Rural India shows signs of revival for Mahindra lending unit2 min read . Updated: 27 May 2016, 09:49 AM IST
M&M Financial Services Ltd, the auto-loan unit of the nation's largest tractor maker, saw business pick up last quarter after a prolonged slump
Mumbai: There’s finally good news coming from India’s villages after incomes suffered from two years of drought and frugal government spending.
Standard Chartered Plc’s index of rural demand hit a 16-month high in March, and Mahindra & Mahindra Financial Services Ltd, the auto-loan unit of the nation’s largest tractor maker, saw business pick up last quarter after a prolonged slump. While the recovery was led by states that either held elections or spent heavily on roads and bridges, the weather department’s forecast of above-average rainfall stands to broaden the revival.
“Will it sustain? My answer is yes it will," Ramesh Iyer, the managing director of M&M Financial, said in an interview at the company’s Mumbai headquarters on Tuesday. Key to the outlook would be a good June-September monsoon, which would put more cash in the hands of India’s 800 million villagers to pay down loans or prepare for the Diwali-to-Christmas festival season, he said.
A revival in the countryside would ignite another engine for India’s economy, which is expanding below potential despite boasting the fastest growth rate among major markets. It would also be a political boon for Prime Minister Narendra Modi, who has sought to counter rising discontent in villages ahead of key state elections with a pledge to double farmer incomes by 2022.
M&M Financial, which has customers in 260,000 villages who borrow money to buy cars, tractors and other utility vehicles, last quarter reported its first earnings growth in a year as it improved collection of dues. Even so, bad loans as a percentage of the total rose to 8 percent in the year through March, from 5.9% the previous year.
Villagers make up about 70% of India’s population, and their ability to pay off debt had been crimped by back-to-back droughts and meager increases in guaranteed prices for their crops. The government’s neglect of a state-sponsored rural jobs program also fed rising discontent, prompting Modi to focus on boosting growth in the countryside in his budget for the year that started 1 April.
Data suggest the worst may be over. Tractor sales at Mahindra & Mahindra Ltd. halted a 13-month slide in November, and Standard Chartered’s index—which also includes sales of two-wheel vehicles, rural wages and consumer non-durable goods—hit the highest since November 2014.
“It’s still sluggish but given that road projects are picking up, given that the mining activity has improved, it’s likely to have a positive impact on rural demand," said Anubhuti Sahay, a Mumbai-based economist with Standard Chartered.
States are contributing a rising share of total public spending more on roads, ports and bridges, which also augurs well for local economies, said Devendra Kumar Pant, chief economist at New Delhi-based India Ratings and Research Pvt., the local unit of Fitch Ratings.
The effects of state spending on infrastructure was visible in places like Telangana, Andhra Pradesh and Uttar Pradesh, helping create jobs and business opportunities, according to Iyer from M&M Financial. While good prices for oranges and grapes gave a boost to some farmers in Maharashtra, state elections helped expedite business and regulatory decisions in Assam and Tamil Nadu, he said.
As Modi marks the two-year point of his term, the prospects for rural India may be brightening.
“People are still positive and hopeful," said Iyer, “which is one big change." Bloomberg