Bharat may not be able to save the day

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 Bharat may not be able to save the day

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• Q1 economic shock: Extent of economic shock in India (reported GDP contraction of -23.9%) and US (GDP contraction of 32%) is being said to be comparable. But -23.9% is seasonally adjusted annualised number. The comparable number for India is -54%. The economy is severely distressed, number regardless. 
• Rural India seems to be the saving grace: 

1. Agriculture is the only sector to have recorded positive growth.
2. South-west monsoon has been good.
3. Kharif-sowing has increased over last year. Minimum support prices (MSPs) are also up from last year.
4. There’s an increase in govt. procurement and hence MSPs available for a larger share of produce.
5. There is sufficient labour in rural areas due to reverse migration during the lockdown. 
6. Tractor and fertilizer sales are healthy. 
7. Allocation of funds under MGNREGA has increased. Free rations and expedited payments under PM-KISAN and Garib Kalyan Rojgar Abhiyan were announced. States also announced relief packages for migrants returning to rural areas.

• Limitations related to agriculture: 

1. MSP is available only for produce procured by government. Govt. plans to procure 40% of this year’s wheat production which means prices for 60% of the produce will be decided by market forces.
2. Government procurement is focused only on wheat and rice grown by 50% and 39% of farmers respectively. But there’s no assured market for other crops.
3. Bumper production may result in farmers having to sell produce at low prices. Dairy farmers are also seeing a drop in earnings. Produce and dairy prices may go below MSP. 

• Rural is not only agriculture: Rural India accounts for 47% of India’s GDP. Agriculture and allied activities make up only 18% of GDP. 

1. 52% of rural households are non-agricultural households.
2. Wage labour accounts for 34% of agricultural household income and 43% of non-agricultural household income. 
3. Lockdown has severely impacted domestic remittances and remittance receiving households account for 10% of rural India. Bihar, UP, Rajasthan, Orrisa account for 50% of interstate migrants and are the states with maximum reliance on remittances. 
4. Urban demand has been low. Agri-allied activities and SMEs which form a large share of non-agricultural rural activities are closely linked to urban activity. For sustainable rural economy, urban demand must revive.
5. MGNREGA funds will not last forever. Gram panchayats have exhausted 50% of MGNREGA funds in the first four months of FY 2021. Also, MGNREGA guarantees employment to rural households for only 100 days. 

• Covid is now spreading in rural areas: More than 50% of new positive cases in July and August are from rural areas. Local lockdowns will continue and hence economic activity will be impacted. 
• Summary: 3.4% growth in agriculture is below some analysts’ expectations. Measures that enable market access, promote contract farming and develop supply chain infrastructure have been underway and will only get expedited as part of new government announcements. Rural economy was the saving grace in Q1, but may not be so unless urban demand picks up and agricultural and non-agricultural limitations are addressed.

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