Agriculture GDP growth this year to beat 5 year average; rural India holds key to economic recovery

Date:07-17-2020

Rural India will be key to economic recovery this year even as coronavirus continues to take a toll on the economy. With a good monsoon, GDP growth in agriculture is set to beat a five year average, a report said on Thursday. 

“While the continued increase in the absolute number of confirmed infections remains a worry, policymakers have recently spoken optimistically about the prospects for an economic recovery, led by the rural sector,” a report by Barclays said. 

This year, India has received healthy monsoon rainfall so far and the July and August showers are crucial for crop sowing. Moreover, a higher water availability also augurs well for agriculture this year.

“A strong start to the monsoon season, high levels of water availability, record sowing levels and rising rural spending indicate that the rural sector is doing well, which could continue for rest of the year,” the report said. 

Combined together, India is expected to register nominal GDP growth of almost 13% this year, which is more than the last five-year average of 9%. Thanks to this, rural incomes are also expected to hike. 

Overall, rural India is likely to get an additional income of $17 billion, which is over and above recent historical trends. Rural India’s income is also directly linked with consumption, hence private consumption may also get a boost of $12 billion, the report said. A degrowth in rural income had a detrimental effect on consumption last year which also slowed down the growth of sectors such as FMCG, automobiles etc.

With agriculture promising strong growth this year, India’s overall economy may also find a breather which is currently facing the headwinds of economic shutdown due to coronavirus. 

“A stronger rural sector should mitigate, but not fully offset, the ongoing economic damage caused by the COVID-19 crisis. Ultimately, health care management and disease resolution will dictate the pace of the economy’s return to normal. The signs here remain for a very gradual improvement,” the report said. Many ratings agencies have however downgraded India’s GDP outlook for this year.