GOVT WILL TAKE SECTOR-SPECIFIC STEPS TO EASE STRESS, SAYS FM Consumption in rural India hits a 7-year low
Farm distress, stagnant incomes erode demand, shows data
NEW DELHI: Rural household consumption slumped to a sevenyear low in the September quarter, in a sign that the prolonged agrarian distress and near-stagnant rural incomes have eroded demand for consumer goods, market researcher Nielsen said.
Consumption of packaged consumer goods by rural households also grew at a slower pace than in urban areas for the first time in seven years, Nielsen said in a quarterly report on Thursday.
The rural economy has been plagued by falling crop prices and declining incomes, resulting in a severe slump in demand. Falling income has not only singed farmers but also landless wage workers, who together account for two-thirds of all rural households.
In the September quarter, rural grew at 5% in terms of value, sharply slower than 20% reported in the year earlier. Urban India grew at 8% compared with 14% in the year-ago period. Across urban and rural markets, September quarter growth rates dropped to 7.3% from 16.2% in the year earlier.
Consumption volumes grew 3.9% in the September quarter against 13.2% a year ago. Rural India contributes 36% to overall fast-mocing consuer goods (FMCG) spends and has historically been growing around threefive percentage points faster than urban. “In the last seven years, this is the lowest we are seeing from a rural growth perspective; second is, we have always seen so much potential coming in rural from a commodity to branding perspective that rural always used to outpace urban from a growth point of view. This is the first time around where we are seeing otherwise,” Sunil Khiani, head of retail measurement services at Nielsen South Asia, said in an interview.
Erratic rainfall in the last three months caused floods in as many as 13 states and worsened the plight of farmers, compounding the slowdown, Khiani said.
Nielsen has, however, retained its annual growth forecast for the FMCG market at 9-10%. In the quarter ended June, Nielsen had cut its earlier growth forecast of 11-12%. Analysts at Nielsen have warned that demand could cool further in the December quarter, before picking up in the three months to April 30. Nielsen tracks consumption of branded fast moving consumer goods in over 80 categories across urban and rural India. The slump in consumption has been hurting packaged goods makers over the last few quarters. Earlier this week, Hindustan Unilever Ltd (HUL), India’s largest household goods maker, said it has not seen an uptick in demand. For the September quarter, HUL’s revenue rose 6.7% to ₹9,852 crore from a year earlier. Sales volume rose just 5% during the period as demand cooled, especially in rural India. “On an overall market basis, the slowdown has happened more in rural areas than in urban. During good times, rural growth used to be 1-1.5 times that of urban in the last four-five years. Now, it has come down to half of urban growth,” Sanjiv Mehta, chairman and managing director of Hindustan Unilever, the local unit of the Anglo-Dutch firm, said after announcing the September quarter earnings.
Khiani said the researcher has seen trends in the markets, where shoppers were moving to lower price packs, something reported by several companies. Day after pledging more reforms to boost growth, finance minister Nirmala Sitharaman on Wednesday said the government plans to take sector-specific measures to revive stressed sectors.
“Government has announced specific measures to deal with the slowdown being faced by automobile sector and similar initiatives are being done and will continue to be taken for each of the stressed sectors. The positive intervention from government has to be a continuous process till the current slowdown comes to a halt,” Sitharaman told an event jointly organised by the US-India Strategic Partnership Forum, Ficci and CitiBank.
Industry lobby Ficci put out a series of tweets from Sitharaman’s roundtable with institutional investors in Washington. Other sectors represented at the event included insurance, banks, private equity and debt restructuring companies.
So far the finance minister has announced packages for automobiles, infrastructure, exports and the real estate sectors.
Sitharaman, who is currently in the US for the spring meeting of the International Monetary Fund, said the government is fully committed to introducing deep reforms.
“The fact that government is engaging with various stakeholders and taking several reform measures is strong signal of trust building,” she added.
The Union finance minister said investors can find no better place than India.
“It is one of the fastest growing (economies) even today ... So you will not have anything better... democracy-loving, capitalist-respecting environment ... in India,” Sitharaman was quoted as saying by PTI.
IN Q2, RURAL GREW AT 5% IN TERMS OF VALUE, SHARPLY SLOWER THAN THE 20% REPORTED IN THE YEAR EARLIER