Adequate procurement, MSP increases critical for rural demand pick up: Report

Rural demand has seen some traction in recent months and, going forward, adequate procurement as well as minimum support price (MSP) increases could push up rural incomes this fiscal, says a report.

According to a research report by HDFC Bank, the extent of pick up in rural demand is dependent on a number of factors, as a good monsoon alone will not do the trick.

"Adequate procurement and the effectiveness of MSPs to act as a floor for crop prices will be crucial. Even if MSPs are increased substantially, the actual income realisation of farmers will be determined by what percentage of crops will be bought at these prices," the report said.

Moreover, revival in rural wages will be essential for a sustainable recovery in rural demand.

"The most important leg of the rural demand puzzle is that while rural demand indicators are looking up, rural wage growth on the other hand has seen a decline. Nominal rural wage growth has been moderating since the middle of 2017," the report said.

As per the report, wage growth declined to 3 per cent in February 2018 from over 7 per cent in April last year. Also, real wage growth has seen a secular decline over the last year and has now turned negative.

Moreover, both agri and non-agri wages have declined. Agriculture wage growth declined from close to 9 per cent in April 2017 to 2.3 per cent in February 2018 with non-agricultural wage growth also moderating from 5 per cent to 3.7 per cent during the same period.

The report further noted that the increase in rural inflation, uptick in construction activity some and of the decline in rural wage growth is likely to be reversed.

"Looking ahead, given the expected pickup in the non-farm sector with manufacturing activity showing signs of revival, GST related disruptions fading away, and continued push to construction by the government the fall in agri wages might moderate and overall wage growth outlook might improve," the report said.