What is the impact of COVID-19 on agriculture and microenterprises? As transport and flow of cash and goods remain restricted, how will farmers and owners of small shops cope with the crisis? These are some questions we explore in detail as we devise suggestions for policymakers and players in the ecosystem.
In the wake of the COVID-19 pandemic, the global economy will be impacted by USD 1 to 4 trillion, depending on the agency you want to believe. What underlies the statistics? What is the impact on agriculture and microenterprises?
Preliminary qualitative research on the impact of India’s lockdown provides important indicators on what is to come. For most people in India, lockdown means home confinement. Exceptions include government officials and a few services deemed “essential”. All public transport—road, rail, and air remains suspended, while private transport is heavily regulated.
In this article, we have grouped microenterprises into four major categories.
At a high level, this is where they are, and the position will change—you bet!)
Impat of COVID-19 on business
Read on for a more nuanced and detailed understanding of agriculture and allied sectors and the corner stores and services sector.
We have split agriculture and allied sectors into three subsectors:
As of now, even though the consumption of milk has reduced (remember, the sweet shops and restaurants are largely closed!), the intermediary has been buying all the milk, selling a part of it and converting the rest into ghee (clarified butter). However, since the clarified butter cannot be sold at the pace at which it is being produced, the intermediary will not be able to pay the farmers for long— their cash flows are being affected. Hence, the dairy farmers will see a greater impact in the days to come—only so much milk can be converted into ghee and milk powder!
Indian poor farmer
Implication: As a first step, the government should prevail on large dairies, especially those in the cooperative sector to continue buying milk from the market, convert it into ghee or milk powder and keep paying the farmers. The rural economy will be severely impacted otherwise.
Somewhat apprehensive, they are still hopeful that the administration will arrange to sell their produce in the market and they will realize a good price. In contrast, farmers engaged in flower cultivation are badly impacted. The demand for flowers has plummeted as temples and places of worship have shut down alongside flower retailers.
Implication: Mandis, which are wholesale grain, fruit, and vegetable markets, have to remain functional and farmers have to be provided transport for their produce. Farmers, especially those with mature crops should be allowed to harvest and get their grains to the market. The availability of farm labor is an issue, but the farmers will likely sweat it out in the field, with their family, to harvest standing crops. If the state can facilitate the journey from the farm to the market, we might see the current rural stress reduce somewhat. Otherwise, not only will the farmer be unable to repay debts, the next crop cycle will be impacted. Also, food grain prices will increase if the produce does not make its way to the markets.
Implication: The government will need to allow movement of agri essentials—seeds and fertilizer to keep the supply chains moving—both to provide inputs to farmers and to maintain food supplies. Although state governments have been vigilant in this aspect, the economic equation of demand and supply remains at play, and food grain prices have started to increase. In an atmosphere of hoarding induced by fear, it will be a herculean task to maintain normal food prices. Let us hope a good harvest can control price escalation.
Implication: Replenishing supplies at corner stores will call for more working capital. Will banks and MFIs have the liquidity to meet this need? A lot will depend on the relief package from the Government of India and the Reserve Bank of India. As of now, a three-month moratorium, which does not apply to NBFCs—the mainstay for these corner shops—is grossly inadequate. In case the informal economy is to survive, RBI will have to announce a six-month moratorium and include NBFCs and NBFC-MFIs as beneficiaries of the repayment holiday. How else will money flow into the informal economy?
Corner shop in India
Implication: These businesses may or may not need additional working capital. In case a loan is outstanding, stagger the repayments and increase the repayment period. The trickle of customers into these service outlets will build up gradually. Revenues will remain muted for some time to come. Spread the tenure of loans and—pray!
Indian village women smiling
09 May, 2020
The article has been well presented and contains a wholistic picture of impact of covid 19 on rural economy. A list of remedial measures like; Subsidizing credit and input supply Strengthening supply chain of vegetables and food grains and enhancing storage and transportation More government expenditure on cold chain and supply chain. Devising new mechanisms like door step delivery and home delivery of vegetables by mobile vans.Mobile marketing facilities etc can help.
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