Prime Minister Narendra Modi’s historic third time coronation may not have happened in comfortable circumstances as on the past two occasions (2014 and 2019) considering the decisive reliance on coalition partners this time. However, when it comes to regular economic management and sustaining growth numbers, he may not have to worry much as there is no dearth of cushions. This also includes a decisive perk in rural demand which has somewhat been in a subdued mode for several quarters in the recent past.
A few days before the announcement of election results, the full year growth figure for the previous fiscal was declared. And at 8.2 per cent, it is quite impressive considering the current global conditions where modest single digit growth numbers are quite challenging. But, India is expected to sustain the growth momentum in the near run as well as the RBI’s latest projection earmarks. The latest monetary policy has given the forecast of 7.2 per cent GDP growth in 2024-25.
As mentioned above, there are a set of cushions for the near run economic growth and this includes demand push from the hinterland. A recent analysis of consumption trend clearly indicates that rural economy is going to decisively support the near run growth prospects. The RBI in its ‘State of the Economy’ report released last month, had maintained that the rural demand for fast moving consumer goods (FMCG) has outpaced urban markets for the first time in at least two years. Citing Nielsen IQ data, the report had further pointed out that the FMCG growth of 6.5 per cent in the recent quarter was driven more by rural growth of 7.6 per cent than the 5.7 per cent growth in urban consumption. “Rural consumption growth has gradually picked up pace and has surpassed urban (growth) in Q12024,” the Nielsen report had earlier highlighted.
For market analysts, apart from FMCG, another major pillar to gauge the mood of the rural economy is two-wheeler sales (rural India accounts for more than half of the total sales) and here too a sense of uptick is well visible. Several agencies which keep a tab on rural demand trends have reported a double-digit growth trajectory in the two-wheeler sales in the recent months. The bullish trends have been particularly witnessed in the entry level motorcycle segment.
The good news is: this uptick is expected to further continue with the prospects of a good or above average monsoon this year. The symbiotic chord between monsoon and the rural economy is no secret to anybody and if the rainfall projections are met, India may be looking at improved farm output scenario. The recently announced full year GDP numbers pegged agriculture growth at a low 1.2 per cent in the last fiscal (erratic rainfall pattern last year is also cited as a culprit) but with good monsoon prospects in the coming months, the situation may change drastically. Economists will tell you that an annual 3-4 per cent growth in rural economy often turns out to be the recipe for robust growth of the national economy.
Going by the words on the street, one of the reasons for the current government’s not so spectacular faring in the recent parliamentary elections has also been because of rural unrest, particularly in the agrarian sector. While farmers in the north were unhappy that their agitation on specific demands staged early this year led them to nowhere, farmers in the west were displeased with measures like ban on exports of commodities (e.g, onion in Maharashtra) which led them to financial loss. These instances have been further linked with larger macro issues like the growing inequality between the rich and poor and urban and rural pockets. More specifically, the government’s nonchalant attitude to appreciate its rural economy assets.
The present equations: recent uptick in rural demand, prospects of favourable monsoon, and forecast of modest GDP growth, however, bode well to give a fresh push to the rural economy. The third term of the Modi government (now a coalition structure) would like to commence its connect with rural constituency afresh and, therefore, its maiden budget is expected to be agriculture and rural economy inclined containing packages and measures for their direct benefits. The positive economic undercurrents as exhibited by recent growth in critical indicators like FMCG and automobile sales provide the right opportunity as the mood among rural stakeholders seem to be positive.