Farm Loan Waivers Driving Rural Demand, Says Report

INSUBCONTINENT EXCLUSIVE:
Last week, Karnataka became the latest state to write off farm loans.Mumbai: The green-shoots of demand growth seen in some rural pockets is
driven by farm loan waivers and not likely due to real increases in rural incomes and wages, indicative that the economy is still some time
away from a full-blown rural revival, says a report
Noting that rural demand has been on the rise in recent months, the report says the upward trend is visible from the sale of big ticket
items like tractors and the latest corporate earnings of consumer goods companies
have announced farm loan waivers last year, as farmer suicides became a big political tool
of this pick-up depends on a number offactors
Firstly, a good monsoon alone will not do the trick
there are clear signs that rural demand isrecovering from setbacks due to the 2016 note-ban and GSTdisruptions, "we have our reservations
over the extent of this increase as this could be due to the loan waivers," says thereport penned by the banks chief economist Abheek
A similar phenomenon was witnessed in 2009 when the then government had waived farm loans and tractor sales grew by 30 per cent
So,it is uncertain whether the recent increase is a one-time spike or a reflection of genuine improvement in the rural income situation," he
demonetisation took a hit on consumption
Therefore,this could be a bounce back from the 2016 lows and notnecessarily translate into the required higher momentum inrural demand,"
consumption comes from only the top 5 per cent (according toincome) of the rural population while 33 per cent come fromthe bottom 50 per
cent
the rural wages have been on a steadydecline, which is the most important leg of the rural demandgrowth, the report says nominal rural wage
growth has been moderating since the middle of 2017
overthe last year and has now turned negative
with theperformance of the monsoons and agriculture growth
activities like construction, manufacturingand services account for over 60 per cent of the value addedin rural output
The break-up of rural wage growth into agriand non-agri shows that while farm wages saw a sharperdecline, the fall is not restricted to the
close to 9 per cent in April 2017 to 2.3 per cent in February 2018 while non agricultural wage growth moderated from 5 to 3.7 per centduring
period
However, in recent months, construction wage growth has declined sharply from over 6 per cent in April 2017 to 3.2 per cent in February
thatmere announcement will not increase the income of farmers but adequate procurement holds the key
recently announced massive hikes in minimum support price across a slew of farm produces
This is the steepest such increase by the Modi government and analysts have warned that this would push up retail inflation by at least
70-80 basis points.