Indian economy: As COVID funeral pyres burn, India’s rural economy goes up in smoke

After watching his father’s pyre burn on the banks of a river near his farm last month, Indian sugarcane grower Dattatreya Bagal and his brothers had to set aside grief to calculate the financial cost of the impact of the coronavirus on their family.

They had hoped to buy a tractor for a small farm in western Maharashtra state, but the brothers spent all their savings on hospital treatment for their father and three other family members, who survived.

“The hospital bill was Rs 820,000 ($11,191),” said Bagal, irrigating fields in the fields below the mountains of the Western Ghats. This not only drained our savings, but also forced us to borrow from relatives. ”

“We lost our father and took a loan too. We will repay the loan in two to three years, but personal loss can never be recovered,” Bagal said.

Such accounts have become common among rural communities in the vast Indian hinterland in the wake of a devastating second wave of infections in the past two months.

The lockdown imposed by the authorities tried to contain the increase in pain, but at least the monsoon season, which began this month, is forecast to deliver normal rainfall.

Some farmers, such as Yogesh Patil of Maharashtra’s Sangli district, were so badly affected that they have no money to buy seeds and fertilizers to plant summer-sown crops like corn and soybeans.

“I was expecting to earn over Rs 100,000 from a one-acre plot of tomatoes. But due to the lockdown, prices fell and I could not recover the cost of production,” Patil told Reuters.

About two-thirds of India’s 1.35 billion population lives in small towns and villages in rural areas, and the rural economy accounts for about a third of the country’s GDP.

So whatever India’s economy brings back from the pandemic, the agriculture sector is unlikely to be of great help, with rural households in debt, unable to make the purchases needed to run their agricultural production, or in their communities. Keep spreading money.

Rural India was largely spared during the first wave of infections, which peaked in September, as the agriculture sector grew by 3.6% in the fiscal year ended March, even though the latest official estimates put the broader economy at 7.3%. contracted. But the second wave seems to have washed away that resilience.

Ramesh Iyer, managing director of Mahindra Finance, one of the largest shadow lenders in the rural sector, said, “This time the sentiment in the hinterland is very weak and even people with money are not able to spend it or repay the loan. I like to save.”

Iyer said that despite rising farm incomes, fewer people are taking housing, car and personal loans, and nearly one in three borrowers are delaying repayments. This is either because the activity is restricted in the lockdown or people have stopped earning or they prefer to save for emergencies.

India’s largest tractor maker Mahindra & Mahindra sold 22,843 tractors in May, down 12.6% from April for its worst month this year.

Vaccination rate slow in rural areas

The spread of the coronavirus in rural areas exposed a lack of medical infrastructure, and while the impact of the pandemic is still being assessed, there is little reliance on official figures on infections and deaths because testing for the disease is woefully inadequate. .

India’s vaccination campaign is also far behind, and fears of a possible third wave are hurting people’s confidence in the economic outlook.

“There are serious concerns over rural demand and businesses,” said Rupa Rege Nitsure, chief economist, L&T Financial Management. He said a lot depends on how fast India immunizes its rural towns and villages.

Rating agency ICRA expects a long-term negative impact of the second wave on consumer sentiment and demand, with healthcare and fuel spending eating into disposable income, and reduced demand in 2021/22 relative to last year.

Rising costs, especially for fuel, over the past six months have eroded the benefits farmers accrue from better prices for their produce.

Gajanan Patil, a farmer from Maharashtra, said, “We hire tractors for plowing, sowing and bringing manure.” “Since diesel prices have hit a record high, tillage charges have also gone up by 30%. Even for harvesting the crop and taking it to the markets, we have to pay more.”

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