Rural recovery in India: It is still premature to draw conclusions

Several data points make a case for optimism but there are also signs of the revival losing strength

- Nikhil Gupta

In the last two quarters of 2024-25, India's rural sector posted a solid recovery. Based on various official macroeconomic indicators, our in-house analysis suggests a four-year high growth in India's rural sector during the period. This came as a huge relief to the economy and market participants, as an improving rural sector offset a weakening urban sector (based on another set of indicators). This improvement in the second half of 2024-25 has fuelled expectations that the rural sector is on the mend and set to grow faster in 2025-26, supporting overall consumption growth.

The early onset of the southwest monsoon in India and a 9% surplus in June rainfall have strengthened this optimism. With good rains so far, the live storage in 161 reservoirs was 36.4% of their total capacity at the end of June, compared to 20.3% a year earlier and almost 50% higher than the long-term average (i.e., 10-year period) by end-June. In fact, the current reservoir levels are the highest at the end of June for any year in the 21st century.

More importantly, agricultural real wages grew at a six-year high of 3.4% from a year earlier in the fourth quarter of 2024-25, following an average decline of 0.3% in the previous three years. This pick-up continued in April as well, which recorded a seven-and-a-half-year-high real growth of 4.8%.

Although non-agricultural rural wages have also increased in recent quarters, their improvement is not as strong as in agricultural wages.