India’s rural economy is resurgent and seems least affected by the Covid-19 disruption and its economic pains. It is also providing the reassurance of food security. Admittedly, rural India is leading from the front with a much faster demand pickup compared with urban areas.
The rural economy looks more promising at this point. In winters, a favourable climate resulted in a bumper rabi crop. The monsoon rains have been good this season, which means the forthcoming Kharif harvest too would be bountiful. Latest tractor sales data showed solid 12 per cent year-on-year growth in June, after an 80 per cent contraction in April. Similarly, the area sown under summer crops in June was double that of the same period last year. Fertiliser consumption grew sharply in April-June. All these are signs that the rural economy is back on track.
Consumption is the bedrock of an economy, and the rural sector is the biggest driver of that pillar of growth for India, given the size of the rural population. Thus, growth and development of rural economy is a key to overall growth and inclusive development of the nation.
The economic package announced by the government, a favourable start to the monsoon, enhanced sowing activities, higher MSP and aggressive use of the MGNREGS scheme as well as recent Garib Kalyan Rozgar Abhiyan have all helped engage rural India and bring the unemployment rate down. Increasing government procurement of food grains, and that too at pretty high minimum support prices, means most farmers have money to spend. Besides, the government has also amendment the Essential Commodities Act (ECA) to promote freedom to farmer to produce, hold, move, distribute, supply and attract the private sector, as well foreign direct investment, into agriculture. Additionally, a good portion of the multiple tranche of Atmanirbhar Bharat reforms is a mix of massive funds, as well as structural reforms, which aims to rejuvenate India’s rural ecosystem.
The government intends to remove restrictions on API (agroprocessing industries) procurement to set up cold storage for agro-processing units. A rough estimates shows the central government has also scaled up spending on rural development programmes by 2.3 times in April-May against the same period last year. Moreover, a renewed impetus on food processing, livestock, fisheries, dairy, warehousing and logistics and non-agricultural pursuits is expected to glide rural India into a promising future.
If all things fall in place, there could be a fundamental shift in India’s rural-urban dynamics and it will lead to overall demand improvement and give a fillip to the economy. Timely intervention by Central and state governments in this sector has resulted in good results.
Besides good monsoon and government initiatives, what has also helped rural India to emerge has been the return of migrant labourers, who left the cities after the lockdown. They have become an additional shot the arm for the rural economy.
From a stock investor’s perspective, the rural India’s emergence may be a better investment theme for the near term. Among the key rural-facing sectors of the economy are fertilizer, two-wheelers and tractors and FMCG. Investors may look at stocks such as Britannia, Chambal Fertilisers and Chemicals, Coromandel International, UPL, Hero MotoCorp, Dabur and Escorts, and they offer prospects of delivering good returns in the foreseeable future.
(DK Aggarwal is Chairman and MD, SMC Investments and Advisors.)