Rural Economy Key Driver Of FMCG Sector’s Resurgence: RBI
The Reserve Bank of India (RBI) bulletin notes that the rural consumption spending on the back of rising incomes has driven volume growth in the FMCG sector
India’s rural economy has been the key player responsible for the recovery of the Fast-moving Consumer Goods (FMCG) sector. Rural consumption spending has led to robust growth in aggregate demand in the second half of the year, as per the monthly bulletin by the Reserve Bank of India made public on 19 August 2024.
The RBI bulletin noted that the rural consumption spending on the back of rising incomes along with an improved infrastructure has driven volume growth in the FMCG sector, reflecting strengthening fundamentals. The sector witnessed 6.6 per cent volume growth in the first quarter of the current financial year (Q1FY25).
“FMCG companies are starting to see green shoots of revival, portending a seismic shift in their markets as price stability sets in and expectations of a better monsoon as well as higher budgetary allocations for the rural economy push up volume growth,” RBI highlighted in its monthly bulletin.
The apex bank attributed the recovery to the increasing utility penetration, such as LPG, electricity and two-wheelers across rural areas. The bulletin stated that it is bringing with it additional spending alongside newly adopted categories which include toilet and floor cleaners, bottled soft drinks and insecticide.
The rural savings are also increasing as evidenced by the rise in the number of savings bank accounts. The RBI noted that outstanding balances are also on the rise.
The RBI noted that the rural spending resurgence is being led by the receding inflationary pressures, which have driven a catch-up with the urban consumption volumes.
The apex bank has expected the rural resurgence to continue in the coming months due to the anticipated benefits of a better monsoon and increased government spending on rural development.
The bulletin stated, “These factors which act as stimuli to demand are expected to reinvigorate the hitherto subdued participation of the private sector in total investment, a key accelerator of the overall growth of the economy in view of higher levels of productivity and innovation.”
Earlier, Crisil had projected the FMCG sector to witness a 7 to 9 per cent revenue growth in FY25, driven by increased sales volumes and a resurgence in rural markets.
