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Business News/ Opinion / Columns/  Rural markets are showing no signs of easing stress
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Rural markets are showing no signs of easing stress

February’s Union budget did little to lift consumption as it did not reduce direct taxes or increase allocation towards rural job guarantee schemes

Photo: imagesPremium
Photo: images

For two consecutive quarters, research and analytics firm NielsenIQ has been flagging signs of demand moderation in rural markets. These were captured both in its September quarter (2021) report on the performance of packaged consumer goods companies and again in the December quarter snapshot of the sector released on 2 March.

For the September quarter, it spoke of a 2.9% year-on-year volume decline in India’s villages as people purchased less or bought cheaper cooking oils and personal care products. But the sector reported value growth led by demand in big cities and price increases taken to mitigate higher input costs. ITC Ltd, Hindustan Unilever Ltd, Britannia Industries Ltd, Parle Products Pvt. Ltd, among others, increased prices of soaps, detergents, tea and biscuits.

December quarter, too, shows a 2.6% year-on-year fall in packaged consumer goods volumes. Bearing the brunt of price increases, the consumption slowdown was more accentuated in rural markets at 4.8%, while urban markets declined by 0.8%.

February’s Union budget did little to lift consumption as it did not reduce direct taxes or increase allocation towards rural job guarantee schemes. In fact, it cut back on the allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme, which had helped many rural households during the last two years of the pandemic.

Rajat Wahi, a partner at Deloitte India, attributes the rural slowdown numbers also to the base rate effect due to Q4 ‘20 and Q1 ‘21 being very strong quarters coming out of the lockdown. “It was also the time when a lot of labour had moved back home, and that drove up consumption in rural markets backed by government support," he said.

Additionally, pressure on rural demand is due to the price hikes taken by packaged consumer goods firms owing to inflationary pressures, he said. “Overall inflation due to fuel price hike is impacting prices of fertilisers, cooking oils, etc., forcing rural consumers to trade down and hold back consumption," he said. Besides, the bigger impact of second and third wave in rural markets forced rural consumers to make provisions for medical expenses.

Angshu Mallick, chief executive and managing director of Adani Wilmar Ltd, which sells Fortune brand edible oils, agreed that price increase has resulted in consumption slowdown, especially in rural markets. “Categories like staples have seen a high price increase in last two quarters, leading to larger price growth in rural markets and, hence impacting the volumes," he said. Mallick said as per Nielsen RMS Data of December quarter, consumer packed oil in the 0-5 litres category in rural India has seen a 5.1% decline while packaged atta (wheat flour) category remained flat in the same period.

The increase in prices has led the consumers to go back to small pack sizes, he said.

To revive rural markets, household income needs to be driven up, said Wahi. This could be done by pushing through the schemes that the government announced, such as technology implementation for farming, building roads, expanding the railways, pushing employment schemes as these could provide more jobs and income for rural consumers.

The Ukraine-Russia conflict is expected to further fuel inflation and depress demand. However, Wahi doesn’t think that geopolitical factors will have a major impact on rural consumption other than supply chain shortages that may impact raw material pricing.

But Ajay Sharma, senior vice president of the rural business division at Usha International, who has seen his sales improve in rural India in the last two years, said the global unrest may have depressed buyer sentiment. “While the effect was more on packaged consumer goods, consumer durables still being a developing market were little less affected barring in the East which saw a downward trend owing to the lower cost of rice crop." Usha sells a range of products, including fans, coolers, and home appliances.

Though he expects sales in the rural markets to revive, Sharma warns of geopolitical tensions, the outcome or impact of which cannot be predicted right now. “One can only wait and watch to see how it really pans out and what impact it will have on the oil prices and inflation as these two factors would impact the demand and consumer sentiments across markets," he added.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pre-ssing issues related to all three. Or just fun stuff.

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Published: 09 Mar 2022, 10:53 PM IST
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