It Takes Two

Context: Amid economic distress, while the pickup in rural areas has been swifter than in the urban centres, it must be accompanied by the recovery of urban economic activity too.

Reasons for faster recovery in Rural Areas

• Healthy Performance of Farm Sector:

• Reasons:

• Good Rabi harvest:  5.6 %increase from last year.

• Favourable monsoon:  Rains were 7 % above the long-term average.

• Increase in total area under Kharif coverage: 9 % increase as compared to the previous year

• High Food Inflation

• Growth Projection: 

• CARE Ratings has predicted a growth of 3.5% in the first quarter of the current financial year.

• Likely to register positive growth even as the rest of the economy (barring the government sector) contracts.

• Higher allocations to the MGNREGA: This led to a sharp drop in rural unemployment. 

Concerns

• Inadequate Agriculture growth: Farm sector Growth is unlikely to offset the economic losses suffered by other sectors
• The declining share of agriculture in rural household incomes
• Muted wage growth
• Deteriorating Urban Economy: Heightened risk aversion, self-imposed restrictions, and localized lockdowns in urban areas impinge upon rural economic activity as well.