Rural India - Economy’s ‘saviour’ in 2020-21

What is the issue?

2020-21 saw the Indian economy register its worst-ever contraction since Independence and also the first since 1979-80.
But rural economy was resilient, supported by various factors. Here is a look at them and the future prospects.

What is different this time?

There have been four instances of negative GDP growth earlier: 1979-80, 1972-73, 1965-66 and 1957-58.
All four were drought years.
These years saw agricultural de-growth surpassing that of overall GDP.
But in 2020-21, there has been record economic contraction, yet no drought.
And the farm sector (agriculture, forestry & fishing) actually grew by 3.6%.

What are the key reasons for this?

Monsoon - All-India rainfall during the southwest monsoon season (June-September) for 2019 and 2020 were above-normal.
The country received 971.8 mm and 961.4 mm monsoon rainfall respectively, above the long period average of 880.6 mm.
Rainfall in the post-monsoon, winter and pre-monsoon seasons of 2019 and 2020 were also good.
So, 2019-20 and 2020-21 produced back-to-back bumper harvests.
Lockdown - Agriculture was exempted from the nationwide pandemic-induced lockdown.

There was also the inherent resilience and adaptability of rural economic actors.
So, the farm sector was relatively insulated from lockdown-imposed supply-side restrictions.
[The problems agriculture encountered due to the lockdown had more to do with the demand side.
This was not from rising prices but from forced consumption reduction.]

How were the demand side problems addressed?

The demand-side problem was partly addressed through enhanced state crop procurement under MSP scheme.
There was also the first-instalment direct transfers to farmer accounts under the PM-Kisan scheme.
Both these added to the liquidity infusion into the agricultural economy.
Demand situation improved with the gradual lifting of lockdown restrictions.
[The MSP procurement intervention was not possible in non-mainstream produce. E.g. vegetables, fruits, poultry, fish, flowers, spices, etc.
It also did not help in regions (E.g. maize in Bihar) where the institutional mechanisms for procurement were non-existent.
E.g. Food Corporation of India, NAFED, Cotton Corporation of India or even cooperative dairies]

What else favoured rural economy?

There was recovery in global agri-commodity prices; better price realizations worked in farmers’ favour.
2020-21 was also notable for the record 389.35 crore person-days of employment generated under MGNREGA.
This was yet another source of liquidity infusion.
Rural consumption, in turn, provided some cushion to the economy.

Will the rural economy perform the same way in 2021-22?

Covid-19 cases - Rural areas were mostly unaffected by the pandemic’s first wave.
However, in the second wave of COVID-19, there are more cases in rural districts as well.
So, the impact on agriculture per se would depend on the spread, intensity and duration of the infection.
Monsoon - The India Meteorological Department has forecast a 74% probability of rainfall being “normal”, “above-normal” or “excess”.
The good news this time is that there is no El Niño.
There are also increased chances of a La Niña.
[It is El Niño’s counterpart and is associated with above-normal rains and lower temperatures in India for the autumn and winter months.]
That augurs well for the next rabi crop too.

The other element influencing rainfall - Indian Ocean Dipole (IOD) – is currently “neutral.”
But there is a possibility of negative conditions developing during the monsoon months.
Also, unseasonal summer showers may upset the normal heating pattern.
These factors might undermine a little the optimism with monsoon rains.
Prices - Global prices of wheat, maize, soyabean, palm oil, sugar, skimmed milk powder or cotton have scaled multi-year highs in the recent period.
This has helped India’s agri-commodity exports in 2020-21 to recover to near their peak 2013-14 levels.
But export demand alone may not sustain prices.
Especially, job and income losses, accelerated post the pandemic, have severely dented domestic purchasing power.
Also, even the benefits reaped by farmers from improved prices in many crops have been significantly eroded by rising input costs.
Diesel prices alone have gone up by over a third in the last one year.
Non-urea fertilizers prices have also gone up.

How does the future look?

Beyond 2021-22, the real challenge for Indian agriculture and farmers will be on the demand side.
That is specifically going to come from declining real incomes.
Particularly affected will be the demand for milk, pulses, egg, meat, fruits, vegetables and other protein/micronutrient-rich foods.

Source: The Indian Express