Rural demand to remain muted due to Covid-19: Ind-Ra
- India Ratings said even if agricultural output and income remain intact, there is a strong likelihood that the expenditure pattern of rural households will be muted.
The economic impact of the second Covid wave will be felt more through loss of demand impulse in rural India than in urban India, even though the India Meteorological Department has forecast a near-normal monsoon, India Ratings and Research said on Thursday.
“While demand for agricultural credit and inputs such as fertilizers and pesticides could remain strong in view of third consecutive year of near-normal monsoon, the demand for FMCG products and automobiles, especially tractors and two-wheelers, is expected to suffer,” the rating agency said.
The first wave was largely an urban phenomenon, despite the large-scale reverse labour migration. However, during the ongoing second wave, the highly infectious mutated strain of the virus has already spread to rural India. Health ministry statistics show that the country’s 394 districts out of 718 had a case positivity rate of over 10% as on 20 May.
“Such a high rate of positivity is being recorded even when the level of testing is low in rural India. This means that the pandemic in many areas may be spreading and/or has already spread without getting adequately captured in official statistics. This may result in inadequate government intervention to contain the pandemic and higher fatality,” the rating agency added.
India Ratings said even if agricultural output and income remain intact, there is a strong likelihood that the expenditure pattern of rural households will be muted.
“With rising covid infections, households in rural areas would be more concerned about the rising or expected rise in health expenditure and would cut down on non-essentials,” it said. The rating agency said if rural households are compelled to take debt to meet out-of-pocket expenses on health, it can be more damaging than other types of household debt.
The second factor that will hurt rural demand is the decline in non-agricultural activities, as most of them require high human contact.
The third factor, according to the agency that will impact rural expenditure unfavourably in FY22, is rural wages.