After the rural recovery

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 After the rural recovery

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• Rural sales up: As the COVID lockdowns ended from May, generally companies found their sales rising in rural regions. That was true for tractors, cement, soap etc., all of which reverted to pre-COVID levels.
• Other indicators: Activity indicators (rail freight, GST e-way bill generation, power demand) are all down. The July numbers are bad as well. So if actual sales figures are good, but indicators are bad, we have to trust sales numbers (actual things).
• Rural recovery dynamic: A huge chunk of population left cities, lowering urban population by upto 5% (upto 10% in big cities), thereby lowering demand of goods and services, but boosting the same in rural areas (upto 3%). But remittances too have dropped (so effect balanced out a bit). 
• Rabi harvest and govt. spending: Are these two factors really helping?

1. Rabi harvest: Agri is definitely rural, but rural is not just agri. In fact, agri may be only 29% of rural though it employs 58% of rural workforce. And Rabi crops are 1/6 of total agri output, and many farmers harvest for self sustenance only. Rural GDP is Rs.95 trillion, and wheat and cotton MSP procurement has little impact. But weak perishables' demand is draining Rs.10000 cr per month from farmers, as milk is 20% of all agri output by value. Demand fell as all eateries were shut. Festivals are muted, and distribution chains are hurt (so are meat, fish, fruits, vegetables).
2. Government spending: Centre is putting upto Rs.35000 cr p.m. in MGNREGA, direct transfer to women a/c, PM-Kisan payments etc. making it annually 4.5% of rural GDP. That is huge. But that is offset by sharp drop in rural credit growth, weak domestic remittances (Rs.15000 crore at least) and lower agri perishables incomes. So the final net impact is just 0.9% of rural GDP.

• Rural versus non-agri: So while the govt. wants to negate the problems created due to migration and agri troubles, what about the activity restrictions in non-agri, which is 71% of rural GDP? Drop in incomes would be huge here. Proof is the sharp rise in MGNREGA person-days.
• Normalisation: So if India wants a rapid rural revival, then normalisation of non-agri activities in rural areas is a must. So far, urban areas saw deeper virus spread and rural areas saw it much less. So market movements were normalising fast. But that is now dangerously changing.
• More new districts infected: As more and more new districts with higher numbers are reported, lockdowns and restrictions are bound to arrive. And people too will restrict themselves. So late normalisation happens.
• A bad bargain: The total number of patients on oxygen-beds does not justify the massive curtailment of economic activity, in places like Mumbai. The tax revenues of governments will drop fast.
• A new solution needed: Already, govt. doesn't spend too much on the social sector, and with collapsing revenues it will need a new financial architecture because private consumption and investments are both settling at much lower levels now. So for next two years at least, it's the govt. that has to invest.

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