Rural economy shows growth but signals are still mixed

Source: The post Rural economy shows growth but signals are still mixed has been created, based on the article “Rural recovery in India: It is still premature to draw conclusions” published in “Live Mint” on 16th July 2025

UPSC Syllabus Topic: GS Paper 3- Growth and development

Context: India’s rural sector showed a strong recovery in the last two quarters of 2024–25, driven by positive wage growth and a good monsoon. However, mixed trends in other macroeconomic indicators caution against premature optimism about a sustained rural revival in 2025–26. Rural economy shows growth but signals are still mixed

Signs of Rural Recovery

1. Improved Macroeconomic Indicators: The rural economy posted a four-year high growth, helping balance a weakening urban sector. This revival supports optimism for broader consumption growth in 2025–26.
2. Favourable Monsoon and Water Storage: An early and surplus monsoon in June led to live storage in reservoirs reaching 36.4% of capacity—up from 20.3% last year and the highest in 21st-century June records.
3. Rising Agricultural Wages: Agricultural real wages grew by 3.4% in Q4 of 2024–25, the highest in six years. April 2025 saw a further jump to 4.8%, the strongest in seven-and-a-half years.
4. NREGA Wage Growth as a Leading Signal: NREGA real wages rose 6.6% in Q4 2024–25, the fastest in a decade, though growth slowed to 5.6% in Q1 2025–26. This deceleration mirrors previous short-lived surges.

Warning Signs of Weakening Momentum

1. Falling Farming Terms-of-Trade: Agricultural terms-of-trade declined for the second straight month in May. Rising input inflation since February and falling output inflation since April are eroding farm profitability.
2. Decline in Fertilizer Availability: Fertilizer supply fell 14.3% year-on-year in May—the worst in 15 months. Overall, it dropped 10% in April–May 2025–26 after a modest decline last year.
3. Reduced Rural Government Spending: Central rural expenditure dropped 13.9% in real terms in April–May. This includes key ministries like agriculture and rural development. Excluding fertilizer subsidy, the decline is steeper.

Strained Rural Consumption and Demand

1. Falling Two-Wheeler Sales: Two-wheeler sales declined by 7.6% in April–May 2025. This marked the fourth fall in seven months after a long streak of growth, with continued weakness into June.
2. Fluctuating NREGA Work Demand: Work demand under NREGA fell in April but rose 1.1% in May and 3.7% in June, despite early monsoon. This signals persistent rural financial stress.
3. High Early NREGA Spending: The central government released ₹73,750 crore (44% of annual target) for NREGA in Q1 of 2025–26. This shows increasing demand for wage support despite good rains.

Conclusion

While better wages and monsoon rainfall are encouraging, other rural indicators reveal underlying fragility. The sector’s health remains uncertain, and a clearer picture will emerge only over the coming months. Investors and policymakers should avoid premature conclusions.

Question for practice:

Examine the mixed signals emerging from India’s rural economy recovery in 2024–25 and their implications for future growth.