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    Policy focus the biggest differentiator between rural and urban economy: Upasna Bhardwaj

    Synopsis

    ‘Rural unemployment is close to the February level while the urban rate is relatively higher.’

    Upasna Bhardwaj-Kotak-1200ETMarkets.com
    In May, we have seen a 53% pickup year-on-year in the number of man days that have been employed under MNREGA, says the Senior Economist, Kotak Mahindra Bank.

    What has given the rural economy a leg up compared to the urban economy? Was it the fact that the Covid cases in the very first phase were very low and hence the lockdown or the restrictions were the bare minimum in the rural economy?
    Absolutely right. Largely, the concentration of the Covid cases has been in the urban areas and so the semi urban and rural economy has largely been unaffected because of that. That has probably given the government a leeway to focus on that segment. To begin with, when the lockdown happened it was the rabi procurement time and apart from the initial hiccups, there was a little bit of delay in the procurement. Later on the procurement picked up pace and that was the starting point.

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    Clearly, there were much fewer Covid cases there. Then, a good monsoon was forecast which gave a leg up to kharif sowing that we are seeing currently right now. So the related segments have picked up significantly like the higher tractor sales, fertiliser sales etc.

    We are expecting the agriculture sector to do relatively well. But just to mention one thing, when we say rural economy we also need to look at the non-agricultural sector and that is where the bigger importance of the allied or the non-agricultural sources of income is, the secondary sources of income for the rural economy. All these issues, which surrounded the return of the migrant workers back home and who were initially rendered unemployed, there was a clear risk there. At least one member of a rural family would be having some secondary sources of income. Now with the government focusing on rural India and through the MNREGA pickup, some of the states which have seen an influx of migrant workers, have seen an immense amount of demand.

    Of course, the works are picking up as well. In percentage terms, in May, we have seen a 53% pickup year-on-year in the number of man days that have been employed under MNREGA, number one. Secondly the government has correctly focussed on frontloading of Rs 50,000 crore worth of spending under the Garib Kalyan Rojgar Yojana.

    Again they would be focussing for 125 days on providing construction activities and hence there will be employment for all the workers who have migrated back home.

    Can you talk about the recovery, the high frequency data between May and June? Also, how do you expect things to happen in July? Do you expect that things will continue to grow but at a very slow pace in July?
    Yes, firstly on the rural side, anecdotally also when we speak to a lot of corporates we are getting similar feedback. There is a lot of pickup on all components related to rural demand. So, that is something which we do expect is going to sustain going ahead.

    The rural unemployment rate is close to the February levels. So, the rural economy is likely to be supportive of demand, although I do not expect a sharp revival in overall demand because the urban demand is likely to remain quite stagnant or rather much more muted.

    Even though the economy is normalising and we are seeing high frequency data which we track on a daily or weekly basis, everything is suggesting that there is a slight and gradual pick up. We are seeing labour force participation rates normalising gradually. Urban unemployment rates still remain relatively higher than the rural unemployment rate clearly because the government’s focus is on that side.

    So all in all, outperformance of the rural economy will be there. Urban economy will underperform with a very slow recovery rate. Certain select sectors which will be more essentials and second leg essentials which will probably see relatively earlier recovery. Most of the consumer discretionary items or high ticket items will take longer to evolve and recover largely because that is going to be dependent on how the urban economy is going to fare.

    Given that, we have most of the Covid cases concentrated in the urban economy with the key centres being the key contributors to GDP as well, it would take a significant amount of time before we can expect a decent recovery and not to mention that there would be a risk of a bounce in infections as the economy normalises. That is something which we have to keep in mind

    As of now, we are looking at a gradual recovery quarter by quarter with the June quarter being the worst and then slowly normalising, though not to the level seen last year.

    It is a very gradual process. But just coming back to the point between rural and urban, why are most of the rural facing companies talking about great demand? What do you think is the differentiating factor between rural and urban economy?
    The biggest differentiating factor is the policy focus and clearly it was necessary because there was a flux of labour back to those states which are labour surplus at this point in time. Secondly, there is a kind of social assurance for the agriculture sector. So, relatively, there is financing more easily available. Take the case of tractor financing. We have been hearing that there has been very good availability of supply of credit for tractors.

    Similarly, for two-wheelers, especially bikes, there is a clear distinction. Activity is far better because of the ability to do better due to lack of Covid cases. Secondly, the government focus remains there at this point in time because incrementally it would be difficult to add value in the urban economy given that infections are going to be much more concentrated there. Hence it is going to take much longer here to normalise activity. Clearly the government focus is something which will stand out and will remain supportive of the rural economy.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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