Unlock BFSI 2.0: Experts on whether rural India will be new growth driver

Asserting that a lot of what is happening in rural India is a reflection of the urban sector, Pronab Sen, Director for the IGC India Programme, explained that an excellent harvest is usually a mixed blessing in which a rise in output is accompanied by a decline in crop prices.


He was speaking at the Unlock BFSI 2.0 webinar organised by Business Standard today, entitled "Will Rural India Be the New Driver of Growth?" Other experts in the webinar included Rathin Roy, director, National Institute of Public Finance and Policy (NIPFP); Sajjid Chinoy of JP Morgan; Sonal Varma, chief economist (India and Asia Ex-Japan), Nomura; Pranjul Bhandari, chief India economist, HSBC; and Soumya Kanti Ghosh, group chief economic advisor, SBI.


Sen added that the government response to Covid was rural focused, with an Rs 1.5-2 trillion in the initial stages. However the rural sector itself is dependent on remittances from migrant labour. But with many such workers returning, to the village economy has lost about Rs 15,000 crore during each month of the lockdown, or about Rs 60,000 crore in the four months to July, Sen explained. So while agriculture is doing well, multiplier effect on the rural economy did not happen as remittances dried up.


Sen said the agricultural economy in India is essentially divided into two parts. The first part is prosperous on the back of healthy crop output and a strong procurement mechanism. The other is the laggard and will do very badly.


Bhandari of HSBC said another reason the rural economy is faring well today is that the brunt of the lockdown was felt by the urban sector. She said the exuberance in the rural economy due to good monsoon, reservoir levels, strong tractor sales, among other things, may not last as remittances are drying up and a large section of the rural population is looking at gainful employment in construction activity, which is not doing too well currently.


Bhandari's view was that interconnect between urban and rural is strong and it the former does nor improve, the repercussions will be felt in the latter. She said once the kharif season is over, the sheen will wear off and the trouble spots in the rural economy will start showing up,


Chinoy of JP Morgan highlighted the fact that the consumer durable sector was currently at 68 per cent of the pre-Covid level, while consumer non-durable volumes were at 115 per cent of pre-Covid, indicating greater consumption of foodstuffs by a large section of the population confined at home and, therefore, a spike in rural income.


Chinoy added that the virus is more severe in urban currently, but that could change. He also mentioned that agriculture should not be equated with rural, as the latter has a more important non-farm component Supporting Bhandari's view of a strong rural-urban interconnect, Chinoy mentioned that several SMEs, are dependent on urban sector.  


Stating that consumption is a function of income, Varma of Nomura said rural looks relatively better but should not be overplayed, and that a lot of rural income is non-farm, and plenty of opportunities exist to get more out of the sector in terms of food processing, cold chains, export and the like.


Ghosh of SBI was emphatic that the pandemic has actually provided a stimulus to the rural sector, stating that people sitting at home are consuming cereals and food item boosting rural income.  He was, however, concerned that in the past two months, Covid has spread to a large extent in states like Maharashtra and Andhra Pradesh, where the spread was more accentuated in the villages than in cities. Besides, not all sectors are doing well, a case in point being milk, which had to be dumped by farmers in Maharashtra for the unremunerative prices it was fetching


On the issue of doubling farm income, Roy of NIPFP said there were several aspects to it. At the operational level, farm incomes could be ramped up if input costs were reduced and the middleman's share was pared. On the supply side, perishability of produce could be minimised with the introduction of infrastructure like warehousing and cold chain.

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