Consumer demand in rural markets cools on election heat, farm stress

The rural engine driving India’s consumption growth is slowing but some companies expect it to pick up speed again soon. Consumer demand for daily groceries, apparel, smartphones and electronics, especially in rural markets, has eased since January due to preelection uncertainty, tighter liquidity and depressed farm incomes following a patchy monsoon.

“Slackening of demand, both in rural and urban (areas), is due to the tight liquidity conditions and agrarian distress,” Dabur chief executive officer Sunil Duggal said. He expects demand to pick up, however, as the warm season sets in. Also, payments to small farmers as part of the Pradhan Mantri Kisan Samman Nidhi should lift consumption.

Consumption in rural India, which accounts for about a third of the market, saw a revival with double-digit growth in the past two years, outpacing the rate of expansion in cities. This was underpinned by higher farm income and minimal supply disruption in the run-up to the rollout of the goods and services tax (GST) in July 2017. Rural growth has moderated to about 1.2 times that in urban areas compared with 1.5 times a year ago for fast-moving consumer goods, according to analysts. Dabur is not the only company hopeful of a turnaround.


“We are witnessing a temporary slowdown in some categories due to an extended winter and liquidity issues in the market,” said Godrej Consumer Products managing director Vivek Gambhir. “We are hopeful that demand will recover in the months ahead as the summer season picks up and as rural consumers get some benefit from government disbursement schemes.”

Over the past decade, sales of branded daily needs in the nation of 1.3 billion people have increasingly relied on the rural hinterland, home to more than 800 million, whose purchase behaviour is largely linked to farm output, which grew 2.7% year on-year in the October-December quarter, the lowest in nearly three years.

Biscuit maker Parle said growth in the category has slowed to 6-7% in January-March compared with 9-10% in the same period last year. “The effect is more pronounced in smaller towns,” said B Krishna Rao, senior category head at Parle Products.

DISCRETIONARY PRODUCTS
White goods such as refrigerators, washing machines and air conditioners saw flat sales in rural markets in January and February compared with 5-6% growth a year ago. Cellphone retailers said sales in rural areas declined 20-25% in the first 10 weeks of the year from the year ago.

“Consumers are just spending on necessities and discretionary spending is very low. And whenever there is uncertainty and depressed demand, the effects get magnified in smaller markets,” said Godrej Appliances business head Kamal Nandi, who also leads the white goods industry body Consumer Electronics and Appliances Manufacturers Association (CEAMA).

India’s GDP growth rate slowed to a five-quarter low of 6.6% in October-December from 7% a year ago. Consumer spending growth, which accounts for about 60% of the economy, slowed to 8.4% during the period versus a 9.9% increase in the year earlier.

“Consumers are holding back purchase decisions until elections as most people in smaller markets are self-employed and any government or policy change can have a big impact on their earnings,” said Lalit Agarwal, chairman of V-Mart Retail, a listed department store chain that focuses on small towns and rural areas.

The new e-commerce policy that came into force in February and lack of new product launches also disrupted sales.