How did India’s rural economy fare through the COVID-19 lockdown and the re-opening?

Results from a series of household surveys across six states

The strict lockdown imposed by the Government of India on March 24 brought most economic activity to a hard stop. The extent to which the economy would be able to bounce back following re-opening efforts has remained unclear in the absence of reliable and timely data. We present the effects of “Unlock 1.0”[on rural economic activity using two rounds of household surveys from Uttar Pradesh, Rajasthan, Madhya Pradesh, Bihar, Jharkhand, and Andhra Pradesh  in May and July 2020.

Experts were justifiably concerned in April about the ability of farmers to prepare for the Kharif (summer or monsoon crop) season amidst the pandemic and related mobility restrictions. However, data from the survey presents grounds for measured optimism with respect to agriculture. There has been a 7 percent increase in planned land for Kharif cultivation this monsoon compared to the last monsoon. This increase is consistent across all six states surveyed, as illustrated below. The results are based on responses from 2731 agricultural households that participated in the survey round in July 2020.

Farmers report an increase in planned land for Kharif cultivation since the last monsoon

Our regional results corroborate evidence at the national level indicating a 13.9 percent increase in sowing area under Kharif cultivation this year, compared to last year. The increase in land under cultivation may have been driven by the increased availability of household labor due to returning migrants and possible decisions to use what may have been fallow land in previous years. In the light of the increase in planned production, the Governor of the RBI has described agriculture as a “beacon of hope amid the encircling gloom.”

However, more data is required to understand whether this reflects deeper problems in the form of a reallocation of labor towards agriculture as other sectors contract amidst the pandemic.

Agricultural households report a decline in fertilizer expenditure and borrowing compared to last year

Agricultural households have reported a 7 percent decline in expenditure on all fertilizers in 2020 compared to the 2019 sowing season.  Smaller farmers seem to have increased the scale of operations compared to the last Kharif, with a 10.6 percent increase in land under cultivation and a 27.8 percent increase in fertilizer expenditure. While a majority – 58 percent of the respondents reported no difficulties buying fertilizers, 17 percent reported challenges such as limited stock and 18 percent felt they were being overcharged by retailers. This could point to a possible shift in the supply curve and a resultant increase in fertilizer prices. However, these increased prices and judicious use of fertilizers by larger farmers during this period are plausible explanations that require further verification.

The survey also indicated that in 2020 agricultural borrowing by these households declined by 19 percent compared to 2019, irrespective of changes in acreage and fertilizer expenditure. The decline in borrowing for agricultural production also aligns with the RBI’s report on credit growth in agricultural and allied sectors, which shows a lower year-on-year growth of 2.4 percent in June 2020 compared to 8.7 percent in June 2019.

This could also possibly point to adequate alternative sources of financing from savings and social transfers.

The median respondent in our survey lost 57 percent of their weekly earnings between March and May 2020. However, recovery in weekly earnings in July 2020 reached one-third of the pre-lockdown levels of March, as indicated in the figure below. On the other hand, weekly work frequency has barely improved since May and remains well below the pre-lockdown average.

The unemployment share in July remains higher than that in March 2020

It is important to note that the improvement in earnings illustrated above only represents the situation among individuals who reported any employment in March, May and July 2020. In order to get a complete picture of the rural labor market, it is necessary to track unemployment shares as well. Since the re-opening, unemployment rates have reduced from 70 percent in May to 40 percent in July. However, the unemployment rate in July 2020 remains more than double the 18 percent share reported in March in our survey sample.

A recovery driven by self-employment for non-agricultural households

As illustrated in the figure below, most of the recovery in work frequency seems to be driven by self-employed individuals in the non-agricultural sector. This is possibly because small stores were the first to resume business following the initial reopening mandate in June.

Overall, our results affirm the emerging narrative of the importance of the agricultural sector in keeping India’s rural economy afloat in the year of the pandemic.  The decline in expenditure on agricultural inputs requires further exploration to determine the extent to which this may impact food production in the ongoing kharif season. While there are some signs of recovery in rural labor markets, unemployment remains substantially higher than that in March 2020. This suggests a continued need for relief and job assistance programs to prevent economic distress.