Despite record food production, rural demand likely to suffer on low wages and infection possibilities: India Ratings

Despite the record agricultural production this year, rural demand is likely to remain muted in FY22 due to the second wave of the pandemic which comes on the back of the massive spread of the virus in the hinterland, and the steeply plunging rural wages, warns a report by ratings agency, India Ratings.

The agriculture ministry has estimated foodgrain production to rise by 2.66 per cent to a new record of 305.43 million tonnes in the current crop year 2020-21, on better output of rice, wheat and pulses amid good monsoon last year. In the 2019-20 crop year (July-June), the foodgrain output comprising wheat, rice, pulses and coarse cereals stood at a record 297.5 million tonnes.

India Ratings chief economist Devendra Pant and principal economist Sunil Kumar Sinha attributed their projection despite the fact that the second wave of the pandemic has hit the country with such severity that both caseloads and fatality per day have reached a new high, yet it has been less disruptive for carrying out economic activities than the first wave, and its economic impact will be felt more through the loss of demand impulse than supply-side disruptions.

More importantly, they say the loss of demand-side impulse is expected to be more pronounced in rural areas this time, notwithstanding the Met Department forecasting near-normal monsoon.

A slowdown in non-agricultural activities and in turn on non-agricultural income will have a serious impact on rural demand, since non-agricultural income constitutes nearly two-thirds of the rural income.

Low rural wages will hit the rural demand most, India Ratings says. The largest chunk of the rural population consists of daily wage earners and not farmers. Rural wage growth both for agricultural and non-agricultural activities has declined lately.

Average agricultural wage growth during November 2020-March 2021 plunged to 2.9 per cent from 8.5 per cent during April-August 2020, and in November 2019-March 2020, it was 6 per cent. Similarly, wage growth for non-agricultural activities during November 2020-March 2021 declined to 5.2 per cent from 9.1 per cent during April-August 2020 and in November 2019-March 2020, it was 4.3 per cent.

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