Higher rural demand unlikely to offset urban plunge, warns report

The 270 bps likely incremental growth in agricultural GVA to 17.3% of the economy this year and the resultant spike in rural demand may not compensate for the plunge in urban demand, warns a report

The 270 basis points (bps) likely incremental growth in agricultural gross value add (GVA) to 17.3 per cent of the economy this year and the resultant spike in rural demand may not compensate for the massive plunge in urban demand, warns a report.

However, an India Ratings analysis of the agri GVA performance of the states says the six states that accounted for nearly 33 per cent of the farm GVA will see a spurt in overall demand.

In spite of the pandemic and the ensuing lockdowns, agricultural activities have not been hit very badly, raising hope that rural demand may drive the recovery, which is over-optimistic, says the report.

"We believe rural demand will perk-up somewhat, but will not be able to offset the shortfall in urban demand because the share of agriculture in GVA of the economy has ranged between 14.6 per cent and 17.8 per cent during FY13-FY20 and is expected to be 17.3 per cent in FY21, up from 14.6 per cent in FY20, warns the report.

Furthermore, the contribution of agriculture to GVA growth has ranged between 4.8 per cent and 11.2 per cent during FY13-FY20 and is expected to increase to only 14.4 per cent in FY21, up from 8.6 per cent in FY20, despite the pandemic-induced contraction in the industrial and services sectors, the report stated and added that on the negative side the rural wages have been on a steady decline for many years now.

But Andhra Pradesh, Madhya Pradesh, Rajasthan, Uttar Pradesh, Punjab and West Bengal stand to benefit and see higher rural spend as the share of their agriculture in GSVA and its contribution to GSVA growth is higher as these six states contributed 32.7 per cent to real GVA in FY20.

According to the first advance estimates of Union agri ministry late last month, Kharif food grains production in FY2021 is estimated at 144.52 mt, up from 143.38 mt in FY2020, up only 1.14 mt.

Since the largest chunk of rural population consists of daily wage earners and not farmers, a peep into the rural wages is as vital as the agricultural income to understand the rural demand. And this suggests that rural wages have been under pressure and declined substantially both in nominal and real terms during FY16-FY20.

"Thus, FY21 may not result in very higher income either for farmers or wage earners than previous years.