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Prices crash but rural demand remains robust PDF Print E-mail
Monday, 11 June 2018 04:02
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Shobhana story

 

At around Rs 775 per quintal, onion prices in April were the lowest they have been in this harvest month over the last four years — they were Rs 1,499.1 in April 2014 (see graphic). At Rs 464.7 per quintal, February potato prices were also the lowest in four years, over a third lower than in the same month in 2014. And yet, tractor sales were up 16.6% in FY18 on top of an even more impressive 18% in FY17.

With agriculture GDP slowing to 2.4% since the Narendra Modi government came to power versus 5.2% in the last four years of Manmohan Singh — thanks also to two years of drought — rural wages for male agriculture workers slowed to 5.8% y-o-y in February, according to CMIE data, compared with 7.5% last year. Yet, sales of two-wheelers, at least 40% of which sell in rural areas, grew 14.7% in FY18 against 6.6% in FY17.

 

With prices crashing for crops like potatoes, tomatoes and onions that comprise a fifth of all horticulture, experts believe output of fruits, vegetables and floriculture in FY18 would be significantly lower than the Rs 4.5 lakh crore in FY15 and Rs 3.3 lakh crore in FY16. The sugarcane crisis, more recently, was seen as the reason why the Jats shifted loyalties in the Kairana by-election.

Welcome to India’s rural conundrum where the farm sector is in acute distress but rural demand continues to remain robust. Nielsen data, for instance, shows rural consumption growing at 13.5% y-o-y in January-March 2018 as compared to 10% for urban India. Sales of consumer staples in rural markets, Nielsen data shows, were 1.4 times those in urban markets in January-March 2018; the ratio was 1.1 in the same period in 2017.

This is partly the impact of demonetisation wearing off in rural areas, but there are other factors at play as well. For one, agriculture is not synonymous with rural, even though the bulk of rural India works on farms — around two-thirds of rural incomes come from non-agriculture. So, with overall GDP averaging 7.4% over the last four years, rural demand has held up (barring the demonetisation phase).

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Rural inequality also ensured consumption didn’t dip too much even when farm growth slowed. According to PRICE’s income survey, a fifth of rural consumption comes from the top tenth of the population, and 34% from the top fifth; a third of the demand came from the bottom half — so even while income growth slowed, the better off kept consumption going. It does remain a puzzle, though, that with all the money being spent on rural roads and creating irrigation, rural construction wages have remained sluggish — they grew 3.3% in February 2018 versus 6.5% in the same month in 2017.

In the run-up to the elections, with the government readying for a much broader MSP-based deficiency payments scheme — it could cost at least Rs 80,000 crore in a full year — for farmers and rolling out an insurance-based health scheme, marketers can look forward to reasonably good rural demand.

 

 

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