Bhartiya Economy!

All strange things are happening around the world currently. Gold and Stock markets which apparently have inverse correlation are moving north like best friends and there’s no halt, it seems. Amidst all this, another topic which is doing the rounds is the resurgence of the agriculture economy on the back of better than expected monsoon (India experienced the wettest June since 2013 according to the India Meteorological Department). One can also look at some of the agri-related stocks like Escorts, M&M, and Rallis India, to get a sense of investor’s optimism on this theme.
But, what’s perplexing, is that the Rural economy (popularly known as ‘BHARAT’) is going to revive the Indian Economy. This theory has gain prominence owing to data like tractor sales and motorcycle sales, which have been robust. Agreed, these are some encouraging signs, reflecting the drive in the rural economy, however here is a catch!!! Most of us assume that the rural economy is equivalent to agriculture, and hence believe that India’s growth story hinges on the revival of agricultural sector. But that shouldn’t be the case!

So, we have emulated some of the points to understand why BHARAT alone isn’t going to put back India onto the growth path.

  1. Rural is much more than Agri: In a note dated 20th July, Credit Suisse pointed out that the agriculture forms only c.29 per cent of the rural economy. The rest is the non-agricultural rural economy consisting of construction, manufacturing, financial services among others. In the last two decades, a bulk of new factories have come up in rural areas leading to job creation, and a gradual movement of people from agriculture to manufacturing, a more productive sector.
  2. MSME Conundrum: 50 per cent of the 63 million Micro, Small and Medium enterprises(MSMEs), which contribute to c.30 per cent of India’s GDP, are located in rural areas . That said, the pandemic has taken a heavy toll on their business, and banks, which were cautious of lending to them earlier, have become even more prudent. Moreover, out of the government’s 3 lakh crore package, 43 per cent of the total amount was SANCTIONED within the first 2 months of the announcement while disbursements as a proportion of total amount was only 27.35 per cent as on July 23.

Additionally, MSMEs play an important role in job creation in the rural areas owing to their widespread presence. However, as per Reserve Bank of India’s latest systemic risk survey, the MSME sector has been badly affected because of lack of cash flow, stuck working capital, lack of manpower, thereby affecting employment. The third national multi-institutional survey on MSMEs in India estimates that 25-30 million jobs had been lost in the MSME sector by the end of June 2020. It further estimates that another 10-15 million jobs will be lost by August.

  1. The tractor sales puzzle: Tractor sales in June was robust and was widely cited as a sign of rural recovery. There’s a saying “We shouldn’t judge the book by its cover unless we delve deep into it”. Same goes with the tractor sales. Traditionally, April to June is a tractor buying season and since April and May barely saw any sales due to the lockdown, June sales could just be a display of pent up demand. Also, one must acknowledge that tractors are too expensive for a normal farmer. In FY20, a little over 7 Lakh tractors were sold in India. Assuming an average tractor costs INR 5 Lakh, this amounts to around ₹35,000 crore. The size of the entire agriculture economy was at ₹32.6 trillion in FY20. At 1.07 per cent, tractors are an insignificant part of the overall agriculture economy and the increasing sales could mean that rich farmers are doing well. They don’t reflect the overall state of the rural economy.
  2. Spread of Coronavirus – Until now, it has been said that rural has been much better off than urban amidst the pandemic. However, post-June Covid-2019 is now spreading beyond India’s big cities to Tier-3/4 cities. And if it spreads deeper into rural areas, it could very well be a speed-breaker to the rural momentum. Moreover, different states have different medical infrastructure and thereby a limit to which they can manage the pandemic effectively, and with state finances in a dwindling situation, the government will have no other option than to reinforce local lockdowns.
  3. Declining share of agriculture – The share of agriculture in the total GDP of the country has been on a long term downtrend; falling from the peak of 42.77 per cent in1967 to 21.61 per cent in 2000 to 15.96 per cent in 2019.

From the aforementioned points, one must acknowledge the fact that BHARAT alone isn’t going to revive our economy,. Rather, it should be a combined effort of all the major sectors to restart India’s new growth phase. And, amongst all, Service sector would play a very dominant role because of its lion’s share in India’s GDP at 49.88 per cent in 2019, rising from 45.98 per cent in 2009.

Source: Livemint,,

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