Two consecutive years of better monsoon, MSP hike lift rural demand

Consumer goods makers say higher farm yield and MSP boosting discretionary spending among rural households

Two consecutive years of better monsoon have played a key role in reviving demand for consumer goods in rural India. Better yield, backed by a hike in minimum support price for crops like wheat and pulses, has helped sales growth in the recent quarter, several executives from the consumer goods industry told Business Standard.

According to data from market research firm Nielsen, the rural market's volume growth outpaced urban’s by a wide margin during 2017-18 – the highest in past five years. During the year, volume growth in rural market clocked 9.7 per cent compared to 8.6 per cent in urban areas. Value growth remained at 15.1 per cent in rural market also higher than 12.6 per cent in urban.

According to Suresh Narayanan, chairman and managing director, Nestle India, traction in the smaller towns (mostly in rural areas) is visible, of late. Sunil D’Souza, managing director, Whilrpool of India, observed that growth in the rural market has been better than that in urban areas. He says the urban market too has delivered growth, but it was below their expectations.

Executives in the consumer goods industry say that uncertainty over the macro-economic situation and in the job market has dented consumer confidence in urban areas, while rural households have started spending more. Two consecutive years of better monsoon – in 2016-17 and 2017-18 – led to better crop yields. Also, talks of a massive hike in MSP rates have lifted consumer confidence in rural areas. MSP for pulses have been revised once already. In certain states like Madhya Pradesh, MSP for wheat is already at the peak – thanks to the upcoming state election.

According to experts, a renewed focus on the rural market by most consumer good firms has aided growth. Since the implementation of goods and services tax (GST), most large consumer good firms like ITC, Dabur and HUL have increased focus on catering to the hinterland through direct distribution. This may have helped in better coverage and control of the market.

Moreover, beverage makers like Coca-Cola and PepsiCo’s drive to increase consumption have resulted in better penetration and suitable products for a smaller market that earlier remained un-noticed. The two cola majors have also launched and placed products that are specifically targeted towards consumers who cannot afford regular cola.