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Representative image (AP)
Representative image (AP)

Recovery in rural sector may not help India to recover pandemic losses: Report

No matter how well the rural sector performs, it is important to note that rural sector’s overall share in real GVA was still modest at 15% in FY20, says Motilal Oswal

During the first two months of financial year 2021, farm output prices moderated to 1.1% year-on-year while farm input prices declined in April-May at the highest pace since FY16, according to estimates made by Motilal Oswal Financial Services Limited. According to the brokerage firm farm sector within rural India is relatively unscathed during covid-19 crisis.

However, the brokerage firm is cautious that rural sector may not really help the country out of the pandemic sooner than later. "No matter how well the rural sector performs, it is important to note that rural sector’s overall share in real gross value added (GVA) wa still modest at 15% in FY20," it reiterated.

The other two components of growth—services and industry—constituting 30% and 55%, respectively, have been severely battered due to the nationwide lockdown imposed in March-end following the spread of covid-19. Therefore, while it believes that the farm sector may provide support to India’s overall growth, a meaningful recovery will depend on how quickly the services and the industrial sectors rebound. Motilal Oswal estimated that real gross domestic product (GDP) will decline 5% in FY21.

Based on the five factors such as high speed diesel, electricity, fertilizers, pesticides and agricultural machinery and implements analysts at Motilal Oswal estimate that farm input prices declined 5.3% year-on-year during April-May. In contrast, farm output price inflation (based on primary food and non-food articles) moderated to 1.1% during the same months in FY21. This is in sharp contrast to during FY18-19. While farm output prices grew marginally in FY18 and contracted in FY19, farm input inflation was as high as 3.1% and 7.7%, respectively, implying declining margins for farmers. It said that reversal from declining margins to improved profitability may be beneficial to rural farm income.

Overall, although the urban sector is more adversely affected by the pandemic, the government has provided immense support to the rural sector. It said within rural, the farm sector performed better than the non-farm sector, supported by nature and the government’s fiscal support (in terms of procurement, etc.), the non-farm sector is more linked to the urban sector. “Not surprisingly then, our high-frequency index of agricultural activity suggests 5% annual growth in May 20, similar to that in late-2019, while the rest of the economy is estimated to have shrunk by 22%," the brokerage firm said in a report.

Meanwhile, Centre for Monitoring Indian Economy (CMIE) latest data highlights stark contrast between farm and non-farm jobs during covid-19. According to the data, while farm jobs have increased 15% from February (pre-covid-19) to June, non-farm jobs are still 17% below pre-covid-19 level. “This is concerning because farm productivity is one fourth of non-farm productivity. Hence, sharp rise in farm jobs may lift employment numbers but it may not augur well for productivity or even aggregate demand," said Edelweiss Securities Ltd.

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