The Indian economy is showing some stress, particularly, in domestic rural and external demand amid continued domestic inflationary pressures. But many high frequency indicators continue to mitigate overall concerns. In its economic outlook survey, the Federation of Indian Industries (FICCI) has pegged median GDP growth this fiscal at 6.3%. The Reserve Bank of India (RBI) has pointed out in its latest ‘State of the Economy’ report that other agencies, which have lowered India’s growth forecast, will “gravitate to the monetary policy committee’s projection of 6.5% real GDP growth for 2023-24”.
Ficci has said in its survey that growth is expected to hold ground on the back of “good health of the financial sector, robust urban demand, uptick in private investment as result of government’s front-loading of capex, pick up in real estate /construction sector and the forthcoming festive season. Also, the contact-intensive services sector is likely to remain an important factor driving growth.”
What are the domestic rural demand concerns? Two-wheeler sales are one of the several benchmarks used by economists to gauge recovery in rural demand. In September, the year-on-year growth in two-wheeler retail sales (from dealers to customers) grew by more than a fifth or 22%, a seemingly healthy rate of growth. But economists at ICRA have pointed towards muted export potential, at least for one more quarter, for this sector. Also, despite the growth in year-on-year domestic numbers, the actual retail sales still remain below pre-Covid19 levels. And wholesale numbers (dispatches from factories to dealers) remained flattish in September, pointing to enough inventory across dealerships.
“The elevated cost of ownership, an increase in two-wheeler loan interest rates and inflationary pressures have pushed the demand recovery of two wheelers in the uncertain zone this festive season. Amid the impact of uneven precipitation on farm cash flows and consequently rural demand, concerns regarding a sustained demand recovery for the industry persist,” ICRA said in a note.
Not just two wheelers, demand for many products has still not recovered to pre-pandemic levels in India’s hinterland. The sentiments expressed by many fast-moving consumer goods (FMCG) companies are similar. These companies sell shampoo, soap, biscuits and confectioneries, and demand recovery in the rural areas enables consumers to stop down trading (going for lower sized packs or cheaper products), especially in the ongoing festive season. Hindustan Unilever Ltd (HUL), India’s largest FMCG company, reported a 1% volume decline YoY in the September quarter in rural areas while volumes were up 3% in urban pockets. The company said in a quarterly presentation that rural recovery will remain gradual.
But despite two-wheeler concerns and FMCG sales crawling in the hinterland, the RBI says rural consumers appear to be ready to “join the party. There is a demand for FMCG goods after the September showers, despite an uptick in freight and packaging costs. With Kharif sowing acreage exceeding last year’s coverage, joblessness in rural areas fell in September”.
The central bank has also said revival of the monsoons in September led to a decline in demand for work under MNREGS rural employment scheme.
With FMCG companies themselves hopeful of demand recovery in the hinterland in the December quarter, perhaps, concerns of economists over full-year GDP growth are unwarranted as of now.
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