Ind-Ra believes rural economy revival may not offset urban demand
In the recently released report, India Ratings & Research (Ind-Ra) has expressed that despite the share of agriculture in India's gross value, which is 17 per cent, the rural demand at best can extend support to consumption demand but cannot be a substitute for urban demand.
The agency mentioned that while the industrial and service sectors are still struggling to recover from the adverse impact of COVID-19 pandemic, the agriculture sector could become an engine for the economic recovery.
It is of the view that the COVID-19 led business disruptions have been severe for the production of supply/trade channels & its activities, especially in sectors such as aviation, tourism, hotels and hospitality. As a result of this, the GDP growth of FY21 is expected to contract for the first time since 1980.
However, it added that a large part of the rural demand, notwithstanding the encouraging sales number of motorcycles/tractors in June 2020, comes from consumer non-durables.
Moreover, the rating agency expects the first quarter of 2020-21 GDP growth to come at a negative of 17.03 per cent. It also added that the current account in the June quarter is expected to record a surplus of around US$ 18 billion. It also said that one of its sectors that has not been impacted either during the lockdown or even thereafter is agriculture. Besides, it expects the agriculture sector to grow at 3.5 per cent YoY in the current fiscal year.
The agency said that after several years, the agricultural sector has witnessed three consecutive good harvests - Rabi 2019, Kharif 2019 and Rabi 2020. Moreover, it indicated that the adequate pre-monsoon rainfall, followed by the timely arrival of monsoons in most parts of the country has led to an increase in the total Kharif sowing area in 2020 in comparison to last year.
The report further stated that the rainfall and area sown so far, indicate that the country is headed towards a good 2020 Kharif harvest, notwithstanding the floods in several areas. However, it said that the flip side of high agricultural production levels could be the lower prices of agricultural commodities impacting agricultural income itself. Therefore, it said that the government needs to have a well-crafted strategy in place, both to continuously monitor the progress of the Kharif crops and prevent its further distressed sale.