Rural India Story – It is rural India that is now driving the economic demand revival

Rural India Story Rural India Story   It is rural India that is now driving the economic demand revival


In the last few weeks, the stock markets have shown some distinct trends across companies in different sectors. M&M has been one of the best performers in the market since Mar-20. While the cars division continues to see tepid sales, its tractors division has seen the best off-take in all these years. M&M is not alone because others like Escorts and TAFE also reported record tractor sales. Then there were FMCG players like Britannia that reported stellar numbers in the Jun-20 quarter, purely on the back of robust rural sales. What exactly is driving rural demand and is it driving the revival?

Limited COVID-19 impact

In the past, Indian villages and smaller towns were the hubs for the spread of many infectious diseases. However, in the case of COVID-19, it has been more of an urban phenomenon. The problem of social distancing was more relevant in crowded cities like Mumbai, Delhi and Bengaluru whereas rural India had its own ways to ensure these forms social distancing. Due to limited exposure with urban centers, the rural pockets saw very limited impact of the pandemic. Even if you look at the location break-up of COVID-19 afflictions, they are largely concentrated in urban clusters of Delhi, Tamil Nadu, Maharashtra, Gujarat and Karnataka. As a result, most of rural India did not see too much of economic impact of the pandemic. They also did not see any lag effect that could result in significant contraction in demand.

Monsoons have given a boost

The positive cues from rural India began with the positive monsoon projections. The IMD projected normal monsoons with rains at 101% of the long period average (LPA). This was a sentiment booster for agri-based companies and for companies based on rural incomes. The 2020 season began with normal rains and even timeliness and spread of the rains have been positive. Above all, rural India is also enjoying the dividends of late monsoons last year resulting in overflowing reservoirs and a bumper Rabi crop. Rural demand has benefited as the COVID did not really disrupt the demand equations in the aftermath of a bumper harvest year for farmers.

Government also did its bit

One reason for the robust rural demand has been that the government has also done its bit. Through the last five years, the government has continued its huge investments in rural infrastructure as well as job generation programs like the MNREGA. The MSP or minimum support price for most crops has been fixed at extremely attractive levels with a view to doubling farm incomes by 2022. In addition, the government has guaranteed loans worth Rs.123,000 crore to MSMEs to pull them out of a slowdown in demand. In a way, the rural thrust has kept rural India immune from the COVID impact. That explains the robustness of the rural story! ©

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