Despite the angst over falling rural demand for fast moving consumer goods (FMCG), the numbers tell a different tale.
While rural distress is a real and worrying problem, FMCG offtake in calendar 2015 grew at a healthy clip of 5.4 per cent over 2014 in rural India. During the same period, FMCG sales rose only 2.9 per cent over the previous year in urban India.
According to Indian Market Research Bureau (IMRB), the rural upstick demonstrates that products available at the “right price” and in the “right pack size” can beat the odds. With a good monsoon in prospect, FMCG demand should rise further in 2016.
Rural households have bucked the trend for a variety of reasons. One, agricultural income in tax-free; two, a number of industries have located manufacturing units near small towns where land prices are still cheap; and three, a proliferation of new retail outlets and malls have given non-urban consumers plenty of choice.
The FMCG buying culture has also been boosted by e-commerce firms like Amazon, Flipkart and Snapdeal who deliver to rural doorsteps, cutting through shoddy infrastructure and putting consumer goods a mouse click or touch screen away.
K. Ramakrishnan, general manager and country head – household panel, IMRB Kantar World panel, shed more light in an interview with a business daily: “If you look at rural (household consumption) over a three-year period, it moved from negative growth in 2013 and 2014 (-0.1 per cent and 3.2 respectively), to positive territory in 2015. This is because the second and third quarter (of 2015) saw a lot of optimism in rural consumers, pertaining to a good monsoon and harvest. That sentiment came down in the fourth quarter because the monsoon hadn’t delivered as per the expectations. It was weak.”
Despite two poor successive monsoons though, rural demand has not suffered as much as expected. Cars, scooters and tractors continue to sell well in small towns. While famers in states like Maharashtra remain in distress, rural purchasing power is rising at a faster clip than in urban India.
The Seventh Pay Commission and One Rank, One Pension (OROP) schemes have put several thousand crore rupees in the hands of middle-class families. Many retired folk among these families have moved to small towns, where living standards are lower, and are using their extra disposable income on consumer goods. The availability of new FMCG brands too has heightened consumer interest.
While agriculture accounts for just 15 per cent of India’s GDP, over 65 per cent of Indians live in small towns and villages. Their consumption pattern matters.
India needs not only consistent annual GDP growth rate of 7.5-8 per cent but rapid job creation. Jobless growth can be both a social and political disaster given India’s youthful demographics. A rural resurgence in 2016 following an above average monsoon will feed growth through the entire economy. Consumption will rise, lifting business activity across sectors.
As a corollary, the time is clearly right for Reserve Bank of India (RBI) Governor Raghuram Rajan to lower interest rates by at least 50 basis points. A tight inflation-obsessed monetary policy is hardly a panacea for low inflation. It has not controlled consumer price inflation (which remains above 5 per cent) but rather constrained consumption-led growth.
That is scarcely the way to create the ten million new jobs India needs every year. Bring down interest rates, Governor Rajan, and watch rural – and urban – demand grow.
Columnist
Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group
