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Business News/ Economy / Rural demand revival: What new data tells us
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Rural demand revival: What new data tells us

Rural demand accounts for a third of consumer goods companies’ revenues, indicating the state of the rural economy

Rural demand was hit hard by the second wave of the covid-19 pandemic. It never really recovered from there. (Mint)Premium
Rural demand was hit hard by the second wave of the covid-19 pandemic. It never really recovered from there. (Mint)

Rural demand accounts for a third of consumer goods companies’ revenues, indicating the state of the rural economy. But in Q2FY24, some of these companies have done well, while others have not, raising doubts about revival in rural demand. Mint delves deeper.

Is there a revival in rural demand?

Not yet. Hindustan Unilever posted a flat profit in Q2FY24 compared to same period last year. Marico and Dabur have offered a not-so-upbeat result update for the second quarter. All of them blamed the continuing sluggish rural demand for their poor show. A recent study by NielsenIQ put rural demand in Q2 at 200-300 basis points lower than urban demand. However, Nestle India registered a 36% jump in profit in the second quarter of FY24 while ITC’s profit grew 6%. Experts attribute their better show to Nestle’s predominantly urban focus and a strong show by ITC’s cigarettes and hotels business.

What impacted rural consumption?

Rural demand was hit hard by the second wave of the covid-19 pandemic. It never really recovered from there. Unseasonal rainfall in the first quarter of 2023-24 resulted in significant crop damage and lower output. In the second quarter, the erratic monsoon hurt crop sowing. Add to that higher inflation which meant costlier food and other essential items. In fact, rural inflation in September 2023 was higher at 5.33% than urban inflation of 4.65%. Hit by higher costs and lower income, rural consumers held back their non-essential spending, delaying further the revival in rural demand.

What explains the growth in consumption in 2022-23?

It grew 7.5%, driven by urban demand. Consumers in cities spent, confident of their future. The Reserve Bank of India’s consumer confidence index touched a 4-year high in September. RBI data showed rising household liabilities as consumers borrowed and splurged. A NielsenIQ study shows a 10% urban volume growth as against rural’s 7% in Q2FY24.

How critical is rural demand for India?

The bulk of India lives in rural areas. A strong rural economy is a pre-requisite for faster economic growth as it fuels consumption, an important engine of growth. In FY23, India was able to post a 7.2% GDP growth thanks to strong growth in private consumption. This consumption growth came largely from the urban centres. If India has to consistently register a GDP growth in excess of 8%, rural consumption has to be strong. That would need a good monsoon, strong agricultural output and good prices for the produce.

What is the outlook for rural demand?

Some consumer companies are seeing green shoots as they head into the festival season. Most of them are hoping for a turnaround in rural consumption. But a lot will depend on water levels in the reservoirs and crop output as the Southwest monsoon has been erratic. Global factors are also at play. Oil prices have risen due to the Israel-Palestine conflict. This could push up inflation in India. Price increase affects the rural population a lot more than urban consumers and any revival in rural demand will have to wait.

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Published: 24 Oct 2023, 12:00 AM IST
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