Rural Demand Points To Worsening Stress

India’s rural consumption points to a worsening distress that threatens to delay revival from the nation’s worst economic slowdown in six years.Demand for consumer goods in rural areas rose at its slowest pace in seven years in the quarter ended September, according to Nielsen India. Value growth in the hinterland fell to 5 percent year-on-year from 20 percent.The slowdown was less acute in urban areas as value growth—a combination of volumes and price-led expansion—softened to 8 percent from 14 percent a year earlier. Overall, the consumer goods industry’s pace of growth fell by more than half to 7.3 percent compared from 16.2 percent in just a year..Rural consumption is losing pace despite a spate of farm loan waivers since 2017 and Prime Minister Narendra Modi’s income support to small farmers. With Indians buying less of staples to cars, a liquidity crunch since the surprise defaults by IL&FS group a year ago only added to the slowdown. GDP growth fell to 5 percent in the quarter ended September, the lowest since the fourth quarter of 2012-13. While the government cut corporate tax rates and pushed easier loans, IMF and World Bank have slashed growth forecasts. And increasing stress in rural areas makes a quick recovery challenging..Rural India contributes 36 percent to the overall spends on fast-moving consumer goods and has historically been growing 3-5 percentage points faster than urban areas, according to Nielsen India. It’s now lagging first time in several years.“Earlier, rural used to be a multiple of urban growth. In the last 12 months, the slowdown in rural has been such that it is a fraction of urban. And urban growth is also flattish at 1-1.5 percent,” K Ramakrishnan, managing director, South Asia at Kantar World Panel told BloombergQuint. “Rural FMCG sector was growing in double digit for no less than six-seven years, so that is why this (slowdown) is causing a lot of shock among people.”Sanjiv Mehta, chairman at Hindustan Unilever Ltd., India’s largest consumer goods maker, acknowledged that deceleration was steeper in rural areas during the quarter ended September. “It’s been a pretty long time since we have seen the (rural) growth rate at half that of urban”.Categories and segments that rely on rural consumers are suffering more, Vineet Agrawal, chief executive officer at Wipro Consumer Care and Lightning Ltd., told BloombergQuint in an interview. The issue is that the trade isn’t stocking up as much it used to, which impacted the maker of Santoor soap in the July-September quarter, he said.South Fares BetterThe fall in demand for consumer goods, Nielsen India said, was sharper in north India than any other regions. Rural growth in the north tumbled 20 percentage points year-on-year to 2 percent in July-September, while it fell 10.5 percentage points to 8 percent in urban areas.Growth in rural areas of the south declined 6 percentage points to 11 percent, while in urban areas it rose 2 percentage points to 12 percent.For HUL, demand held up in Uttar Pradesh and southern states, the management said in an earnings call. But areas of stress include parts of Madhya Pradesh and greater Maharashtra (areas outside of Mumbai and Pune), some regions in Punjab and Haryana, the hilly states, and Chhattisgarh..Fall Across CategoriesNielsen data show slowdown across categories in both urban and rural areas. Barring south, all other regions have seen a steep plunge in growth of personal care, food and household products..Liquidity Crunch, Falling Incomes To BlameA high rural inflation, lowest yearly wage hike in a decade and crop loss due to floods impacted farm incomes, leading to a slowdown in demand, Nielsen said.Distributors BloombergQuint spoke with said consumption in rural areas has softened as lack of job opportunities hurt incomes. Crop damage because of heavy rains in the last leg of the monsoon, said one from Maharashtra.“Farmers income and rural income are growing at a very slow pace due to which rural spending has been impacted which has had an impact on consumption in these areas,” Devendra Pant, chief economist at India Ratings, told BloombergQuint.Lack of cash in the supply chain is another problem. According to Srinivas Phatak, chief financial officer at Hindustan Unilever, the real challenge continues to be acute liquidity crunch for retailers and wholesalers. “I think it’s not really where we need it to be,” he said in the second-quarter earnings call. “While many measures have been initiated, there still has to be the transfer through the banking system.”Of the company’s 3,500 distributors, many of the large ones are well positioned, Phatak said. “But if you really look at some of the rural areas in the central parts of the country, the overall liquidity crunch is actually coming again,” he said, adding that the improvement is some distance away.Falling commodity prices, however, have given consumer goods makers room to cut prices to drive volumes. Aided by falling prices of vegetable oil, a key raw material, HUL cut prices of its mass-market soaps Lux and Lifebuoy by 3-4 percent, and lowered rates of premium offerings including Dove and Pears by 2 percent.Yet, India’s largest consumer goods maker remains cautious. In HUL’s earnings call, Phatak said, “The near-term outlook for rural demand especially remains challenging.”.Watch | Nielsen’s Sunil Khiani on slowdown woes for FMCG sector:

Rural Demand Points To Worsening Stress

Rural consumption is losing pace despite a spate of farm loan waivers since 2017 and PM Modi’s income support to small farmers.

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