Farmers to the rescue: India pins hope of economic revival on rural sector


India’s economy left cratered by the pandemic is drawing energy from one of its invisible and often-neglected engines: farmers.

Trade leaders, policy makers and politicians alike are pinning hopes on the rural sector as bountiful rains have set the stage for another year of record crops. Higher disposable incomes with farmers are expected to spice up demand from automobile to cement to gold jewelry.

That contrasts with the urban areas, where companies are still struggling to spice up their sales following the pandemic that has hit commerce activities, hurt demand and caused labor scarcity. The adverse affect of the world’s strictest lockdown in March continues to hang-out, but the hinterland is holding out hope.

Maruti Suzuki India Ltd. and the native unit of South Korea’s Hyundai Motor Co., the two main players in India’s car market, said October sales were the best-ever for any month. Hero MotoCorp Ltd., the world’s largest maker of motorcycles and scooters, in addition to smaller rival Bajaj Auto Ltd., reported record sales, as rural markets given a cushion against a downturn in cities.

“We have seen a stronger demand from rural areas across categories for our products as in comparison to final year,” Srinivasu Allaphan, director of sales and marketing at JK Tyre & Industries Ltd. said in an email response. “We expect it to sustain for the next three quarters. Higher sales in rural markets will compensate for the losses in urban and semi-urban towns.”

Rural incomes have stayed strong as production of monsoon-sown food grains is estimated to hit record 144.5 million tons. The government’s move to bring enhance prices for some crops and boost spending on rural employment programs have also supported incomes of farmers and laborers.

“Despite Covid-19 and the related lockdown, the agricultural activities across the country have nearly remained unaffected. This has raised the hope that rural demand could drive the economic recovery,” according to India Ratings and Research Ltd., a unit of Fitch Ratings Ltd.

Unprecedented Demand

Some companies reported strong demand for their services and products, such as automobile, cement, steel, tires and jewelry, in rural areas.

Hindustan Unilever Ltd., Asia’s biggest maker of personal care products by market value, said its sales jumped the most since 2011. “We are seeing rural markets in addition to smaller towns perform slightly better,” Sanjiv Mehta, chairman and managing director of the company, which sells its products through 8 million outlets in the nation, said on a convention call.

Tractors, passenger cars and light commercial vehicles are seeing a healthy demand as rural buying continues to be strong, according to Mahindra & Mahindra Financial Products and services Ltd. Farm equipment makers echoed the sentiment. “We continue to witness unprecedented retail demand,” said Hemant Sikka, president at Mahindra & Mahindra Ltd., which also makes tractors.

Even construction activities gathered pace. JSW Steel Ltd.’s retail sales volume more than doubled from a quarter earlier in the July-September period, the company said, while Ajoy Chawla, chief executive officer of the jewelry division of Titan Co., said demand in tier 2 and 3 markets was once fueled by weddings that were postponed earlier.

Some farmers preferred to invest in gold. “The post-Covid economic uncertainties will further improve demand, as gold has emerged as the safest investment option,” said Ahammed MP, Chairman of Kerala-based Malabar Gold & Diamonds. Tanya Rastogi, director of Lala Jugal Kishore Jewellers, said the rural sector is an “untapped treasure for the jewelry industry.”

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A construction site in Madhya Pradesh. Construction activities have gathered pace in rural areas.

Bharat Petroleum, the nation’s second-biggest fuel retailer, said its sales in urban pockets had nearly halved, prompting it to quickly focus on the rural and highways segments to contain the market share loss. “We wish to capture the rural presence and the Indian rural growth,” said N. Vijayagopal, the company’s finance director.

Flash in the Pan?

Demand for everything from tractors to jewelry however, rural India alone would possibly not be capable to underpin a recovery in the economy that’s headed for its worst annual contraction on record, according to top company officials and analysts. With more than eight million reported infections, the South Asian nation is the second-worst-hit by the pandemic after the U.S. and risks remain.

While demand is “good,” and is likely to remain so for the remainder of the year because of a good monsoon, it’s difficult to foretell sales beyond that, R.C. Bhargava, chairman of automaker Maruti, told reporters. A hurry to own private vehicles as people move absent from mass transport will be over by January, he said.

Automobile inventories had piled up in anticipation of strong sales right through the October-November festive season. Sales were already going through their worst slump even before the virus, and pent up demand right through the nationwide lockdown led to increased sales on a lower base.

“I would not in point of fact bet on the mass consumer coming back in a rush because so far I’m really not seeing any evidence of it,” Rajiv Bajaj, managing director at Bajaj Auto, told CNBC TV-18. “I’m extremely concerned, I’m very anxious.”

Rural demand will perk up moderately, but will be unable to offset the shortfall in urban demand because the share of agriculture in gross value added of the Indian economy ranged between 14.6% and 17.8% right through 2012-13 to 2019-20, according to India Ratings and Research.

Some experts highlighted that India is witnessing an uneven recovery, where upper-income groups are seeing a rapid and strong improvement in their economic conditions, while those with lower incomes are losing ground.

“I will have to say that while parts of the marketplace are coming back to normal, it still is a fair K-shaped recovery,” said Dipak Gupta, joint managing director at Kotak Mahindra Bank Ltd. “Unfortunately, the upper a part of the K-curve is still small as in comparison to the lower part.”

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