Strong monsoon, rising wages, and govt spending fuel rural economy recovery: Report

NEW DELHI: India’s rural economy is showing early signs of a broad-based recovery, bolstered by a strong start to the monsoon season, a rebound in rural wages as inflation eases, and a renewed push in government spending, according to a report by the Ambit asset management firm.

The report added that these positive developments are expected to lift rural demand, improve agricultural productivity, and provide momentum to overall economic growth in the coming quarters. “As we head into FY26, green shoots are emerging. A strong start to the monsoon season, a resurgence in rural wages (driven by easing inflation), and higher government spending are setting the stage for a broad-based rural recovery”, the report added.

The report highlights that the monsoon has begun on a promising note in FY26, with June rainfall at 105 per cent of the long-period average (LPA). Unlike previous years that were marred by erratic patterns, this year has seen more uniform and timely distribution, critical for sowing across pulses, oilseeds, and coarse cereals. Kharif sowing is already 8 per cent ahead YoY as of July-end.

After years of stagnation, rural wages (both agri and non-agri) are seeing signs of revival. Real wage growth turned positive in mid-FY25, aided by falling inflation and increased government infrastructure push (roads, housing, Jal Jeevan Mission).

The report added that MGNREGA demand is also moderating, indicating improved job availability. This pickup in wage growth is boosting rural liquidity and helping rebuild household savings, enabling higher spending on FMCG, durables, and low-end 2Ws.

The last three years have been particularly challenging for rural India, marked by wage stagnation, weak demand across sectors such as FMCG, retail, and two-wheelers, and the lingering effects of the COVID-19 pandemic. Reverse migration disrupted rural employment, and agricultural distress intensified as input costs (fertilisers, diesel, pesticides) surged.

The pandemic severely strained rural India. Rising inflation, stagnant wages, and muted demand significantly impacted household savings and consumption. Between 2020 and 2023, rural inflation climbed to 7.5 per cent, led by agricultural distress from erratic monsoons, unseasonal weather events, and rising input costs.

Farm incomes were squeezed as market prices for many crops remained subdued, while the cost of essentials like diesel and fertilisers soared. The FMCG sector, a key barometer of rural demand, experienced a marked slowdown in earnings between Financial Year (FY) 2020 and FY24.

The agri-inputs sector — comprising fertilisers, crop protection chemicals, and seeds — has been under earnings pressure over the last few years, mirroring the broader stress in rural India. The report added that between FY20 and FY24, earnings growth for several players slowed considerably, as they were weighed down by weak farm incomes, erratic monsoons, input cost inflation, and inventory destocking.

Rural housing, a key enabler of consumption, employment, and building material demand, witnessed a visible slowdown during FY20-FY24. (ANI)