With sliding incomes, rural households are struggling to stay afloat and are curtailing consumption of essential goods
Vidisha/New Delhi: Ram Babu, who runs a hole-in-the-wall grocery store in Nateran village nestled deep inside Madhya Pradesh’s Vidisha district, doubles up as a daily wager. However, with villagers cutting on small purchases, sales in his shop are down. Moreover, landless households dependent on wage labour are unable to find work—a day of hard labour gets one as little as ₹150, yet there are no takers.
“I have sold only three packets of biscuits over the past month and people have stopped buying soaps and shampoos," Babu said, pointing to five-rupee packs of Parle-G biscuits stacked in a shelf. The fastest-selling item in Babu’s store is also the cheapest: a locally produced packaged snack called “Munna Bhai" which costs ₹1 (yes, you read that right) per packet. “They are a hit with children."
An hour-long drive from Nateran, the courtyard of farmer Mohar Singh’s house evokes a certain rustic charm. Cattle are munching on stacks of hay, the mud house is whitewashed as his elder son was married some months ago, and there are inviting charpoys next to a giant pipal tree. But all it takes is a brief conversation with Singh, who lives with his family of four in Barmani village, for him to lay bare his worries: bank loans of ₹500,000; soybean and pulses crop destroyed by excess rains; credit from grocery stores running over ₹50,000 which he has to pay back with 2% monthly interest.
Watch video: Slowdown stories from India’s heartland
“There is no hope till April next year when I expect to harvest the wheat crop (the crop will be planted by October end)," he said. Singh forces open a door in a corner of the house to show a motorcycle which broke down last month. “I have no money to get it repaired." Being a farmer Singh is lucky to have some home-grown pulses to go with rotis, but he considers biscuits and poha (flattened rice, a popular snack in Madhya Pradesh) as unnecessary luxuries. “We can afford potatoes once in a week and green vegetables, rarely." A few toothbrushes stacked inside a plastic container nailed to the pipal tree are gathering dust. For the past few months his family has replaced toothpaste with raakh (ash from the wood-fired stove).
In Vidisha, an hour-and-a-half-long drive away from the state capital Bhopal, stretched finances have taught households to live frugally. What may be a necessity in any urban household, like a bar of soap or a tube of toothpaste, has attained premium status in this once agriculturally prosperous district, famed for its fine variety of ‘sharbati’ wheat.
The bare kitchens of landless households, which are scrounging for daily staples, make for a sorry sight in this high-profile parliamentary constituency represented by political stalwarts, from former prime minister Atal Bihari Vajpayee and three-time state chief minister Shivraj Singh Chouhan to India’s previous external affairs minister, the late Sushma Swaraj. “The current slowdown is driven by a demand collapse. Falling farm incomes and stagnant rural wages is taking its toll on the rural poor who comprise two thirds of India’s population," said Himanshu, associate professor of economics at the Jawaharlal Nehru University, Delhi.
Slow moving consumer goods
The consumption slowdown is not unexpected given the stress in rural India, which accounts for about 37% of the sales of fast-moving consumer goods (FMCG). “Rural (spending) growth is slowing down at double the rate of urban in recent quarters," said market research firm Nielsen in July. In the beginning of the year, demand for essential and impulse food categories also softened. The period between April and June has witnessed a slowdown across all categories with salty snacks, biscuits, soaps and packaged tea leading the slowdown, it added.
According to data from Kantar Worldpanel, another market research firm, for the first time in four years volume growth turned negative in rural India in the 12 months to 31 May (a 2% fall in moving annual total volumes). However, as FMCG brands pushed smaller packs to drive sales, average annual consumption of FMCG products across India fell by 4% in 2019 but households spent 9% more than what they did in 2018.
An FMCG sector analyst who did not want to be named said the decent volume growth numbers for the FMCG sector (compared to a sharp fall in automobile sales) could be due to an increased formalization. Following demonetization and goods and services tax rollout, larger players seem to have gained market share at the cost of smaller firms. This could be hiding the stress in FMCG to an extent.
A little distance away from Mohar Singh’s courtyard, Jitendra Raghuvanshi runs a large grocery store in Gulabganj, where customers come from around two dozen villages in the vicinity. Over the past year he has noticed a discernible change in consumer behaviour. “From biscuits to soaps, people have replaced high-priced items with cheaper, affordable ones. Earlier it was usual for many families to buy a five-litre tin of cooking oil, now most ask for smaller quantities. Sales of dry fruits and ghee used to make halwa and kheer are negligible." His monthly sales have fallen by half from six months ago.
According to Rahuvanshi, families are often hesitant while purchasing cheaper items. “You can see the shame in a farmer’s eyes when he pretends to buy a 50ml bottle of hair oil, apparently for the labourer working in his field, when actually it’s for his own use. Any packaged item which costs more than ₹10 is a hard sell now."
At an FMCG distributor’s warehouse in the bustling town of Ganj Basoda, about 45 kilometre (km) from Vidisha, the joke of the day is an order from a retail store, worth ₹96. “We just got a call asking for 12 small packs of vermicelli... things have gotten this bad," said Aaveg Jain, the owner who supplies to retailers in a radius of 40km.
According to Jain, over the past two months, daily orders have plunged from ₹70,000 to ₹25,000. “Three of my boys went out today but did not get a single order. No shopkeeper is willing to stock. From 300 cartons of soaps per month, orders have dropped to 30 cartons in August. Even during the mosquito season, sales of repellents did not pick up."
According to Rajen Jain, a distributor for Parle Products Pvt. Ltd, a popular brand in rural India, sales of premium biscuits and cookies have taken a hit but the cheapest of the lot, Parle-G, is still selling briskly. “Overall my daily orders fell by about 20% in the past few months."
But it’s not just retailers and wholesalers who are having a hard time. Yogendra Rana, who set up a private school on his family’s 25-acre farm land, and invested over ₹15 crore, is witnessing a steady stream of students dropping out as families struggle to pay fees on time. “About 50% of the 700 students, most of them from farmer families could not pay the fees for the previous two quarters. And, 70 of them have left the school for cheaper options," said Rana.
Roti and black tea
In Nateran, soaps, biscuits and shampoos do not make the cut in the grocery shortlist since most families are struggling to put food on the plate. “I have found work for four days in the last one month," said 25-year-old Rajesh Ahirwar, who lives in a tiny room with his two children and wife. A peek into the kitchen shows the lunch menu—green chillies tossed in oil and roti. When asked what they had in the morning, Ahirwar’s wife said “black tea". And? “Black tea and roti."
Ahirwar’s next-door neighbour, 40-year-old Shivlal is even worse off. The kitchen in his house, with a leaking roof falling apart due to incessant rains, is bare. No pulses. No vegetables, not even the ubiquitous potato. The lunch menu is same: roti with fried chilies. When asked when she last used a shampoo to wash her hair, Shivlal’s 14-year-old daughter Suarthi smiles, embarrassed. “That was eight days ago when he (Shivlal) worked for two days. We bought two sachets. Otherwise we use kali mitti (black soil) to wash our hair," said Shivlal’s wife.
In Barmani, 50-year-old Sahab Bai tells a sordid story with a straight face. One of her son has migrated to Gujarat and another is a bonded labour working for a quintal of wheat a month ( ₹1,800, or about ₹60 per day). A visit to her kitchen is no different. The same rotis with chillies, plus some rice cooked with salt and turmeric.
People like Shivlal, Rajesh Ahirwar, and Sahab Bai belong to the margins of the Indian economy which is in the grip of a slowdown, growing at 4.9% in the June quarter of 2019-20, the slowest in six years. India is home to over 144 million agricultural labourers like Ahirwar and the nominal daily wages they received grew by just 3.8% in 2018-19, the slowest in 14 years.
It’s not just daily wagers whose incomes have plummeted. Over 119 million farmer households (according to census 2011 data) have seen their earnings erode beginning with consecutive years of drought in 2014 and 2015, which were followed by a collapse in wholesale prices of crops from 2016 onwards, exacerbated by demonetization. In the April-June quarter of 2019-20 farm sector growth slowed to 2%, compared to 5.1% a year before.
According to Himanshu, the economist quoted earlier, while real wages in agricultural occupations declined by 0.5% in two years to June 2019, rural and urban consumption expenditure declined by over 4% per year between 2014-15 and 2017-18. “The fact that retail inflation averaged over 4% in urban areas while in rural India it is near zero also shows where the crisis is. Incentives to corporates or interest rate cuts will not revive the economy until the slide in demand is checked."
One rupee camel
The decline in savings rate (as a % of gross domestic product, or GDP) over the past several years shows that households have been drawing upon their savings to keep up consumption levels. Consumption was also supported to an extent by farm loan waivers and salary hikes following implementation of the 7th pay commission... these effects are now tapering off, slowing down consumption," said Arshad Perwez, an analyst with JM Financial, who tracks the rural sector closely.
In February, ahead of the general elections the Centre announced annual financial assistance of ₹6,000 (to be disbursed in three instalments) for 12.5 crore small and marginal farmer families, in a move to raise rural incomes and drive consumption. By now farmers should have received at least two instalments of ₹2,000 each, or an aggregate cash infusion of ₹50,000 crore. Actual income transfer, however, fell short and till early September farmers have received about ₹21,300 crore.
Abhishek Raghuvansi, a farmer from Vidisha, points to something more visceral. “I have seen farmers in my village gifting cars to bridegrooms while marrying their daughters. That is unthinkable today even after a good harvest. Something seems to have changed fundamentally. Earlier farmers used to come with tractor trolleys laden with harvest to wholesale markets, get paid in cash and return home with supplies, from clothes to packaged food and cosmetics. Now they get paid by cheques and discretionary spending has collapsed. Everybody is holding on to what they have."
Raghuvansi, who manages a 150-acre family farm, has held on to a stock of pulses worth ₹25 lakh for two years now, in the hope that prices may recover. He has also shut his tractor showroom and postponed purchases of expensive consumer durables. “When I feel like a poor man I will not buy a camel even if someone offers it for just ₹1, but when I feel rich I would not think twice buying that same camel for ₹100," said Sanjeev Singh, another farmer who owns 75 acres of land. “But that feeling of feeling rich has escaped me for many years."