Covid Second Wave: Assessing The Damage To The Rural Economy
A smell test indicates that rural India is as hard hit as urban India, with ramifications for rural demand.
The second wave of Covid infections began in the cities, just like in the first wave. But unlike last year, this year infections have spread into the hinterlands, putting the rural economy at risk.
How grave is that risk?
BloombergQuint analysed the share of the rural population in the country’s worst-hit districts and their share in national income to judge the regions most at risk. The extent of the decline in economic activity, however, remains uncertain and difficult to capture.
The Hit: Urban vs Rural
Of the 50 worst-hit districts in the second wave, for 26 districts rural population made up more than half, the data analysed showed.
For the analysis, the districts worst hit in a 60-day period in the second wave were identified using publicly available data from Howindialives.
Bengaluru Urban was the worst-hit district in the second wave with cumulative positive cases rising from 4.2 lakh to 11.2 lakh between March 25- May 23. Maharashtra’s Pune, Mumbai, Nagpur and Thane ranked as the worst-hit districts after Bengaluru for the same period.
The reason the national capital region of Delhi doesn’t feature in this list is because comprises of eleven separate districts. As such, it was Gurugram, Lucknow and Jaipur that were the worst hit districts in North India, with Kolkata and North 24 Parganas seeing the sharpest surge in the eastern region.
Of the 50 worst-hit districts, 26 comprised of rural population in excess of 50%, classified according to district-wise data from the census 2011.
Increasing the sample size saw a steady increase in rural districts, with 44 of top 75 districts worst hit, comprising a rural population of more than half.
Rural areas were particularly hard hit in Maharashtra, Kerala and Andhra Pradesh.
According to Soumya Kanti Ghosh, group chief economic advisor at the State Bank of India, the share of rural districts in new cases increased from 45.5% at end-April 2021 to 48.5% as on May 3, 2021. After it rose further to 53.6% of new cases, it has now declined to 51.6% as per the latest data.
However, what is more concerning is the higher number of deaths in rural areas, Ghosh said. While the fatality rate is at 1.3 per 1,000 on average, this figure was found to be higher for the 150 rural districts that Ghosh analysed. In some rural parts of Chhattisgarh, for instance, the fatality rate is as high as 8 per 1,000, way beyond thought, he said.
The 26 districts of the 50 worst hit, with a rural population of more than half, held a share of about 8% in national GDP, according to an analysis by BloombergQuint. For this analysis, contribution to national output was computed from district-wise GDP at current prices from the base of 2004-05, according to government data.
The 24 districts, with an urban population of more than half of the total, contributed about 14% of the national GDP. This was excluding the GDP of Ahmedabad and Surat as official data was unavailable for both districts.
While the share of badly hit rural districts is less than that of urban districts, economists worry that the rural economy may be less resilient due to lower incomes and limited access to financial support.
The share of government in the current expenditure on health in India is only 27.1% and an overwhelmingly large share of 62.4% is borne by households, said a May 27 report by India Ratings & Research. In rural India, in particular, if citizens are forced to take debt to meet out of pocket expenses on health, it can be more damaging than other types of household debt, the report, authored by Sunil Kumar Sinha, Devendra Pant and Amit Jain said.
As these expenses generally occur during illness, it limits one’s ability to work, leading to depletion of household savings and unanticipated economic shocks. According to an estimate over 60% of the rural households with hospitalised cases borrow, sell their assets (including gold) or rely on contributions from friends and relatives to pay for inpatient care.India Ratings & Research
Eventually, this stress will reflect via weakened rural demand. Even if a strong monsoon supports agricultural activity, non-agricultural activities may decline, as most of these activities require high human contact.
Supply of work under the Mahatma Gandhi National Rural Employment Guarantee Scheme fell in May, BloombergQuint reported earlier this month.
“The slowdown in non-agricultural activities and in turn on non-agricultural income will have a serious impact on rural demand, since non-agricultural income constitute nearly two-thirds of the rural income,” the India Ratings report said. The most recent data available for the share of non-agricultural activities in rural areas is from FY12. That shows 60.8% of non-agricultural activities in rural gross value added compared to 39.2% for agriculture.
The recent decline in rural wages growth, after a sharp rise previously, will stifle consumption expenditure further.
Average agricultural wage growth during November 2020-March 2021 declined to 2.9% after it rose to 8.5% during April-August 2020. Similarly, wage growth for non-agricultural activities during November 2020-March 2021 declined to 5.2% from 9.1% during April-August 2020, according to India Ratings.
“Rural growth was relatively robust in the first wave. Rural Indians were exempt from much of the lockdown and continued to benefit from producing and selling essential food items to urban Indians,” said Pranjul Bhandari, chief India economist at HSBC. But if the disease spread to rural India is significant this time, it could bring in a new cloud of uncertainty, she said.