RABINDRA DHAGGAD, a farmer in Ambanagar village of Madhya Pradesh’s Vidisha district had a bumper kharif crop for the second consecutive year. The 22-year-old commerce graduate, who took over his father’s farm, wanted to buy an SUV. With two years of good rains and the government marginally increasing minimum support prices (MSP), Dhaggad saved enough to afford his dream car.
But since then, Dhaggad has postponed his SUV plan indefinitely. “Fuel prices have risen over 90%, so have fertiliser prices. I am not sure when the recent fertiliser subsidy announced by the government will actually benefit us. Therefore, I need to be cautious... Saving enough money for healthcare is a priority now. Many people lost their lives as they couldn’t afford quality healthcare,” says Dhaggad.
For Hemendra Kumar Kaaldev, a sugarcane farmer from Uttar Pradesh’s Jaffarpur village, the recent MSP [(in UP, it is referred to as SAP or state advisory price] hike of ₹25 per quintal is hardly reason for celebration. The three-fold increase in farm input prices has offset the MSP hike and the sugar mill he sells his produce to, refused to compensate him. “Sugarcane prices have not increased at the same rate. Diesel prices and electricity bills are shooting up and it is becoming difficult to manage. My production costs have gone up 10-15%. I am forced to cut down on monthly consumption to check expenses.”
Dhaggad and Kaaldev bring out the ongoing dilemma in rural consumption. Despite a good harvest and financial support for the rural poor under the Pradhan Mantri Jan-Dhan Yojana, and MGNREGA making their way into people’s bank accounts throughout the Covid period, there is hesitance to spend. But, things are quite different in urban India. Ever since lockdowns were lifted and companies started hiring, there has been a spurt in consumption during the festival season, which according to experts, is primarily driven by pent-up demand. Will the trend sustain? The answer to that could well decide the urban consumption story.
Unlike urban India, rural areas were relatively untouched during the first wave of the pandemic and bounced back faster when the lockdown was lifted. But the spread of infections during the second wave coupled with increase in prices of essentials have forced consumers to think twice before spending. “Around 53-55% of the cost appreciation has been caused by fuel prices. It played a big role in muted consumption in rural India,” says Sachchidanand Shukla, chief economist, Mahindra Group.
According to the Reserve Bank of India’s consumer confidence index, the current situation index (as of September 2021), is at 57.7, much better than July’s 48.6, aided by optimism in the economic situation and employment scenario. While the decline in Covid cases certainly helped in elevating sentiments, the increase (between 7 and 20%) in prices of products across categories due to an unprecedented increase in commodity prices has been a dampener. Palm oil prices are up 1.8 times since March 2020 while polyethylene has risen 1.6 times. Edible oil prices have gone up 60-70%, and diesel and petrol rates have hit the roof. “We have not seen this kind of inflation in years. When consumer confidence is high they consume more. In the near future, consumption will remain muted as Covid fear remains, plus inflation is high and there are job cuts,” said Sanjiv Mehta, chairman and MD, Hindustan Unilever, while announcing the company’s Q2FY22 results.
Rural consumption has mostly been need-based... Farm mechanisation products are more in demand compared to air-conditioners or refrigerators.
Rising fuel prices have kept people away from cars and bikes; electric scooters, however, are selling like hot cakes.
Surge in commodity prices has led to down-trading in the FMCG category.
Post Covid, demand for packaged staples and health products such as dry-fruits has increased.
... While urban India still shops for luxuries
High-end smartphones and consumer durable products have seen an increase in sales, but mass-market products continue to see a lull.
Demand for cars saw an exponential growth, but supply played spoilsport due to shortage of components.
Demand for sports utility vehicles has surpassed sedans.
E-commerce marketplaces emerged outliers with almost 100% year-on-year rise in festival sales in FY22.
Increase in prices of products across categories due to rising fuel and commodity prices.
Farzana Mir, a home-maker in Bilkheria village near Bhopal confirms this trend. Her husband, a daily wager, was without a job for over a year after the factory where he worked shut down. Their only source of income during the past year has been from the kirana store her son runs in the village. However, as grocery costs shot up, patrons have been down-trading. “If they bought a litre of oil earlier, now it is half a litre. They have stopped buying fairness creams or talcum powder. This has affected our earnings as well as lifestyle,” explains Mir.
Madan Sabnavis, chief economist, Care Ratings, expects spending by rural India to be cautious for some time to come, though the cut in prices of edible oil and fuel will bring some relief. “Agriculture has seen good harvests and there has been a minimal increase in MSP (2-4%) for kharif crop. So there is stable income. But agriculture is around 40-50% of the total rural economy. SMEs and micro entrepreneurs got hit in both waves. Those units are not back on their feet yet and that will impact consumption.”
According to Naveen Chauhan, head, sales and after sales, Hero MotoCorp, the contribution of rural demand witnessed an uptick in FY21 due to limited impact of the first Covid wave in the hinterland, but got moderated during the current fiscal due to the severe impact of the second wave and late monsoon resulting in delayed harvest. “Price hikes in the past two years, first with the transition from BS-IV to BS-VI and then inflationary trends on th input cost side, have had an impact on the industry. The retail finance penetration is on an upward trajectory and it has been the highest ever for us during the recent festive period.”
Ramesh Iyer, MD, Mahindra Finance
“If they [rural consumers] have Ì€ 100, they want to keep Ì€ 20 for health emergencies.”
Sunil Kataria, CEO, India & Saarc, Godrej Consumer Products
“We will probably see post-Covid normal behaviour only by April 2022.”
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