Lockdown 3.0: Rural India may drive demand recovery amid Covid-19 crisis

Top executives at auto, tractor and consumer packaged goods firms are optimistic. They are betting on the reverse migration of labourers boosting consumption and prediction of a favourable monsoon.

As vast swathes of urban India remain locked down due to the Covid-19 pandemic, rural India, which is less affected by coronavirus and has been blessed with a record produce of rabi crops, too, holds out hope for recovery. This will especially benefit companies which derive a large part of their revenue from rural areas, say analysts.

“We expect the growth in rural India to be higher than the 1-2 per cent that we have seen in the past,” said Rajesh Shukla, managing director and chief executive at People Research on India’s Consumer Economy, a not-for-profit consumer research firm. A good harvest apart, a host of government measures to increase rural households income, would also push up growth, he felt.
 

However, Madan Sabnavis, chief economist at CARE Ratings, has moderate expectations. “While the rural economy does have a tendency to recover faster, a lot will depend on the price at which crops are procured by the government, farmers’ income and manufacturing and service sectors’ performance in the region.”

Agriculture accounts for only half of the rural economy — the other half comes from manufacturing and services by small and medium enterprises (SMEs), said Sabnavis. These firms have their fortunes tied to large companies in urban India. Hence, if the urban economy remains locked down, the rural SMEs will also get impacted.

But top executives at auto, tractor and consumer packaged goods firms are optimistic. They are betting on the reverse migration of labourers boosting consumption and the prediction of a favourable monsoon.
 

Rajesh Jejurikar, executive director – farm and automotive sectors, at Mahindra & Mahindra, said, “We see several positive factors, including a good rabi output, opening of procurement centres by the government, indication of good crop prices, reservoir levels etc, which should augur well for demand recovery for both autos and tractors in rural India.” 

While tractors will benefit from initiatives such as the opening of procurement centres, the indication of good crop prices and so on, the strong rural presence of Mahindra Bolero and Scorpio will help them, said Jejurikar, who is also bullish on the demand for Mahindra’s pickups owing to the requirement of essential goods movement.
 

Indeed, at this point, agriculture seems to be the sole bright spot in the overall gloomy economic outlook for the country. The sector may push up the country’s gross domestic product (GDP) in 2020-21 by 0.5 to 1 percentage point, the Centre said last month at a press briefing. The farm sector may record a growth of 3 per cent which is on a par with the long-term average for the sector, said NITI Aayog member and agriculture economist, Ramesh Chand.
 

Added Mohit Malhotra, chief executive officer, Dabur India, “Those who have returned to their villages, won’t come back quickly. They will stay on and do agricultural work, at least till the monsoons last. This will result in a demand uptick for food and daily-use items, though the ticket-size will be small.”

The maker of Chywanprash and Vatika hair oil, Dabur India derives 40 per cent of its sales from rural areas. The company says that it has seen an improvement in the offtake for toothpaste and Chawanprash in rural areas in the last few days.
 

Others, too, hope that rural India will hold fort while urban India remains locked down. “Currently, production and last-mile distribution are improving as the relaxations are kicking in. The reverse migration will also stabilise by end May-June.

Improvement in rural demand will show up in the July-September period as people settle into their lives there,” said Mayank Shah, senior category head, Parle Products, adding that rural revival will be pronounced in the September quarter.
 

“Besides, the government is making direct cash transfers into people’s Jan Dhan accounts, which should supplement their incomes,” Shah added. Parle Products derives 35 per cent of its sales from rural pockets.

Shenu Agarwal, chief executive—sales, marketing and emerging business, at Escorts feels that this is the best time for rural-focused companies. “The rural demand is much more fundamental and resilient as it is need-based.”
 

Agarwal revealed that from April 20, the day the ministry of home affairs exempted agri machinery from the lockdown, till April 30, Escorts sold 1000 tractors – 100 units a day. What’s more, close to 70 per cent of the dealerships in its network of 970 were already operational, he added.
 

Hero MotoCorp, the two-wheeler market leader which sells one in every two motorcycles in rural India, is also expecting a demand revival in the region.

“We are gearing up to tap into this anticipated demand through a slew of rural outreach initiatives under our umbrella rural programme, ‘Har Gaaon Har Aangan’ (Every Village, Every Household),” said a company spokesperson. These include their ‘Service Har Jagah’ (Service Everywhere) programme and easy financing and loyalty offers.