Monsoon to boost growth

MSP rise to add Rs 30,000 cr to agri sector revenue and push sales of consumer cos.

During the slowdown years of 2008 and 2009, corporate India discovered the benefits of hawking products to consumers in rural India. Historically, apart from FMCG companies, very few companies have had a sizeable rural presence. But, all this has changed in the last three years, as domestic consumption has a much broader footprint. So, the onset of the monsoon a little early this year and an increase in the minimum support price (MSP) for kharif crops have come in as positive triggers for the agricultural sector.

While the Met department has predicted a normal monsoon across the country at 98 per cent, rainfall till 15 June is 3 per cent higher than last year. However, it is the July and not the June rains that matter for the agricultural sector, which accounts for 14.4 per cent of GDP and is heavily dependent on monsoon rains. The government has done its bit to boost farm output by increasing minimum support prices of kharif crops by 6-20 per cent. Consequently, more acreage is being devoted to kharif crops this year. Economists expect agricultural growth to come in at 2.7 per cent this financial year on a high base of 7 per cent last year. The government’s estimates stand at 3 per cent.
 

PROGRESS OF KHARIF CROP SOWING
Kharif crops	2011*	2010	% chg y-o-y
Rice	1,035	1,032	0.3
Pulses	2,860	2,810	1.8
Oilseeds	3,470	3,000	15.1
Cotton	2,165	1,542	39.8
Jute & mesta	8,470	7,780	8.9
Sugarcane	5,044	4,863	3.7
*as reported                                                    (figures in ’000 hectares)

While the acreage under production for different crops has increased significantly over the last year, the hike in MSP is expected to expand farm incomes by Rs 30,400 crore, assuming last year’s production levels for different crops, says Tirthankar Patnaik of Religare Institutional Research.

This will have a cascading effect on the economy. While increased production would help cool inflation to some extent, increased income of the farm sector will spur consumption. Companies that have invested in increasing their rural footprint over the last few years would stand to gain from this development. Among fast moving consumer goods companies, Hindustan Unilever and Dabur derive nearly 50 per cent of their revenues from rural India. On the discretionary consumer spend side, players like Maruti Suzuki (derives 20 per cent revenues from rural India), Mahindra & Mahindra (tractors account for 35 per cent of revenues), Hero Honda (60 per cent of volumes from rural India), etc, could benefit from increased farm income.