among the use-based Index of Industrial Production classification data, the first category to record positive growth in the post lockdown period is consumer non-durables, which grew 14% yoy in June 2020. Since the share of agriculture in India’s gross value added is about 17%, Ind-Ra believes rural demand at best can extend support to consumption demand, but cannot be a substitute for urban demand.
The COVID-19 led business disruptions during end-March-May 2020 have been so severe for the production, supply/trade channels and the activities especially in sectors such as aviation, tourism, hotels and hospitality that FY21 GDP growth is expected to contract for the first time since FY80.
Although non-agricultural economic activities are slowly limping back, they are still much lower than pre-COVID-19 level. Ind-Ra expects 1QFY21 GDP growth to come in at negative 17.03%. The current account in 1QFY21 is expected to record a surplus of around $18 billion.
However, one sector that has largely been not impacted either during the lockdown or even thereafter is agriculture. Ind-Ra expects the agricultural sector to grow at 3.5% yoy in FY21. After several years, this 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 part 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% above the normal and the total area sown under kharif crops as on August 14, 2020 has been 101.6 million hectare (mha), a yoy increase of 8.5%. 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.
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. The government of India has increased allocation under MGNREGS to Rs 101,500 crore for FY21 from the initial allocation of Rs 61,500 crore, with daily wages fixed at Rs 202 to generate more employment and support livelihoods in rural areas. Till August 22, 2020, 1.82 billion person days employment has been generated, resulting in 18.2 million labour getting 100 days job.