Rural economy set for revival

UNLOCKING of many regions across several States in India and early progress of monsoon covering two thirds of the country are likely to boost rural consumption.

Experts also opined that rural economic recovery is also likely to be supported by the recent announcement of hike in minimum support prices of paddy along with the extension of food security schemes. Against this backdrop, FMCG firms such as Hindustan Unilever, Nestle, Dabur, and Britannia are expected to post better sales number from rural segment. "Consumer sector is a good proxy to rural recovery. As monsoon has started well and second wave of Covid pandemic is behind us, we expect rural recovery to restart for consumer companies," said Abneesh Roy, executive vice-president- institutional equities at Edelweiss Securities.

Till Monday, monsoon rains have covered two-third of the country, nearly a fortnight ahead of the normal schedule. The early arrival of monsoon rains in central and northern India will help farmers sowing of summer-sown crops such as paddy, cotton, soybean and pulses, and may also boost crop yields.

Apart from healthy progress of monsoon and crop sowing, rural parts of many States have already unlocked post the second wave of pandemic. As rural sales account for around 35-40 per cent of the total sales of leading FMCG firms, this augurs well from consumption point of view. "Most of these (FMCG) companies have 30 to 45 per cent of India business from rural consumers. With lockdown ending, kirana shops will also start normalising (as far as operations are concerned)," said Roy.

During the first wave of the pandemic last year, while the urban consumption dipped drastically, rural consumption supported Indian economy.

owever, the second wave affected both rural and urban regions equally with rural consumption also being hit since March this year. As urban consumption in India is likely to take time for recovery due to massive job losses, rural sales is key to growth of most Indian companies this financial year.

"Both central and State governments are likely to remain aggressive on rural stimulus given key state elections are coming up," said Roy. The central government raised minimum support price (MSP) of summer-sown crops, increasing them by 1.8 and 6.7 per cent last week. The policy to offer farmers at least 50 per cent returns over the cost of cultivation by raising MSP prices is expected to put more money in the hands of farmers. The Centre has also extended the food security scheme till November this year. "We remain positive on most names with HUL, Nestle, Dabur, Britannia getting more benefits from rural recovery," said Roy. Indian economic growth shrank by 7.3 per cent in the last financial year owing to the pandemic. In the current financial year, various estimates peg the GDP growth rate around 9 per cent.