Key experts have cautioned that euphoria over Bharat sustaining India may not last much longer with structural problems still afflicting rural areas. They were speaking on Wednesday at a webinar — Unlock BFSI 2.0 — the first in the series organised by the Business Standard.
At the panel discussion, titled– Will Rural India Be the New Driver of Growth ?–Pronab Sen, former chief statistician and now country director at International Growth Centre, said it is a misconception that all of rural India is doing well amid the outbreak of Covid-19. The discussions were moderated by Tamal Bandopadhyay, Consulting Editor, Business Standard.
Pegging remittance loss to rural India at Rs 60,000 crore in four months, Sen said, “Part of the villages dependent on remittances will not do as well as those six states where bulk of the procurement takes place. We tend to club all the rural India in one basket.”
Pranjul Bhandari, chief India economist at HSBC, said, “Once the kharif season is over after October-November, the sheen of rural demand will be over and rural wage growth may not sustain.”
She said as long as urban India does not pick up, rural India will also suffer. She further said that a weak financial sector will also impact growth in rural India.
Sonal Varma, managing director and chief economist (India and Asia ex-Japan) at Nomura warned that the rural revival theme should notbe overplayed.
“Unless the construction activities bounce, it remains hard to see a pickup in the rural activity. Till now, there hasn’t been any acceleration in rural wages and land prices have also remained lacklustre,” she said.
Rathin Roy, the outgoing director of National Institute of Public Finance and Policy, said while manufacturing and services sectors have tanked, agriculture has not because of which it will form a much larger part of GDP in 2020-21.
“I would hope that even if Covid-19 affects rural India, it will not diminish output. This is partly due to high unemployment in rural India. Even if 20 per cent of the workforce cannot go to work, they can be replaced by those seeking work,” he said.
Sajjid Chinoy, chief economist at JP Morgan, said agriculture may not be the solution to rural woes since it nowadays constitutes less than 40 per cent of the rural consumption.
“A lot of the consumption that has been celebrated in the last 5 years has happened on the back of debt as households accrued debt and ran down their savings. If you believe the current economic shock is going to be quasi-permanent, then that behaviour should reverse as households become more cautious and savings go up,” Chinoy said. As a result, consumption will be hit harder, he cautioned.
Chinoy, however, said the terms of trade were slowly moving in favour of the farm sector. “For the last 4 years, agriculture has grown at 4.8 per on average. This was less than 1 per cent in the previous four years. The reason why rural economy was depressed was that despite good production, food inflation was zero per cent.” Now, for the past 12 months, it has been more than 7 per cent,” he said.
Soumya Kanti Ghosh, group chief economic advisor at the State Bank of India, said allied activities are cornerstone of rural parts and unless that is revived, rural economy won’t revive on a sustained basis.
Pointing out that urban income is 1.8 times the rural income, he said unless urban area recovers, it would not help the economy much.
Speaking on the Rs 1 trillion fund announced by Prime Minister Narendra Modi, Sen said areas such as warehouses require human capital and not much will change unless that comes around. Ghosh said that while 24 per cent of the fund is for the power sector, there is still no proper policy for the sector and discoms are bleeding dry.
Roy said that committing finances to the rural sector was not enough unless there is a strategy on how to spend the money. He spoke of a need to eliminate middlemen in farm markets and reduce the cost of input for farmers.
Sen said it is a misnomer that India is a food surplus economy as there is a deficit in the rural economy.
He said that while bigger companies are also relocating to rural India, there is dearth of governance structure to understand the non-farm sector there.
Varma listed food processing and the targeted exploitation of the export market as possible policy measures, apart from comprehensive end to end reforms in agriculture, that can boost rural boost in the medium term.
To a query over farm debt waiver, Soumya said it should be legally banned in the Indian context.
On the spread of the coronavirus to newer areas, Sen said problem is not so much rural India, but small towns where Covid-19 can hit hard.
When asked for their estimates of GDP contraction for FY21, Sen pegged it at 11-13 per cent, Ghosh at 6.8 per cent, Bhandari at 7.2 per cent, Chinoy at 6-7 per cent and Varma at over 6 per cent. Roy refrained from projecting the number at constant prices, but pegged the contraction of GDP at current prices at 13-17 per cent. The experts, however, put riders on their projections.