While the Indian economy is poised to face a severe contraction in the coming quarters, the agriculture sector is expected to lead the economy from the front. The agriculture and allied activities may grow at 3.8 per cent in the current fiscal year 2020-21, with buoyant Kharif and Rabi output, said a report by Care Ratings. Consequently, farmers’ disposable income is also expected to rise by about Rs 40,000 crore, after keeping aside money for investment, intermediate consumption, and raw materials. The growth in the farm sector is expected to lift the demand for other sectors as well.
An increase in expenditure from the rural areas will be beneficial for sectors like automobiles, durables, FMCG, apparels among others as the overall demand prospects are expected to remain muted this festive season due to the loss of purchasing power by the urban households and pandemic situation, the report added. Further, with the national saving rate at around 30 per cent, nearly Rs 12,000 crore could go in savings, which could be partially invested in the financial institutions and gold due to festive season, wedding season as well as given the safe-haven the metal offers.
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Where may the farmers spend?
Though there can be a downside risk of 5-10 per cent in case the output or price assumed does not materialize, a little over 45 per cent of Rs 26,600 crore could be spent on clothing and footwear and durable goods. It is also estimated that the farmers may spend on education and healthcare to the tune of around Rs 4,000 crore. Further, the sales of tractors that are privy to the rural area have been also been estimated to increase by around 7 per cent during the third quarter. The Care Ratings report underlined that nearly 33 per cent would be spent on consumer services like internet connections and miscellaneous goods and entertainment.