Covid surge: demand for rural automobiles and consumer goods not as green as lush fields

Rural demand for discretionary products ranging from non-essential consumer goods to automobiles is expected to remain subdued during this budget period despite record agricultural products and a good monsoon forecast due to a sharp increase in Covid-19 cases in Indian villages, according to a new report.

“The loss of pulse demand is expected to be more pronounced in rural areas than in urban areas of India in the midst of the second wave,” credit rating agency India Ratings & Research said on Friday (Ind -Ra) in a report.

Companies such as Mahindra & Mahindra and Marico have confirmed disruptions in rural demand amid a second wave of a severe pandemic. This may have an impact on the country’s overall economic recovery, as the resumption of the foreclosure-induced crisis in the second half of the last fiscal year was mainly fueled by rural economy. Rural demand grew twice as fast as cities in 2020.

“Request FMCG products (and) automobiles, especially tractors and two-wheelers, are expected to suffer, ”wrote SK Sinha, senior economist and public finance director at Ind-Ra.

Ind-Ra, a Fitch Ratings company, said households in rural areas were spending more on health expenditureand a decline in non-agricultural activities such as construction, transportation and repair of automobiles / tractors / bicycles has a significant impact on daily wages.

He noted that a slowdown in non-farm activities had a “serious impact” on rural demand since off-farm income made up almost two-thirds of rural income. “Most of the rural population is made up of day laborers and not farmers,” the report says. “The growth of rural wages, both for agricultural and non-agricultural activities, has been declining in recent times.”

This will reverse last year’s demand trend when rural demand exceeded urban demand.

For the three months ended in March, for example, growth in the value of fast-moving consumer goods in rural markets was 14.6% year-on-year. Metropolitan cities (with more than one million inhabitants) increased by 2.2%, according to researcher Nielsen IQ had said in a report this month.

“There are disruptions in (rural) demand for discretionary categories,” said Saugata Gupta, managing director and CEO of edible oil maker Marico. “These will take longer to normalize and will depend on the pace of the economic recovery and other factors like the monsoon and vaccination rates. In case of essentials, however, we expect the disruptions to be temporary and things to normalize next quarter. ”

Marico derives about 33% of its sales from rural India.

The rural economy represents 45 to 46% of the total national income, of which only a third depends on agriculture. Much of rural income comes from industries and service sectors.

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