With the number of daily cases falling below 1 lakh, the pace of vaccinations hitting around three million per day, and local blockages being lifted, recovery trackers show a slight increase. Encouraging trends can be seen in electronic waybills and toll collections, suggesting that more goods are now being transported across the country. The brightest point right now is probably exports, which are benefiting from the global recovery. Moreover, as the pandemic has hit rural India hard, the agricultural sector is expected to do well. The Center has done well in purchasing large quantities of rice and wheat – so far in MY 2020-21, more than 10% and 12% more respectively than last season. This, the Minister of Agriculture tells us, will put as much as Rs 1.53 lakh crore and Rs 82,347 crore in farmers’ pockets for rice and wheat, respectively. So while the increase in PSM – benchmark prices for a dozen kharif crops – may seem modest at 1-7%, PSMs are estimated to be at least 50% higher than fully paid costs. Indeed, the yields of producers of legumes like urad and tur, in relation to their costs, should be very interesting from 62 to 65%. With the rains coming more or less on time and expected to last until September, this is shaping up to be a promising year for agriculture.
It is the non-agricultural part of the rural economy that is of concern. There are already indications that things are not going too well. In nominal terms, rural agricultural wages increased by 7.2 percentage points following an increase of 3.8 percentage points in FY20. In contrast, rural non-farm wages increased 5.4 pp against an increase of 3.9 pp during FY20. As Nomura India chief economist Sonal Varma observes, while higher rural wages are generally good for rural demand, this time around it may not be. Varma points out that real rural wage growth was on average close to zero last year, and although opportunities under MGNREGA may have increased, workers are only earning living wages. The reason why rural wages hold up is probably because the labor force participation rate is relatively low. Indeed, rural demand this time around could be much more moderate than last year. One of the reasons is that by 2020, around 10-15 million workers were back in the villages, which increased demand. In addition, during the first lockdown, the government had spent significantly more on social protection and rural employment programs. However, since the terms of trade are expected to remain favorable for agriculture, this bodes well for farm incomes and consumer demand.
Unfortunately, agriculture cannot bail the economy out. For this to happen, the service sector needs to recover; but at first glance, it is in a while. While not entirely unexpected, the service sector PMI, the bulk of the economy, contracted in May while the manufacturing sector, with a PMI of 50.8, nearly hit the territory. positive. Since capacity utilization is only around 65%, it is unlikely that the private sector will make significant investments for at least a few years, which could lead to high unemployment. CMIE data shows that the employment rate, which fell to 35.3% in May, fell to 34.6% in early June; the participation rate fell below 40% on June 6. While industries such as IT and banking will continue to hire in large numbers, new employment opportunities will remain limited as hiring slows. CARE analysis showed that the workforce of a combined 2,723 companies grew by a compound growth rate of just 2.2% between FY2017 and FY20, with an increase in the workforce. of work from only 0.48 million to 7.54 million. A significant rebound in growth is in two or three years, but the second half should see the economy bottoming out. Unless there is a third wave.