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ICRA said that a pick-up in the rural economy will be positive for retail loan asset classes like tractor and microfinance loans. Photo: Ramesh Pathania/Mint
ICRA said that a pick-up in the rural economy will be positive for retail loan asset classes like tractor and microfinance loans. Photo: Ramesh Pathania/Mint

Why rural consumption may not drive up growth

Rural India was battling economic difficulties even before the pandemic. The pandemic-induced lockdown increased hardships even further.

The historic contraction in India’s gross domestic product (GDP) figure for the June-ended quarter has raised several questions on what the future holds, and what that contraction has meant for ordinary people. Macro-economic statistics can often fail to capture the diverse realities of a country as large as India, and hence it is useful to complement them with data on lived experiences of people.

An analysis of a recently conducted rural survey suggests that the economic reality for most people may be far grimmer than what the headline GDP numbers suggest. The survey was jointly conducted by Gaon Connection and Lokniti-Centre for the Study of Developing Societies (Lokniti-CSDS) across 179 districts spread across 23 states and union territories of the country. Barring Kerala, south India was not covered in the survey, conducted between 30 May and 16 July. A total of 25,371 respondents were interviewed in this period, most of them in June.

The survey data shows that the pandemic-induced lockdown hit the livelihoods of most people in rural India very hard. More than three fourth of the respondents (78%) said that their work had either completely (44%) or largely (34%) come to a standstill due to the lockdown.

The survey suggests that rural distress was already high even before the covid-19 shock. But the covid shock raised hardships even further. Six out of ten respondents (60%) said that it was extremely or quite difficult to fulfil needs from their household income prior to the lockdown. After the lockdown was announced to combat covid-19, almost three-fourth (72%) found it hard to meet their household expenses. While the lockdown affected work and livelihoods across income classes, the change in economic conditions was sharpest amongst the lowest strata.

Unemployment continues to remain a major concern in rural India and the situation was worsened by the return of migrants from urban centres. More than three-fourth of the respondents (77%) reported that unemployment was a big issue in their villages.

The lack of steady income in the countryside meant that the severe economic shock left many in a precarious situation. Almost one-fourth of the respondents (23%) said that they were forced to take additional loans or borrow money as they ran out of funds during the lockdown. A smaller proportion (7-8%) of respondents faced an even more dire situation and were forced to sell or mortgage their personal belongings such as jewellery, watches, and vehicles to meet household expenses.

The only “saving grace" for the economy in recent months has been agriculture.

Agriculture and allied activities still grew at 3.4% even as the overall economy contracted in the June quarter. The survey asked detailed questions to farmers about the state of agriculture during the lockdown. While most farmers reported delays in harvesting, in selling produce, and in sowing for the next cycle due to the lockdown, the impact on income was more muted. A majority of the farmers (58%) reported that they got as much as the government promised for their produce.

Given the relatively better performance of agriculture, many analysts have pinned their hopes on rural consumption this year. The reality is that almost half of the respondents (49%) reported lower expenditure on basic food items such as atta, rice, grains, and pulses compared to pre-covid months. Almost two-third (63%) said that they had reduced expenditure on processed items such as snacks, biscuits, and sweets. More than half of the respondents (56%) reported lower household expenditure on personal care products such as soap, shampoo etc., and there was an overall decline in the consumption of FMCG products.

The outlook for private consumption appears grim. Many respondents said that they were likely to reduce expenditure on everyday items even after the lockdown. For instance, 49% and 57% said that they would reduce expenditure on basic food items and personal care products respectively.


While this survey was limited to rural India, it is unlikely that the situation is vastly different in towns and cities. As the pandemic-related restrictions have eased across the country over the past few months, economic activity is gradually coming back on track, even if slowly. The rural survey and data from other sources suggest that ordinary people will need generous support from the government to get their lives back on track. The government would do well not to dismiss the gravity of the problem.

Sanjay Kumar is a professor at the Delhi-based CSDS, and a political analyst.

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