Out Of The Woods: Rural Economy Is Showing Signs Of Recovery, Say FMCG Firms

Predictions of a normal monsoon, falling inflation and government spending bode well for recovery in rural India.

(Source: Freepik)

After several quarters of subdued farm incomes, worsened by high inflation and erratic rainfall, the rural economy is showing signs of recovery. Predictions of a normal monsoon, falling inflation and government spending bode well for the recovery in rural India to gain momentum during 2024.

Earnings commentaries by several listed fast-moving consumer goods companies indicate expectations of an improvement in rural demand as a recovering rural economy brings back purchasing power.

Gradual Recovery

The impact of inflation or price increases has been quite sizable, having an impact on rural segments, especially as it came through Covid-19 and inflation shocks, said Rohit Jawa, chief executive officer and managing director at Hindustan Unilever Ltd.

"But I think we are seeing a gradual recovery," said Jawa. Better monsoons will have an impact on the agriculture economy and, therefore, rural consumption, he said.

"In that sense, most likely, the worst has passed us," said Jawa, adding that the company does see a gradual recovery in rural consumption from hereon. However, urban consumption continues to be more resilient, especially at the premium end.

Primary sources of income for rural India are agriculture income, income from repatriation, and income from labour, he explained. Over the medium term, labour is going to get affected through the investments in Capex, while repatriation from urban areas post-Covid has been recovering and should start to pick up, according to him.

Agriculture is a lot more weather-dependent and all of us are hoping for a good monsoon, Jawa said. "So, (given) the cyclical effect of consumption, I believe now that we've had some years of negative, perhaps the positive end of the cycle is coming in."

He expects FMCG demand to continue improving gradually, with the company's price growth expected to see a low single-digit decline in the near term.

Also Read: HUL Foresees FMCG Demand Improvement, No Immediate Price Hike

Rural Consumption Outpaces Urban

During the quarter, the operating environment was largely in line with what had been seen in the preceding quarters, with some uptake in rural consumption, which grew ahead of urban for the first time in the last three years, said Mohit Malhotra, chief executive officer at Dabur India Ltd.

"We are optimistic that with the expected normal monsoon and improving macroeconomic indicators, government spending, lower inflation, and FMCG demand, we will see a gradual uptick, primarily driven by rural, that augurs well for Dabur," he said.

The double-digit growth in the company's hair oil category is an illustration of the fact that rural growth is coming back, he said. "...As in Nielsen also, we've seen 100 and 150 basis points improvement in rural India, while urban growth remains the same."

"We have seen rural growth from -5%, gradually now becoming 6%," he said.

"Rural took time to come back after Covid. After almost three years, we are seeing that rural is ahead of urban and I hope it is more structural in nature," Malhotra said. The infrastructure spending of the government and normal monsoon should augur well for all of us, and overall in the FMCG space, he said.

Rural Recovery Expected To Continue

While urban growth slightly moderated, rural growth witnessed a visible uptick towards the end of the quarter, said Saugata Gupta, managing director and chief executive officer at Marico Ltd.

"With improved macroeconomic indicators, enhanced government spending, a favourable monsoon forecast, moderate retail inflation, and reduced volatility in commodity prices, the upcoming year holds promise for a gradual uptick in consumption sentiment across both urban and rural," he said.

Also Read: Can FMCG Sector Break Its Three Straight Election Year Slump In 2024? — NDTV Profit Insights

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WRITTEN BY
Pallavi Nahata
Pallavi is Associate Editor- Economy. She holds an M.Sc in Banking and Fina... more
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