Will the September uptick in rural economy sustain in future?

The uptick in monsoon rains in September after a dry August and improvement in kharif acreage seem to be the immediate plausible reasons for the improvement

Almost all unofficial indicators so far hint at recovery in the rural economy in September.

The uptick in rain in September after a dry August and improvement in kharif acreage seem to be the imm­ed­iate plausible reasons for this. The bigger question is whether this improvement in rural consumer demand is sustainable.

First, the monsoon.

The southwest monsoon had an uneven run in 2023. The rain in June was in deficit by 9 per cent, followed by a surplus of 13 per cent in July and then a record 36 per cent shortfall in August. But in September, it recovered sharply and was 13 per cent above normal. The break in August brought most of the crops, mainly paddy, pulses, oilseeds, and cotton, to the brink and just as they were about to wither, it started to pour in September, thus saving the kharif harvest from ruin.

Other data points

The rural unemployment rate in September dropped to 6.20 per cent, down from 7.11 per cent in August, which is among the lowest recorded in recent times, according to the data released by the Centre for Monitoring Indian Economy (CMIE).

Sales of fast-moving consumer goods in September 2023 showed 5.8 per cent growth year-on-year, according to the data released by Bizom. This has come against a drop of 17.2 per cent in August.
 

Two-wheeler sales are considered a barometer of the health of the rural economy. Such sales in September were up almost 22 per cent on year, while in August they were up just around 6.29 per cent.

But are all indicators positive?

The number of households demanding work in September under the Mahatma Gandhi National Rural Employment Guarantee Act dropped to 18.53 million, which was almost 3.2 per cent fewer than in August.

But in September, work demand under the scheme usually drops because there are other options such as sowing, which is in full swing then.

All this could also mean that though the rural economy shows signs of revival, it might not be broad-based. One important parameter absent from this matrix is rural wage growth. Here, the updated data not being available is a handicap.

Mahendra Dev, former director of the Indira Gandhi Institute of Development Research, said the rural economy seemed to be on the mend mainly due to a pickup in the monsoon and sowing.

He said the rural on-farm sector also seemed to be picking up and the Periodic Labour Force Survey data showed casual-labour wages might have improved in September. Also, the labour participation ratio in men and women has improved in rural areas but mostly in self-emplo­yment, so it could be a sign of distress because regular employ­ment isn’t available. He said the quality of employment was a problem.

On the question whether the uptick in rural consumption could be sustained, Dev said the rise could be owing to festivals and driven by borrowing and, hence, there was a question mark as to whether this could be sustained.

Also, a big factor that will determine whether the revival can be sustained is how kharif crop prices move in the coming few weeks.

Though the share of the crop sector in the average agricultural household is falling (it has dropped from 47.9 per cent in 2012-13 to 37.7 per cent in 2018-19, according to the National Statistical Office’s Situation Assessment Survey of 2018-19), it is still a significant portion of the income.

The story so far here is mixed.

The price of oilseeds, particularly soybean, has dropped below the minimum support price (MSP) owing to cheap imports, while rates of pulses are ruling above the MSP due to low stocks. Cereal (rice) rates are also trading below the MSP in some places.

“In the case of soybean, the historical data indicates that prices are unlikely to remain below the MSP for long. Farmers and traders are expected to resist selling their produce at depressed prices. Last year, a similar price trajectory was observed,” showed an analysis by Tarun Satsangi, specialist, Global Commodity Research and Trade at SilkRoute.ag.

Rahul Chauhan, commodity analyst at iGrain India, said: “After Karnataka and Gujarat, in Maharashtra too the production of major crops grown this kharif season is expected to be down. A big concern is tur and the production of moong and urad is on the lower side.”