rural economy: COVID-19 exposes impact of dichotomy in urban-rural economy

The onset of the COVID-19 pandemic has brought about a profound structural change in the Indian economy. During its first wave, India’s rural economy demonstrated extraordinary resilience to the effects of the pandemic, in stark contrast to the situation facing its urban counterpart; and it soon became evident that a two-tier economy existed during the first wave, with one sector flourishing while the other struggled to keep pace.

With agricultural activities exempted from COVID-19 restrictions, agriculture and related activities continued unhindered, allowing the rural economy to thrive. In fact, the sector recorded a growth of 3.6% in 2020-2021; mainly due to increased rural consumption, a stable monsoon season, better availability of irrigation canals and piped water facilities, as well as increased public spending on programs social assistance to strengthen the agricultural and related sectors. Meanwhile, institutions were urged to step up their grain purchasing efforts, allowing the country’s total food grain production to reach a record 305.44 million tonnes, or 2.66 percent more. than the previous year.

Traditionally, the rural economy has been the foundation of India’s economic growth, as two-thirds of its population and 70% of the workforce reside in rural areas, and the rural economy generates nearly 46% of national income. In times of economic crisis, agriculture and related sectors have been able to absorb the excess labor released into the market.

However, that all took a turn when the second wave hit the country this year. The sector’s labor absorption capacity has reached its threshold, with monthly unemployment rates in rural areas reaching an all-time high of 10.63% in May 2021. As cases started to increase in the Tier 3 and Tier 4 cities, the sector spending pattern of rural households has changed significantly due to the increase in direct spending on health services. This situation has been compounded by disruptions in remittances sent by millions of migrant workers to their home villages, which has negatively impacted rural consumption, growth and nutritional security. Supply chain disruptions have also negatively impacted sectors such as FMCG, electronics etc. which were booming in rural India during the first wave.

While measures taken to stimulate rural recovery were essential, in the long run to reduce income disparities and regional inequalities, locating industries and employment is the need of the moment. In addition to improving access to credit in the agriculture and MSME sectors through direct benefit transfers (DBT), it is also necessary to work on institutional factors and a strong governance framework for effective implementation of these policies. A renewed emphasis on the use of technology in agriculture, the promotion of financial technologies, the creation of opportunities for self-employment and entrepreneurship, as well as the construction of resilient value chains in rural and urban markets will go a long way in making the economy disaster resilient for the future.

There is no doubt that the pandemic has pushed the rural economy into a phase of massive technological upgrade with the development of e-commerce channels, with low-cost electronic items becoming essentials and cell phones becoming household necessities. for educational and other purposes. While it would have been easy to assume that the boom in the rural economy during the first wave would be enough to get India through the pandemic years, it is also clear that there is a need to strike a balance between rural and urban economies so that the country’s economic recovery can be initiated in a way that places it on a path to sustainable growth and development.

Nilachal Mishra is Partner and Head – Government Council and Health, Human and Social Services (HHSS), KPMG India.

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