Above-normal rainfall in July has set the tone for the monsoon season this year, the Indian Meteorological Department (IMD) said recently while indicating the progress of the rains, a critical factor for farmers and consumers in rural areas. Yet, fast-moving consumer goods (FMCG) companies remain watchful of its impact on the demand for their products in rural areas, in part due to inflation and real wage growth concerns, which have hurt consumption in the past. A report by Kantar has pointed to population growth rather than consumption growth driving rural demand between 2004 and 2023.
As the government increased allocations to agriculture and allied sectors in the Union Budget for FY25 presented last week, apart from giving a fillip to spending in urban areas, FMCG companies hope consumption growth in rural areas, which stood at 1.1% over 20 years, will gather pace. Population growth in rural areas, on the other hand, stood at 2.3% over two decades.
“We are seeing green shoots in rural areas. While better monsoons this year (FY25) will help the agriculture sector do better than last year (FY24 agri growth rate was at 1.4%), food inflation remains sticky,” Sanjiv Puri, chairman and managing director (MD), ITC, said.
Mega deal alert: UltraTech Cement to acquire 32.72 stake in India Cements for Rs 3,954 crore
Telcos pay Rs 1.1K cr for spectrum
Aditya Birla Group invests Rs 5,000 crore in Indriya jewellery brand
Govt to tighten FDI norms for tobacco further
“Monsoons are trending in the right direction. It augurs well for the rural economy, but we will have to wait and watch to understand its impact on agriculture, employment, real wages and food inflation,” Rohit Jawa, CEO and MD, Hindustan Unilever (HUL), said after the June quarter results last week.
While rural volumes grew faster than urban in both the March 2024 and the June 2024 quarters, with research agency Kantar projecting rural growth at 6.1% in FY25 versus urban growth at 4.2%, rural markets lag behind urban over a two-year compounded-annual-growth-rate basis due to inflationary pressures on account of the Russia-Ukraine war which began in 2022 and hurt rural demand that year as well as erratic monsoons in 2023, which hurt agriculture and farming activity.
Rural inflation, meanwhile, has continued to outpace urban inflation for 12 months in a row to June 2024, according to the ministry of statistics and programme implementation (MoSPI). It stood at 5.66% in June, exceeding urban inflation by 127 basis points. One basis point is one-hundredth of a percentage point.
In the Budget, finance minister Nirmala Sitharaman has kept aside Rs 1.52 trillion — up by Rs 11,318 crore from FY24 — for agriculture and allied sectors. This is in addition to the spike in rural spending, up by 10% year-on-year to Rs 2.66 trillion. Dabur’s CEO Mohit Malhotra says these measures will help boost consumer demand in the hinterland. “We, for example, have been investing to expand our rural presence, which has grown by 22,000 villages to 122,000 in the previous fiscal (FY24). Budget measures will encourage us to further expand this coverage. We are working towards enhancing our footprint to 130,000 villages this year (FY25),” he said.
Nestle India’s chairman and MD Suresh Narayanan, while flagging food inflation concerns after the company’s June quarter results last week, said that his company continued to expand its village coverage despite external challenges. “Our village coverage has increased by 5,000 taking it to 2,05,000 villages, as our focus on building distribution infrastructure in Rurban geographies grows. The expansion comes amid external challenges such as lower consumption growth, concerns on continued food inflation and volatile commodity prices,” he said.
From: financialexpress
Financial News
