Green Shoots in Rural India Set the Stage for Economic Revival

Businesses are banking on a bumper harvest and high rural incomes to drive demand for goods after the coronavirus pandemic stunted growth in the country’s cities, where most of the factories and offices are located.

Business leaders expect a normal monsoon, record sowing of summer crops, improved winter harvest and a raft of government measures to help farmers and boost rural incomes to boost demand for goods ranging from two-wheelers to tractors. Among others that stand to benefit are consumer durables makers, farm inputs producers, cement companies and essential goods manufacturers.

Tractor sales, a bellwether for rural demand, have picked up strongly across rural belts and are headed for a record growth in June, industry executives said.

“Demand is robust due to various factors, including a strong Rabi (winter crop) output, good price realisations and higher government spending in rural India,” said Hemant Sikka, president, farm equipment at Mahindra and Mahindra, the country’s largest maker of farm equipment. Timely easing of the lockdown for farm activities and the start of a normal monsoon bode well for the rural economy, Sikka added.

Raman Mittal, executive director at tractor maker Sonalika Group, said farmers’ sentiments continue to be upbeat and June deliveries are expected to surpass May figures, which were 26% higher from a year earlier.

Two-wheeler maker Hero MotoCorp Ltd expects a clear uptick in customer sentiment. “We have been seeing robust retail demand and the numbers are improving week-on-week. Customer demand has been positive across the country, except for the markets badly affected by Covid-19, like Maharashtra and Gujarat,” said a company spokesperson.

Fortunes of two-wheeler makers are closely tied to that of the rural economy. Almost half of Hero MotoCorp’s sales come from the rural market.

Parle Products, which sells the popular Parle G biscuits, expects demand for packaged foods to improve in rural areas. “Rural has been better compared to urban in terms of off-takes,” said Mayank Shah, category head, Parle Products. Shah said that outlets in isolated rural markets have been opening, giving a boost to demand while rural households benefit from the government’s fiscal stimulus announced in May to combat the economic slump.

The emergence of green shoots in the rural economy suggests that the pessimism surrounding India’s economic growth may be overdone, economists said.

The resurgence in rural India can help the country partially offset losses suffered by worst-hit sectors like tourism and aviation.

The share of agriculture in the country’s national income is likely to go up by about 2 percentage points this fiscal, said DK Srivastava, chief policy adviser at EY India. The farm sector accounts for about 15% of India’s gross domestic product. “Rural economy should be more robust this year than normal. I think we should not be carried away by extremely negative assessment of some of the multilateral agencies,” said Srivastava.

Source: HT