Agriculture emerges as bright spot amid pandemic, says RBI; rural demand picks up too

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August 6, 2020 1:55 PM

While Indian economy is facing headwinds of coronavirus, the agricultural sector is an outlier, with the growth in the sector also helping spur rural demand.

Owing to good progress of monsoon in July, the sowing in the season has been higher by 5.9% as of 31st July 2020 as compared to last five year average.

While Indian economy is facing headwinds of coronavirus, the agricultural sector is an outlier, with the growth in the sector also helping spur rural demand. In fact, several sectors whose sales heavily depend on rural India have already started to exhibit a demand revival. “The agricultural sector has emerged as a bright spot… developments have had a salutary effect on rural demand as reflected in fertiliser production and sales of tractors, motorcycles and fast-moving consumer goods,” RBI said in its Monetary Policy statement on Thursday.

Owing to good progress of monsoon in July, the sowing in the season has been higher by 5.9% as of 31st July 2020 as compared to last five year average. The live storage in major reservoirs in the country also bodes well for the rabi season. Going ahead as well, rural India is expected to report robust recovery, buoyed by the progress in kharif sowing.

Inflation outlook

Inflation is expected to rise in the food items on the account of supply chain disruptions due to coronavirus and several other reasons. For one, “the relatively moderate increases in minimum support prices (MSP) for the kharif crops and monsoon are also supportive of benign inflation prospects,” RBI said in the statement.

Pressure is also high on protein-based food items due to tight demand-supply balance in the case of pulses. Key subsiding of the prices of key vegetables has also been delayed and will materialise only after normalisation of supplies. However, bumper rabi harvest may ease some price pain on cereals, especially if open market sales and public distribution offtake are expanded on the back of higher procurement. For non-food items as well, the coronavirus has caused a major supply chain disruption due to which prices remain volatile.

Meanwhile, in Thursday’s MPC meet, RBI Governor Shaktikanta Das announced that the repo rate will remain unchanged and said that the committee has unanimously voted to maintain the status quo on policy rates.

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