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Business News/ Politics / News/  Private consumption to rise by 90 basis points due to good monsoon: Crisil
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Private consumption to rise by 90 basis points due to good monsoon: Crisil

Crisil expects nominal agricultural GDP to rise by Rs1.49 trillion this fiscal year, compared with Rs978 billion in fiscal year 2016

With a good monsoon this season, the rural demand is expected to rise and consumer durables sales should accelerate. Photo: AFPPremium
With a good monsoon this season, the rural demand is expected to rise and consumer durables sales should accelerate. Photo: AFP

Mumbai: Crisil Research expects private consumption to rise by 90 basis points to 8.3% in the current fiscal year, as a nearly normal monsoon coupled with the best distribution of monsoon in the last three years will push up agricultural gross domestic product (GDP).

One basis point is one-hundredth of a percentage point.

Southwest monsoon season in Asia’s third-largest economy ended with rainfall that was almost normal at 97%, leading to record sowing and filling of reservoirs with sufficient water after two years of drought. India recorded a rainfall deficit of 14% and 12% in 2015 and 2014, respectively.

In a report on Sunday, the research arm of Crisil Ltd pointed out that for the first time in three years, rains were well-distributed with only 33% of the districts seeing deficient rains, compared with 49% in 2015 and 46% in 2014 and, more importantly, more than half of these deficient districts are well-irrigated and the ones that are not are agriculturally less relevant.

The report, authored by Crisil economists Dharmakirti Joshi, Dipti Deshpande and Sakshi Gupta, pointed that there is stress in some pockets—mainly in Gujarat and Karnataka, where a few districts are witnessing their second or third consecutive deficiency.

Crisil, therefore, expects nominal agricultural GDP to rise by 1.49 trillion this fiscal year, compared with 978 billion in fiscal year 2016, despite a spike in farm output putting downward pressure on prices and farm incomes.

Also Read: India misses monsoon rainfall forecast as La Nina proves elusive

It pointed that the rural markets, which account for 54% of private consumption, are already seeing some green shoots.

“So this time around, India’s consumption story will have two legs instead of just the urban engine on which it has duked out the past two years," Crisil’s chief economist Joshi said in the release.

Higher government expenditure on agriculture and rural development in the first quarter will provide further support to income and demand in rural areas.

Urban consumption remains healthy and will benefit further from lower inflation, spillovers from robust agriculture activity in manufacturing and services, greater transmission of past interest rate cuts, and the Seventh Pay Commission and One Rank One Pension payouts.

The Crisil report pointed that over time, rural consumption has shifted from necessities to discretionary goods, and more than half of the country’s consumer durables stock, such as television sets and electric fans, are consumed in the hinterland, the report said adding that the sales of two-wheelers, motorcycles and multi-purpose vans indicate that rural demand has recovered in the past few months.

In the first quarter of fiscal year 2017, sales of multi-purpose vans rose 5% and those of two-wheelers and motorcycles 8%, while durables picked up pace after de-growth in fiscal years 2014 and 2015, partly driven by a revival in urban demand.

With a good monsoon this season, the rural demand is expected to rise and consumer durables sales should accelerate.

Growth in consumer non-durables production, which includes fast-moving consumer goods such as food, personal products, cosmetics, cleaning products and fuel that account for 34% of rural demand, appears to have bottomed out.

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Published: 03 Oct 2016, 09:44 AM IST
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