Companies bank on rural purchasing power

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Published: March 1, 2015 4:12:05 AM

Even as consumer spending in the short term might be impacted due to the hike in taxes, India’s consumer goods...

Even as consumer spending in the short term might be impacted due to the hike in taxes, India’s consumer goods and durables sectors are enthused at the prospect of greater purchasing power in the hands of rural buyers, arising out of the government’s massive spending programme to empower them.

India’s rural areas account for around half of the consumption witnessed by India’s R2.25 lakh-crore FMCG (fast moving consumer goods) sector.

Finance minister Arun Jaitley said during his Budget speech that his government would be spending R79,526 crore for development of the people in rural areas, including on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA). In fact, Jaitley also said if he is able to garner additional financial resources during the course of the next fiscal, then he might even hike the allocation under MGNREGA, which seeks to provide all rural labourers at least 100 days of work, by another R5,000 crore.

Schemes like MGNREGA and initiatives to build roads and other infrastructure in India’s small towns and villages are expected to generate employment for lakhs of people and lead to an increase in their purchasing power.

“Investments in MGNREGA and infrastructure augur well for rural consumers. Proactive steps to drive demand and increase consumption will bring FMCG recovery back on track,” said Vivek Gambhir, managing director of Godrej Consumer Products.

YC Deveshwar, chairman of cigarettes and FMCG-maker ITC, said the focus on agriculture, infrastructure, health and education will enhance the social fabric of the country and contribute to equitable growth.

Not only FMCG companies, but even consumer durables firms and retailers are encouraged by their future business prospects in India’s rural pockets, owing to the measures announced by the government on Saturday.

Ajay Seth, chief financial officer of Maruti Suzuki India, the country’s largest carmaker, said the measures announced to develop India’s rural region were “likely to boost rural wages, thereby increasing consumption and consequently economic growth”.

For retailers, rural areas are both a sourcing destination, as well as a market. “The proposal to establish a ‘Unified National Agricultural Market’ is a step in the right direction, which will help farmers realise better prices,” said Krish Iyer, chief executive of Walmart India. “This, coupled with implementation of GST from next year, will not only bring relief to the end consumer, but also help the retail sector in a big way.”

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