Rural economy and its management during Covid-19

The article in the national ‘Hindu’ newspaper today, clearly uncovered and underscored the present economic crisis. The rate of unemployment, as calculated by the use of moving average methods, has led to an increment up to about 8.6 %. In addition, inflation is rising in tandem with high unemployment, which might create conditions conducive to stagflation. The above-mentioned article unfolds the reason for high inflation in the economy as well as the contraction of demand, particularly in rural areas.

I have already mentioned in one of my articles which was published in the newspaper last year, that, there might be the threat of stagflation in the near future and my prognosis manifested itself into reality.

Rural economy- where it stands?

At present, the rural areas are in a very vulnerable situation. The rural sector is characterized by low medical facilities, low penetration of media, low connectivity, poor or improper awareness, etc. Thereby, the rural sector, in present times, finds itself in a very precarious situation. The main consequence can be observed on the rural sector’s demand side. The demand will subsequently be affected, which will ultimately affect the consumption potential of the economy and ultimately the economy of the nation.

Past evidence has revealed that the consumption of products, particularly for fast-moving consumer goods (FMCG) goods, has significantly been increased and enhanced in rural India. This has to be seen in the context that the FMCG sector ranked as the fourth largest sector in the Indian economy.

Not only the demand side but, the supply side will also get adversely affected. The supply of agricultural products, not only for human consumption but also as the source of raw materials for the manufacturing industry. This will reflect in the soaring CPI (consumer price inflation) and WPI (wholesale price inflation) in the near future.

Enhancement of rural economy

There is a dire need of augmenting the process of direct cash transfer in the hands of the rural people, which will keep the demand side of this sector at momentum. I have already mentioned in my articles that, there is a need for the application of Keynesian economics in the rural sector, i.e., increasing consumption by incrementing the aggregate demand.

Rural India and rate of interest

Keynes has emphasized that the inducement to invest is a function upon two things i.e., investment demand schedule and rate of interest. The investment demand schedule can be taken care of by the consumption demand. It is the interest rate that one needs to take care of carefully.

No doubt, rural people can’t make heavy investments unlike the people residing in the cities, but still, they do concern about the rate of investments as they also need to borrow the agricultural implements for their agricultural activities.

A study by Subrata Ghatak in the Journal of development studies. Clearly mentions that there is a positive relation and direct correlation between the farmer’s income and the repayment capacity.

Final thoughts

Though, the inflation rate is bound to rise in the coming weeks or so, government should concern the fact that, wherever possible, it should mostly be driven by the supply side factors, rather than the demand side. As, it is the lacking in the demand side, which is detrimental for the economy and it is what, government should concern the most.

About the author


My name is Vipal Bhagat, going to be doctorate in applied economics. My aim is to analyse and interpret the current economic happenings around us, according to the core and basic principles of economics.

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