Second COVID Wave to Stunt Rural Demand And Overall Growth of Economy

Covid's second wave is expected to stunt rural demand, consequently, marginally dampening India's 2021 growth prospects.

According to economic observers, the heavy impact of pandemic in rural areas, as well as rise in healthcare and other associated costs, will slow down rural demand.

Significantly, this will impact sectors ranging from two-wheelers, tractors, cement and consumer durables amongst others.

"Agricultural production will remain robust but rural consumption may get impacted due to spread of Covid," India Ratings' Principal Economist Sunil Kumar Sinha.

As of now, India suffers from a massive spike in Covid-19 infections. The latest spike has brought in record number of patients, thereby, impeding healthcare infrastructure's ability to deal with the surge.

Consequently, the situation has forced state governments to implement local lockdowns and travel restrictions which have started to slowdown economic activity.

"Rural demand may be dented given the high health expenses related to Covid-19," said Aditi Nayar, Chief Economist at ICRA.

"However, a normal monsoon will be a palliative over the remainder of the year."

In terms of growth impact from a slower rural demand, Emkay's Lead Economist Madhavi Arora said factors such as better adapted firms and policy response, stable financial conditions, vaccine drive, pent-up demand release and robust global growth spillovers create growth buffers.

"Assuming Covid-II peaks in May'21 and restrictions ease by Q2FY22, we mark down our FY22 GDP forecast to 9.9 per cent from 11 per cent earlier, with a further downward bias."

Besides, any impact on agricultural production will flare-up inflation dashing hopes of any policy easing as well as credit growth of the sector.

However, healthy monsoon season as well as the declining trend of second wave especially before the sowing season will arrest the fall in rural demand.

"India is likely to receive normal south west monsoon seasonal rainfall as predicted by IMD which raises the prospects of good harvests. However, the spread of the Covid-19 to the rural areas is a cause of greater concern," said Arun Singh, Global Chief Economist, Dun & Bradstreet.

"The poor state of rural health infrastructure and the influx of migrant labourers owing to various restrictions in urban areas could possibly offset a larger share of the gains from the good agriculture output."

According to Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research: "There is a forecast of a timely and adequate monsoon in the current year which we expect will help to maintain healthy agricultural growth in FY22. While the spread of Covid 2.0 in rural areas may impact the agricultural sector, the extent will depend on the duration of the pandemic wave."

"If the pandemic intensity continues in the sowing season in June-July, there may be a potential impact on the Kharif crop but it is difficult to ascertain that at this stage."