Export shutdown, job cuts, supply chain delays are the key concerns affecting rural markets during the lockdown
By Tauseef Khan
A lockdown has been imposed in the entire country to prevent the outbreak of the novel Coronavirus. People have welcomed this decision as they understand that desperate times call for strict measures. The manufacturing for all product categories has been stopped, until further notice, apart from the ones listed under essential items.
COVID-19 has struck deep into the global economy and India is no exception. In the near future, there will be obstacles like weak financial quarters, job losses, salary cuts, and lower profit margins. However, this phase too shall pass.
Today, everyone is talking about the impact of COVID-19, but only from a national perspective or urban centric perspective. Unfortunately, not much has been spoken about the impact of COVID-19 on the rural sector, which constitutes a large part of the economy and overall consumption across product categories in the country.
For the record, as per a United Nations report published in 2019, 69% of India’s population resides in rural areas, which constitutes to more than 700 million people comprising farmers, housewives, SME’s, government servants and youth.
The first visible impact of COVID-19 in the rural sector is on the agricultural supply-chain. While the government has issued permits to trucks allowing them to carry groceries, fruits, and cereals, a large number of transporters are yet to receive their permits. This has increased the time taken for the farm produce to reach the market. On the other hand, there is a slight impact on the demand side as the restaurants have been ordered to shut down for the interim period. This is causing a sizeable revenue loss to many farmers across states. As per a published report, the railway ministry suggests that freight loading has dipped from a usual 10,000 cargo rakes per day to just about 3-4,000 now. As a result, the farmer has to sell his crop at a cheaper price, settle with a lower profit.
The second impact of COVID-19 is the delay in sowing and harvesting of crops due to the unavailability of products such as seeds, tractors, ancillary support, medicines for crop protection. Traditionally, this is the best time for brands from the above-mentioned sectors to market their products to the farmers. Even the e-commerce brands in agriculture have been impacted as the transportation of these products have stopped and there is no inventory.
The third impact of COVID-19 is the expected job cuts in the agricultural sector. As per the government, there are nearly nine crore farmers along with a similar number (if not more) landless agricultural labour. While the farmer will be receiving relief from the government directly, the latter is placed in a difficult position at this time.
The fourth big impact is the complete shutdown of exports. India has been a major exporter of crops and as per APEDA, India’s overall agri-exports in 2018-19 were to the tune of Rs 685 billion. Currently, all the ports have been locked and huge inventory has piled up with the traders and farmers.
The fifth impact is on the MSME & SME’s. These include small industry units, businesses/traders, and shops that manage a decent size inventory and employ numerous direct and indirect employees. Post lockdown, their businesses are shut down and facing a revenue hit. They may have to let go of their employees for a variety of reasons including financial viability, migration, health and other. People stand to lose jobs without a clear idea of when the situation is going to stabilize.
The sixth impact is the prediction of a weak consumption trend post COVID-19. Once things return to normal, the primary focus of people would be to secure jobs and get their businesses going. During such time both families and businesses will be keeping stringent checks on their spending patterns. This trend will also be an impediment to the expansion plans of the global/national brands giants in this region. They will take a while before reconsidering their entry to this market.
It is nearly impossible to even put a ballpark figure to the kind of financial hit rural areas would take due to the COVID-19.
These are testing times and both Union and State Governments are working to their full capacity in fighting the novel COVID-19. It has made health as its top priority.
It is extremely important to give equal priority to rural regions as post COVID-19, the region will play a big role in bringing the consumption trend and economy back on track.
The Central government has begun by announcing a relief package for the farmers, post COVID-19, to even the hit they have taken during this time. Government had announced Rs 2,000 to farmers in the first week of April under existing PM Kishan Yojana. They have reduced the burden of EMI’s for next three months on the people as it will give breathing space to many in the region. In another landmark announcement, the government has increased the daily wages of MGNREGA workers in the region that will benefit approximately 5 crore families across the country.
As per published reports, India’s farming market was worth INR 16,587 Billion in 2018 and was projected to reach INR 30,675 Billion by 2024, growing at a CAGR of 10.8% during 2019-2024. The relief package will give farmers the necessary support to get back on track.
The state governments are closely working at the Tehsil levels to ensure that the farmers get the agri-inputs and logistic support to send the produce to the market. However, each state is working with their own rules at Tehsil level and a uniform country-wide policy on this, which is well defined, is the need of the hour. Secondly, there are no community meetings or BTL activities, hence there must be an alternative plan to aware farmers of such decisions and policies. In this scenario, e-commerce players operating in the agricultural sector can be a big game changer. They have a targeted base of farmers that can be directly leveraged by the government, thereby reducing the time gap and increasing effectiveness in reaching out to them. E-commerce can help in ensuring that the agri-input needs of the farmers are met effectively. Given the adequate support, these e-commerce players can deliver the goods to the farmers at their doorsteps, sanitized at the warehouse level, thereby reducing the woes and helping in a better yield.
And, finally, it is very important to urge the MSME and SME’s to retain their employees to reduce the job cuts. This will help boost the consumption, once we leave COVID-19 behind. For the record, the rural sector drives massive consumption across categories. For instance, annual FMCG consumption in rural areas was around $24 bn and is projected to reach $100 billion by 2025.
The road ahead is definitely not easy, but I am still an optimist and hopeful that India will be able to come out of this crisis.
The author is CEO and co-founder, Gramophone