Rural Demand To Remain Muted in FY22 Due To 2nd Covid wave: Report

The second covid wave has brought back another round of lockdowns and its associated consequences, India Ratings has said in a release. In fact, it has hit the country with such severity that both case load and fatality per day have reached a new high. Yet, COVID 2.0 has been less disruptive for carrying out economic activities than COVID 1.0. India Ratings and Research (Ind-Ra) believes its impact on the economy will be felt more through the loss of demand impulse than supply-side disruptions. Also, the loss of demand-side impulse is expected to be more pronounced in rural areas than in urban areas, notwithstanding Indian Meteorological Department's forecast of a near normal monsoon in 2021.

COVID 1.0 was largely an urban phenomenon, despite the large-scale reverse labour migration. In fact, what saved the rural areas during COVID 1.0 was the timely arrangements the state governments had put up to quarantine migrant labours before letting them enter their homes and intermingle with the local population. This prevented the spread of COVID-19 in rural areas and the production activities and in turn rural consumption largely remained un impacted.

"However, situation in COVID 2.0 is different as the highly infectious mutated strain of COVID-19 has already spread to rural India. Health ministry statistics show that the country's 394 districts out of 718 had a case positivity rate of over 10% on 20 May 2021. Such a high rate of positivity rate is being recorded even when the level of testing is low in rural India. This means that the pandemic in many areas may be spreading and/or has already spread without getting adequately captured in official statistics. This may result in inadequate government intervention to contain the pandemic and higher fatality," the rating agency has said in its report.

"In a situation like this, even if agricultural output/income remains intact, there is a strong likelihood that the expenditure behaviour/pattern of rural households will be different. With rising COVID infections, households in rural areas would be more concerned about the rising and/or an expected rise in health expenditure and would cut down on non-essentials," it has noted.