Erratic rains to hurt rural demand
Premium- Improper spatial distribution of rainfall has impacted kharif sowing in some key regions
- Likely demand weakness in large and populous states could delay rural growth revival
Rural demand revival is falling short of expectations. Even though the Southwest monsoon is above the normal reading so far, it brings little cheer. Important rice-growing states of Uttar Pradesh, Bihar, Jharkhand, West Bengal and Kerala have had deficit rain. As a result, sowing of kharif crops has taken a hit.
As much as 73% of the monsoon season by rain quantum is done and these states have had 27-47% deficient rains, noted analysts at Jefferies India. “This could be a negative for food inflation/rural demand in H2FY23," said the Jefferies report dated 22 August.
View Full Image
Recent trends in rural wage growth rate and employment have also not been encouraging. Economists said that rural wage growth is running below retail inflation and that points to a dull near-term rural demand outlook.
Low sowing of staples may not leave small and middle-income households in the rural areas with surplus funds for spending, especially on discretionary items. In a run-up to the festive season, a sombre rural sentiment is a party pooper.
“After two consecutive failed festive seasons, how this year’s festive demand pans out and the participation of the rural economy in that, is crucial," said Jitendra Gohil, head of India equity research, Credit Suisse Wealth Management, India. Not only has kharif sowing declined on a year-on-year basis so far, but Rabi crops were also impacted by the heat wave. So, on the macro level, if rice prices continue to head north, it would keep inflation high, he warned.
This is a cause for concern, especially for companies in sectors such as fast-moving consumer goods (FMCG), paints and consumer durables, for whom rural demand is a key growth driver. Normal monsoon and government measures were expected to come as a shot in the arm for the ailing rural economy.
But some of these hopes may be dashed.
MINT PREMIUM See All
Given the potential impact on purchasing power, Rahul Bajoria, chief India economist at Barclays said down-trading in FMCG and consumer durable items in rural areas is expected. In another fallout, the improper spatial distribution of rainfall would push people to migrate from rural to urban areas in search of employment. “So, rural recovery was already lagging urban recovery and with the migration bit playing out, rural demand growth will remain on the backfoot," he said.
What’s more, even if the spatial distribution was to improve in the remainder of the season, it would not lead to a better sowing cycle. “The 16-week sowing to harvest cycle required for paddy will be missed," he said.
On the non-agricultural side as well, the overall inflationary environment is seen as playing spoilsport on the demand front.
Also, because of the K-shaped recovery, items of mass consumption may see lower sales compared to premium ones, said economists. Note that rising income inequality is one of the key characteristics of a K-shaped economic recovery.
Many states in the western, northern and central regions of India have seen either excess rainfall or normal rainfall. Even so, rural demand weakness in some large and populous eastern states could weigh on the overall revival of the rural economy.
Meanwhile, the benefits of higher government subsidies are expected to start yielding results over a period of time.
“Rising job availability because of infra projects, higher farm income (expect strong prices of Kharif crops and dairy prices) should revive sentiments, timing albeit seems uncertain," said a Prabhudas Lilladher report.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less