Signs of revival in rural India indicate recovery for the economy
With agriculture contributing about 16% to the country’s gross domestic product, what happens in the sector determines not only Modi’s election fate, but also growth prospects for the $2.3 trillion economy.business Updated: Mar 15, 2018 12:36 IST
Shankar K.C.’s wife pawned her jewelry to help pay for a new red tractor, which the 46-year-old farmer parks in his courtyard as a symbol of his prosperity.
Encouraged by relatively good rains, better prices for his grain and vegetable crops and a state government subsidy for the cow milk he sells, Shankar scraped together a deposit of 300,000 rupees ($4,627) and got bank finance for a matching amount to make his biggest-ever purchase. Premlatha was so confident that her husband would make enough money from their small-scale farm to buy back her jewels that she didn’t protest.
Both of them were beaming with pride as they spoke about their fresh acquisition, sitting in their living room furnished with just a cot and an old-style television. “We wanted to buy a tractor for a long time but had no money,” said Shankar. “Life has improved -- I can supplement my income by renting out the tractor to other farmers.”
Shankar is one of the 300 inhabitants of Kuragunda village in the southern, largely rural state of Karnataka, enjoying early signs of a recovery in the agricultural sector. If sustained, it could bode a turnaround from years of distress in rural India since Prime Minister Narendra Modi came to power in 2014 and bolster his re-election chances next year.
At Vijaya Farm Equipments, a dealer of Mahindra Tractors where Shankar bought his vehicle, the mood is upbeat. The showroom doubled its sales in February from a year ago, underscoring figures from Mahindra & Mahindra Ltd., India’s largest tractor maker, where sales jumped 39 percent that month.
“This year has been a positive one and the tractor industry growth is riding on the cash liquidity in the farmers’ hands due to a good crop, government support to the sector and a push towards building rural infrastructure,” said Rajesh Jejurikar, president of the farm equipment sector at Mahindra & Mahindra.
A Bloomberg Economics index that tracks the rural economy shows tractor and two-wheeler sales are up and the government is spending more. Monsoon rains are set for a third good year -- another sign of hope for an industry that was beset by back-to-back droughts followed by a disruptive cash ban in late 2016.
“A revival in rural activity bodes well for the broader growth recovery,” said Abhishek Gupta, an economist at Bloomberg Economics in Mumbai. “It is likely to boost the equity returns of agrarian and rural consumption stocks. And with nearly two-thirds of India’s population residing in rural areas, a recovery is likely to enhance political stability by improving Modi’s chances of re-election next year.”
After sweeping to victory with the help of the rural vote, Modi’s popularity has taken a knock as farming incomes slumped, debts piled up, joblessness rose and suicides climbed.
Hit by criticism that he’d neglected his rural base and after his party’s worst electoral showing in two decades in his home state of Gujarat, Modi has set out on a course of correction. He has pledged to double farmers’ incomes by 2022, raise the support prices on additional crops and spend more on irrigation and infrastructure in rural areas. On Wednesday, the government agreed to extend a fertilizer subsidy program until 2020. Farm loan waivers by some state governments are also helping.
“Life has started returning to normal now,” Laxmi Narayan Gowda, a 48-year-old farmer, said on the side of the road in Kuragunda village. “It’s not the best situation but people are able to spend on marriages, buying goods and building houses.”
With almost 70 percent of India’s 1.3 billion people living in rural villages and agriculture contributing about 16 percent of gross domestic product, what happens in the sector determines not only Modi’s election fate, but also growth prospects for the $2.3 trillion economy. The CSO is forecasting expansion of 6.6 percent in the year through March, slightly above its earlier estimate of 6.5 percent, while the RBI expects government programs to boost rural incomes and investment will help underpin demand.
Consumer goods companies such as Marico Ltd., Eveready Industries India Ltd., and Godrej Consumer Products Ltd. saw traction in rural sales in the December quarter and expect further growth in coming months.
Britannia Industries Ltd. has witnessed higher growth in rural markets compared to urban markets, India’s most valuable cookie maker said by email. The company expects rural sales to account for 40 percent of its revenue in the next two years, up from 30 percent now, as the government’s support helps to boost consumers’ disposable income.
For many in rural India though, recovery remains elusive. Nearly 50,000 farmers marched to the financial capital of Mumbai on Monday demanding loan waivers and higher crop prices.
“Sales numbers are an indicator of change but not an indicator of the condition of agriculture or rural economy,” said Narendra Pani, a professor at the National Institute of Advanced Studies in Bengaluru. Doubling farmers’ income would be an electoral boost, but doing so may be a tall order, he said.
India’s biggest maker of consumer products, Hindustan Unilever Ltd, the local unit of Unilever NV, said while there’s a pick-up underway, it would wait for another two quarters before concluding that the rural market’s out-performance over urban areas was here to stay.
Good rains will be key. The meteorological department hasn’t given an official forecast yet, but Bloomberg Economics’ analysis, based on forecasts for El Nino and La Nina weather patterns, shows favorable conditions.
“Hopefully my income will double to 100,000 rupees this year,” Shankar said, counting on favorable rainfall to help pay off his debts quickly so he can buy another tractor in three years. “I’ll be able to give a better future to my children.”