The rural economy can jump-start a revival
- The second wave of the COVID-19 pandemic could be slowly receding as per official estimate.
- The economy is also very gradually getting back to normal, with many States beginning to ease some of the restrictions imposed in their lockdowns.
CHALLENGES YET TO BE FACED
- Despite the official claims on economic recovery, the challenge of an economic recovery is far more serious than the health pandemic.
- As per the recent estimates by National Statistical Office (NSO) on Indian Gross Domestic Product (GDP) growth for the fiscal year 2020-21, was slightly better than expectation.
- But this can be attributed to the gross underestimate of the reality given the methodological issue of underestimation of the economic distress in the unorganised sector.
WHAT MAKES THINGS WORSE?
- Recent decline followed three years of sharp decline in GDP even before the novel coronavirus pandemic hit the country, making economic recovery challenging.
- Economic growth had already decelerated to 4% in 2019-20, less than half from the high of 8.3% in 2016-17.
- Adding on to these, the recent pandemic has only worsened an already fragile economic situation.
- Hence, the sharp decline in GDP was partly a result of the trend of a slowdown in economic activity since 2016-17.
- But a large part of this decline is also a result of a mishandling of the economic situation during the pandemic.
INADEQUATE RESPONSE FROM THE GOVERNMENT
- The Government failed in increasing fiscal support to revive demand in the economy, while the country was under strict lockdowns.
- Many of the grand announcements remained largely on the monetary side without the enabling policy framework to help small and medium enterprises as well as the large unorganised sector which bore the brunt of the restrictions in economic activity.
RESCUED BY RESILIENCE OF RURAL ECONOMY (AGRICULTURE)
- The resilience of the rural economy, particularly the agricultural sector, has been an important contributor to the better-than-expected economic performance, despite the lack of fiscal support.
- Agriculture was the only major sector (other than electricity, gas, water supply and other utility services) which reported an increase in Gross Value Added (GVA) in 2020-21, withstanding the flow of huge masses of returning migrants.
- It not only provided jobs to returning migrants but also sustained the economy in the rural areas.
- Agriculture has not only been the biggest saviour during the period of the pandemic but has consistently been an important driver of the economy throughout the last five years which has seen the economy slow down sharply.
- The average growth rate in agriculture GVA in the last five years, at 4.8%, is significantly higher than the GVA growth of the economy as a whole, at 3.6%, in the last five years.
THREATS ON RURAL ECONOMY
- The impact of declining incomes and job losses on demand is now already visible even in rural areas.
- Rising inflation further threatens to reduce the purchasing power of the rural economy struggling with declining incomes and job losses.
- This is further compounded by the shift in terms of trade against agriculture which has put agricultural incomes under strain.
- The rising price of agricultural inputs like diesel, fertilisers in recent times have added to the misery of farmers.
- Rising inflation in international commodity prices also threatens the rural non-farm economy.
- Despite these setbacks, the rural economy including the agricultural economy continues to remain crucial for any strategy of economic revival.
- But for that, it will require proactive intervention from the Government to protect the rural population by speeding up vaccination.
- At the same time, rural areas will also need greater fiscal support-
- in terms of direct income support to revive demand in the economy
- also through various subsidies and protection from the rising inflation in input prices.
This urgent intervention is not just necessary to support economic revival but also prevent another humanitarian crisis, this time as a result of economic mismanagement.
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