Rural demand remains strong in June quarter
MUMBAI: The deadly second wave of the pandemic did not cause a major dent to rural demand as was feared when the number of infections surged in India’s villages.
Data analysed by Motilal Oswal Financial Services showed rural consumption moderated in the June quarter when the second wave peaked but was still strong compared to pre-pandemic levels. Urban consumption surged during the period, benefiting from a low base.
According to nine economic indicators, rural consumption grew 6.6% from a year ago in the June quarter, compared with a 16.4% growth in the same period last year. That compared with an average growth of 3.7% in the June quarters of seven fiscal years prior to the pandemic.
The indicators used for the analysis were real agricultural wages, real non-agricultural wages, farmer terms of trade, agriculture exports, fertilizer sales, agriculture credit, Index of Industrial Production (IIP) food products, reservoir levels and rural fiscal spending.
“A simple average of 13 indicators used to estimate rural consumption on a yearly basis up to FY21 shows growth was weak at an average of 3.1% year-on-year (y-o-y) in the initial five years of the century, followed by an average 9.9% y-o-y growth over the next 10 years,” said Nikhil Gupta and Yaswi Agarwal, analysts at Motilal Oswal Financial Services.
The pandemic, which started in fiscal 2021, slowed rural consumption growth to just 2% during the year, data showed.
While rural consumption is continuing to grow despite the Covid blow, natural factors such as the progress of the southwest monsoon and kharif sowing are weak compared to last year.
Meanwhile, urban consumption, based on analyses of seven economic indicators, grew 27% from a year ago in the fiscal first quarter, primarily due to the low base of the year-earlier quarter when it fell 18%. Seven economic indicators used for urban consumption analysis are employee cost of BSE500 companies, Consumer Price Index non-food inflation, personal credit, IIP consumer durable goods, petrol consumption and real house prices and non-farm consumer imports.
In FY20, urban consumption contracted 0.3% due to weak performances in all 10 indicators covered in the Motilal Oswal analysis. Indicators such as passenger vehicle sales, IIP consumer durable goods, airline passenger traffic, real personal consumption expenditures grew 2.7% from a year ago.