Even in the March 2020 quarter, while India’s GDP grew by only 3.1%, the resilient agricultural sector grew by a solid 5.9%, followed by a 3.4% growth in the June 2020 quarter, despite a contraction in overall GDP.
Hero MotoCorp, the world’s largest two wheeler manufacturer, reported domestic sales at 7.16 lakh units in September 2020, compared to September 2019, a 16.9% growth year on year (YoY). In June, at the height of the raging Covid pandemic, Hero reported sales of 4.51 lakh units, a superb 300% growth, compared to May. In February this year, the two-wheeler major had posted sales of 4.98 lakh units. This implies, despite the worst pandemic in 102 years, the two wheeler giant achieved almost 91% of its pre-Covid sales in June. Over 65% of Hero’s sales come from rural areas, which is a vindication of how India’s rural economy is leading the momentum.
Hero is not alone. In July 2020, M&M, the tractor behemoth, which derives over 50% sales from rural India, reported 28% growth in domestic sales—the best in 19 months. M&M’s tractor sales jumped 77% in September this year, versus, August. Domestic tractor sales in September 2020 were at 42,361 units, up 18% compared to September 2019. Clearly, what the aforesaid numbers by companies that rely largely on the agrarian sector, indicate, is the fact that the coronavirus has barely dented the rural juggernaut, which has been holding its own, rather valiantly.
Why and how is rural India powering the economic recovery that is underway? Is it just pent-up demand of the lockdown period or something more? Better farmer sentiment due to a good monsoon, robust Kharif sowing, better rural cash flows owing to record crop output and crop prices, good Rabi harvest and excellent availability of retail finance, thanks to a plethora of measures under the transformative “Atmanirbhar Bharat” package, of the Modi government, have fuelled the rural consumption story. Likes of Escorts, another tractor manufacturer, recently said that its inventory levels are the lowest ever and it had to run multiple shifts to achieve production at 90% of capacity. Even fertiliser consumption grew sharply by 71% in April-June, as against only 20%, in the same period last year. What these myriad data points vindicate is that, in the current Covid inflicted times, the heavy lifting is being done by the rural economy.
The front-loading of rural expenditure by the Modi government, with impetus on job creation and wages, touched a record high under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Notably, of the 40 million rural families that demanded work under the MGNREGS, 33 million received work in June 2020 quarter—a massive 7 times the average of last year. Even otherwise, spending on rural development programmes in April and May was up 2.3 times, versus the same period last year. MGNREGS, with a total outlay of over Rs 1.01 lakh crore, will help in generating 300 crore man days of employment, to help the rural poor and migrant workers.
Better farm output will cushion the impact of a slowdown, as Covid-19 pandemic roils economic activity, globally. The silver lining is, the farm sector in India is poised to grow by over 3% in FY21. Even in the March 2020 quarter, while India’s GDP grew by only 3.1%, the resilient agricultural sector grew by a solid 5.9%, followed by a 3.4% growth in the June 2020 quarter, despite a contraction in overall GDP.
Buoyed by a good monsoon, farmers planted kharif crops in 58.6 million hectares until mid July this year, compared to 40.2 million hectares last year, a 45% jump. Farmers have sown paddy on 12 million hectares, up 25% from last year. The area under cotton stands at 10.4 million hectares, compared to last year’s 7.7 million. Oilseeds are at 13.9 million hectares, against 7.5 million last year. Pulses acreage is at a record 6.4 million hectares, sharply higher than 2.4 million hectares in 2019. Again, total live storage in July, in 123 reservoirs was at 32% of the full reservoir level, well above the average of 21% seen in last 10 years and also, well above the 17% number of July 2019.
It is worth mentioning here that schemes like Prime Minister Narendra Modi’s pathbreaking, PM-Kisan Yojana, which was launched to provide income support by way of direct cash transfers to all landholding farmers, has enhanced rural purchasing power. The scheme provided over Rs 90,000 crore to more than 10 crore farmers since its launch in December 2018, with 22,000 crore provided during the lockdown alone. The Agriculture Infrastructure Fund with a duration till 2029, aims to provide debt financing for investment in projects for post harvest management and community farming. Under the fund, Rs 1 lakh crore will be sanctioned, with 3% interest subvention and credit guarantee of up to Rs 2 crore will be provided to beneficiaries, to increase viability of projects.
Payment to the farmers for oilseeds and copra increased by 10 times from Rs 2,460 crore, to Rs 25,000 crore, during the last five years under the Modi government, in comparison to the period from 2009-10 to 2013-14, under an inept Congress-led UPA. Procurement of wheat via 21,869 centres from farmers for Rabi 2020, touched all-time high of 382 lakh metric tonnes (LMT). All over India, 42 lakh farmers were paid Rs 73,500 crore, towards MSP for wheat in the Rabi 2020 season, with Madhya Pradesh becoming largest contributor to the Central pool with 129 LMT wheat, surpassing Punjab which procured 127 LMT. During the same period, 119 lakh MT paddy was also procured by the government agencies through 13, 606 purchase centres. In the current kharif marketing season (KMS of FY21), 107 LMT of paddy has already been procured at MSP, from 9. 37 lakh farmers, for Rs 20,180 crore. Purchase centres for wheat and pulses and oilseeds saw an increase of 1.5 and 2.75 times, respectively in 2020, facilitating the purchase from the farmers. There was an increase of 59.2% in the procurement of paddy in 2019 when compared to 2014-15.
In the Kharif season this year, procurement from eastern and northeastern regions alone has been to the tune of 89.5 LMT, benefiting more than 18 lakh farmers.
MSP payment to farmers for paddy has increased by 2.4 times to Rs 4.95 lakh crore, from Rs 2.06 lakh crore, during the last five years under the Modi government, in comparison to the period from 2009-10 to 2013-14, when an incompetent Congress-led UPA was in power. Payment to farmers for wheat has increased by 1.77 times during the aforesaid periods in comparison, from Rs 1.68 lakh crore under UPA-2, to Rs 2.97 lakh crore under Modi government. For pulses, the MSP payment to farmers went up by 75 times during the last five years under the Modi government, in comparison to the period when Congress led UPA, was at the helm, to Rs 49,000 crore, from Rs 645 crore. For all the tall and false claims made by Rahul Gandhi, the hard truth is that under the dynamic leadership of Prime Minister Narendra Modi, farmers have become richer, are spending more and that obviously is fuelling rural consumption, which in turn is powering agrarian GDP growth.
Farm income is estimated to grow by 10-11% in 2020-21. Incremental agricultural GDP is estimated to increase by over Rs 3.4 lakh crore in FY21 and by over Rs 3.3 lakh crore in FY20, compared to an increase of only Rs 1.3 lakh crore in FY19. While most rural economic indicators have improved, rural wage growth is soft and should improve once construction sector picks up pace, after complete “Unlocking”.
Decision by NABARD to extend refinance support of Rs 30,000 crore by way of crop loans, emergency working capital and post harvest funding for farmers, over and above the Rs 90,000 crore to be provided via the normal refinance route during FY21, has helped significantly. Over 3 crore farmers with agricultural loans of Rs 4.22 lakh crore have also availed benefits of loan moratorium.
Nearly 25 lakh new Kisan Credit Cards (KCCs) with a loan limit of Rs 25, 000 per head, have enabed farmers during the lockdown, to gain access to institutional credit at concessional rates of interest. A special drive to provide credit flow of Rs 2 lakh crore, to over 2. 5 crore farmers, fishermen and animal husbandry workers has given the rural economy, the much needed stimulus. Suffice to conclude by saying that the historic decision by Prime Minister Narendra Modi, in May 2020, to legalise contract farming and defang the Agricultural Produce Marketing Committee (APMC) Act and the Essential Commodities Act of 1955, have unshackled India’s agrarian economy. So far, in most parts of the country, farmers could not directly sell their produce to consumers or food processing companies, but had to go through a licenced trader. But that is history now. Farmers do not have to depend on middlemen and now have the freedom to sell their produce to whomsoever they wish to, at the price they deem fit, with no artificial quotas on the quantities they can sell. Vegetables and fruits and other perishables not covered by MSP, stand to benefit from the new farm legislations, by way of lower price volatility. Punjab levies an aggregate tax of 8.5% of the MSP at which the FCI and other agencies buy grains. Pan-India average is to the tune of 6-6.5% of MSP. New farm laws that seek to put more money in the hands of farmers, by reducing and rationalising the aforesaid state levies, are a godsend for the rural economy.
The fact that it is not just autos or tractors, but even fast moving consumer goods (FMCG) companies, that are seeing demand revival, corroborates, the rural recovery led theme. For instance, Britannia which derives over 40% of its sales from rural India, reported a 12% topline growth and a solid 23% growth in net profit, for September quarter. Colgate reported a 26.6% growth in earnings before interest, taxes, depreciation and amortization (EBITDA), while cement giant Ultratech saw a 30% rise in EBITDA, on the back of strong agrarian demand. Similarly, cement major ACC reported a 20% jump in both the bottom-line and at an EBITDA level, driven by a big uptick in rural construction activity.
“The Chalta Hai attitude held our nation’s progress hostage for a long time, I am challenging it” is a powerful quote by Prime Minister Narendra Modi, which beautifully sums up the giant strides by India’s rural economy, which is self reliant today, overcoming insurmountable challenges, thanks to socio-economic inclusivity that Modinomics signifies in more ways than one.
Sanju Verma is an economist, National Spokesperson for BJP and bestselling author of “Truth & Dare: The Modi Dynamic”.