After incomes were depressed by two years of drought, spending in rural India is rising slowly but steadily. Growth in the agriculture sector this fiscal year and rising sales of tractors and mopeds point to green shoots in rural areas. With forecasts suggesting a normal monsoon, FMCG companies are also hoping to have a better fiscal year.
“In anticipation of a better monsoon, consumption in rural India has gone up. It will look up further because of good rains,” says Dharmakirti Joshi, Chief Economist at Crisil.
K Ullas Kamath, MD of Mumbai-based FMCG firm Jyothy Laboratories, says expectations of a good monsoon lead traders to stock goods in advance, giving sales a fillip.
“The hope of better sales comes when a distributor begins to buy and this upbeat mood percolates to end retailers, resulting in increased sales,” he says.
Tractor sales up Sales of tractors, a key indicator of the economic mood in rural India, have also been improving in the first five months of this year.
While Mahindra & Mahindra’s farm equipment division sold 22,148 tractors in May — 21 per cent more than last year — in the domestic market, Escorts reported a 10.1 per cent rise in tractor sales during the period.
Rajesh Jejurikar, President and Chief Executive, Farm Equipment and Two-Wheelers, Mahindra & Mahindra, says the market is coming out of a low base period. “A low base means latent demand. In markets like commercial vehicles and tractors, you see this cyclicality and then the bounce-back is very strong,” he says.
Consumers hold back purchases till they see a better forecast of income. And this is what is happening now. “By the time money starts coming in, it will be October. We see a positive outlook for this year,” he adds.
Says S Srinivasan, Vice-President, Sales and Service, at two-wheeler maker TVS Motor Company: “This year, with the forecast of a normal rainfall, we are hopeful it will be a successful year for the sector.”
Trickling down Pradeep Lokhande, CEO of Rural Relations, a rural consumer relations organisation, says road construction projects have helped boost demand in rural India.
The Centre had increased the annual allocation for the Pradhan Mantri Gram Sadak Yojana (PMGSY) by ₹709 crore last fiscal year, taking the total Central allocation to States to ₹19,000 crore.
This has increased household incomes in two ways; “It has created small entrepreneurs, who are contractors and are self employed. And unskilled workers have benefited from non-farm employment by working on road construction projects,” says Lokhande.
While FMCG sales have moderated in rural areas from the highs of 12-13 per cent in 2012, they have not been too bad for companies that offer a value-for-money proposition.
Dabur saw rural sales grow 6 to 7 per cent in FY16. “It has fallen, but even 6 to 7 per cent rural growth is not to be sneered at. It shows that all the underlying triggers are there…and if disposable income comes through a good monsoon, it could really accelerate growth,” said Dabur CEO Sunil Duggal.
“The second quarter (of FY17) onwards should be good; the third quarter should be great on the back of a low base, and then I think momentum will build up,” he added, speaking after announcing the company’s fourth-quarter results. Kamath points out that the recent election spends in Tamil Nadu, Kerala and West Bengal would also led to an increase in incomes.
“The money gets into the system directly or indirectly. That has also improved consumption in some States,” he said.
Jejurikar believes that there is the likelihood of an increase in minimum support prices as some States head for elections.
Public spending There is also the feel-good factor in the rural marketplace because of other work being done by the government. In this year’s Budget, the government increased allocation from ₹36,967 crore to ₹38,500 crore for rural employment scheme MGNREGA.
Overall, the Budget has outlined a 30 per cent increase in rural expenditure against just 2 per cent last year, Lokhande points out.
Together with other factors, this will help ensure that rural customers go back to the marketplace sooner rather than later.