Cracking the rural consumption puzzle -Aarati Krishnan

-The Hindu Business Line

The surge in non-farm employment has led to a rural consumption splurge, making listed companies bullish

Is rural India languishing in abject misery, or is it on a cheerful spending spree? Today you can get diametrically opposing views on this, depending on where you get your information. If you are an avid follower of news, then you would be firmly in the pessimist camp, having read all about plummeting crop prices, wasted produce and farmers’ long marches.

But if you’re a stock market investor, you’re probably busy hunting for Bharat-themed stocks after listening to companies and analysts waxing eloquent about the rural consumption revival.

Rural spending spree

As listed companies recently unveiled their FY18 results, a recurring theme in their investor interactions was the buoyancy in rural offtake of consumer products. Bharat-focussed firms appear convinced that rural India is staging a convincing come-back from the drought-induced slump of FY15 and FY16.

India’s largest tractor manufacturer, M&M just closed FY18 with a 22 per cent growth in its farm equipment division, while rival Escorts clocked a 25 per cent growth. After budgeting for an 8-9 per cent growth earlier this year, tractor manufacturers have been pleasantly surprised by the strong upsurge in rural demand in recent quarters, which has lifted the industry’s sales growth to 14-15 per cent. This is the second consecutive year of bumper sales after FY17, when they grew by 18 per cent, after shrinking in FY15 and FY16.

Hero Motocorp wrapped up FY18 on a high note, recording its highest ever annual sales of 75 lakh two-wheelers, a 14-per-cent growth over last year. In the investor call, the company spoke of the uplift in rural consumption that had driven a 30-per-cent plus growth in its entry-level motorbikes. Rural motorcycle sales had grown 2 to 3 percentage points higher than national growth.

FMCG majors with a big rural footprint — Hindustan Unilever and Dabur India — have called attention to accelerating rural offtake of their products since the December quarter. Crisil has just predicted that rural FMCG sales will grow at 14-16 per cent in FY19, far outpacing urban growth of 8 per cent. This is a sharp pick up from 5 per cent growth in FY16 and FY17 and 10 per cent in FY18.

Cement makers, home finance NBFCs and makers of light commercial vehicles who cater mainly to the rural hinterland, have also chimed in with positive rural commentary.

But if listed companies are so gung-ho about rural spending, what about all the hard evidence that points to an agrarian crisis — deflating food WPI, crop prices dipping below MSPs (minimum support prices) and States announcing loan waivers? The answer seems to be that agriculture no longer plays a make-or-break role in deciding rural fortunes.

Rural isn’t farms

Most of us think that India’s rural fortunes are inextricably linked to a bountiful monsoon and booming agricultural output. But blame that notion on outdated school textbooks.

Over the last four decades, even as the contribution of agriculture to India’s GDP has shrunk from nearly 50 per cent to about 15 per cent, rural folk have been actively diversifying out of agriculture, to supplement their income.

A November 2017 paper from the NITI Aayog (Chand, Srivastava and Singh) noted that agriculture’s contribution to rural India’s GDP steadily nosedived from over 72 per cent in FY71 to 39 per cent in FY12. In effect, non-farm activities such as manufacturing, construction and services already accounted for 61 per cent of rural incomes six years ago. The proportion is likely to have grown since.

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The Hindu Business Line, 13 May, 2018, https://www.thehindubusinessline.com/opinion/columns/aarati-krishnan/cracking-the-rural-consumption-puzzle/article23873930.ece

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