Rural consumption projected to taper off

Written by Lalitha Srinivasan | Sunny Verma | Mumbai/New Delhi | Updated: May 17 2012, 07:09am hrs
For the first time since 2010, rural consumption growth is projected to taper off in summer due to tepid rise in farm incomes, Bank of America Merrill Lynch has said in its latest report.

Consumer goods companies executives, however, said the rural demand continues to be robust. Heads of companies such as Dabur India, Godrej Group, Marico and ITC Foods said they were bullish on rural sales and most companies are chalking out plans to aggressively expand into these markets.

The Bank of America Merrill Lynch report said: Our slower farm income forecasts suggest that a slowdown in rural demand is in the offing. Farm income growth from the summer (rabi) harvest will likely slow to 13% from 15.6% in the autumn (kharif) harvest. Income expansion from horticulture and milk is projected at 12% in 2012-13 from 22.3% in 2011-12.

However, the outlook provided by Godrej Group chairman Adi Godrej is upbeat on the rural sector demand. Rural consumers have more money in their pockets driven by Mahatma Gandhi National Rural Employment Guarantee Scheme and robust agricultural production last year. Rural consumption will continue to grow this fiscal too, he said.

In fact, Credit Suisse in a report last month had said that rural India is urbanising at a faster pace; with its consumption trend shifting sharply towards a more urban consumption pattern. Urbanising rural areas are likely to see continued income growth and therefore healthy consumption, it said.

Dabur India chief executive officer Sunil Duggal told FE: The consumption story is very strong and improving every day in the rural sector. People are now buying branded staples to an extent never seen in the past. The availability of products in the deepest hinterland has also increased tremendously.

Rising rural incomes and lifestyle changes are driving demand for newer products. Since 2009-10, per capita GDP has grown at a 150 basis points faster rate than in the rural India (at 6.2%) than in the urban India (at 4.7%), Credit Suisse said.

Chaitanya Deshpande, M&A head at Marico, said: Two years ago, our rural sales accounted for 25% of our total sales. Now it amounts for 30%. It is a daily consumption sector - so nothing can slow down its growth in rural or urban India.

Car sales in rural markets grew by 10% in 2011-12, with leading car makers, including Maruti Suzuki, Ford India and Hyundai, improving their sales network in this market.

Motorcycle sales, too, grew at 6.5% to 861,602 units in April 2012 in the rural areas, which now account for 40% of the total two-wheeler sales volumes, said Society of Indian Automobile Manufacturers president S Sandilya.

None of the consumer goods companies are reporting rural demand slowdown and high inflation has not crimped volume growth, said Nitin Mathur, consumer research analyst at Espirito Santos Securities. Companies such as Emami and Hindustan Unilever are, in fact, strengthening their rural distribution network.

ITC Foods division chief executive Chitranjan Dar said the company expects rural sales volumes to increase in 2011-12, thereby continuing the trend seen in the previous years.