Prime Minister Narendra Modi
rightly noted last week that the economic impact of the Covid-19 pandemic was “huge”. The economy is expected to have contracted by around 8 per cent in 2020-21 and the anticipated recovery in the current fiscal year has been derailed by the second wave of the pandemic. Most states have imposed restrictions on public mobility to contain the infection. Although the impact of lockdowns is less severe than last year, the second wave has significantly delayed full economic recovery.
While the number of cases is coming down, what is worrying is — unlike last year — the pandemic has also spread to rural areas. This can not only make containment more difficult but also impede economic recovery.
The rural economy
was a bright spot during the first wave of the pandemic, supported by robust activity in the farm sector. The agriculture
sector is estimated to have grown by 3 per cent during last fiscal year despite the strong base of the year previous to that. The monsoon is likely to be normal this year as well, and the farm sector is expected to do well. But this may not be enough to absorb the wider economic shock — the second time in two years. The spread of the pandemic might also affect activity, both on the field and in mandis. Besides, it’s important to note that the rural economy
is much bigger than the agriculture
sector. As NITI Aayog Member Ramesh Chand and others showed in a 2017 paper, rural India
generates about half the national income and the bulk of the employment.
Apart from all agricultural produce, it accounts for about half the manufacturing and construction output.
Therefore, the spread of the pandemic in rural areas could have a large impact on both output and demand. The unemployment rate in rural areas has risen sharply in recent weeks to double digits, according to the Centre for Monitoring Indian Economy
data. Further, disruption in economic activity in urban areas has once again resulted in mass reverse migration. In fact, migrant workers
from the agriculture
sector may also have gone back to their villages like last year, pushing up rural wages. Thus, it is likely that rural India
will see a large labour demand-supply mismatch in different areas, which can affect production. But at the aggregate level, the employment
situation is reflected by demand for work under the Mahatma Gandhi National Rural Employment
Guarantee Act. About 27.3 million households demanded work under the scheme in April this year compared with 21 million in 2019-20. Higher unemployment and lower remittances are expected to keep demand in rural areas muted.
However, employment and income are not the only problems. Large parts of rural India
are also suffering because of the near absence of medical infrastructure. Since reporting is not robust enough, the real damage will perhaps remain unknown for a long time. The requirement of registration and appointment for vaccination has put a large chunk of the rural population in a disadvantageous position. There is also a fair bit of vaccine hesitancy. Thus, despite the possibility of a good monsoon, rural India is suffering at multiple levels. As the vaccine supply improves, the government will need to make sure that rural India gets its fair share and vaccine hesitancy is adequately addressed. This will not only improve local activity but also encourage the return of migrant workers
to their workplaces.