A favourable monsoon and faster economic growth in 2018 are likely to boost farm income, which, in turn, will boost rural sales of motorcycles, cars and tractors
Mumbai/New Delhi: India’s top automobile manufacturers are expecting robust rural sales in the current fiscal year as a favourable monsoon and faster economic growth are likely to boost farm income.
Car market leader Maruti Suzuki India Ltd, two-wheeler maker Hero MotoCorp Ltd and tractor maker Mahindra and Mahindra Ltd generate about 35-50% of their sales from rural areas.
Rural market demand for two-wheelers has improved significantly after two straight years of near-normal monsoon. Motorcycle sales grew by over 10% in the year ended 31 March for the first time in six years on improved demand for cheaper motorcycles from rural and semi-urban markets.
Sales of Mahindra Bolero sports utility vehicle, another model that generates most of its sales from rural areas, also grew at a robust pace. In the two months ended 28 February, Bolero sales rose by 31% from the previous year.
“We have a focused rural strategy to increase our penetration and network in rural and upcountry India. In fiscal 2019, we aim to continue to leverage this network to achieve robust business growth," Rajan Wadhera, president of the automotive sector at Mahindra, said in an emailed response to a query.
Demand in semi-urban towns and rural areas is looking up as the impact of demonetization has abated, Vishnu Mathur, director general of lobby group Society of Indian Automobile Manufacturers (Siam) said, adding that a normal monsoon for a third year will bolster sales.
“In two-wheelers, the base is very high so even if there is a 10-12% growth, it will be great for the industry. Also, availability of finance has improved for the buyers which will also help," Mathur added.
Sales of utility vehicles and two-wheelers are likely to continue to grow at a healthy pace in the current fiscal year, according to Siam.
Rural incomes will receive a significant boost from a normal monsoon owing to agriculture’s heavy dependence on rainfall. This year’s monsoon is likely to remain normal at 100% of the long-period average, private weather forecaster Skymet said. The 2017 monsoon season was near-normal, with countrywide rainfall standing at 95% of the 50-year average. The forecast asserted that there was zero percent chance of drought in 2018, Mint reported on 5 April.
To be sure, the agency’s forecast had shown major deviations from the actual monsoon rainfall in 2015 and 2016 but 2017’s actual rainfall was in line with its prediction.
According to Skymet’s latest forecast, the monsoon onset month of June—which coincides with the beginning of the kharif sowing season—and the withdrawal month of September—which marks the beginning of the Indian festival season—could see good countrywide rainfall distribution, but July and August may see comparatively less rainfall.
Other factors such as crop prices (as determined by the minimum support price offered by the government), overall government spending on infrastructure, cash transfers and interest rates will also affect rural incomes.
“Road conditions, state government spending depending on the election year and a continued recovery in the mining sector and commodity prices would also determine rural auto sales," said Mohammad Shaukat Ali, an analyst with Quantum Securities Ltd.
Maruti Suzuki attributed more than 35% of domestic dispatches to dealers in rural areas in the year ended 31 March, a company spokesperson said in an email. The local unit of Suzuki Motor Corp. saw a 15% rise in rural sales in the period and expects growth at similar levels in the current year, the spokesperson added.
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