Rural consumption on a decline as farmers’ income continues to remain under stress: Motilal Oswal

• Rural consumption grew only 4.6% YoY in Q3 FY23 after rising 6.5% in Q1 and 5.5% in Q2 FY23.
  
• The slowdown was led by low growth in real agriculture GVA and a continued fall in non-agricultural wages among others.
  
• Winter rainfall that is useful during the Rabi season appears to have been weak this year.

An analysis of 12 proxy indicators suggests that rural spending grew 5.3% year-on-year (Y-o-Y) in the first 9 months of FYterms23 versus 0.6% YoY in the first nine months of FY22, according to Motilal Oswal’s EcoScope report. However, rural consumption grew only 4.6% YoY in Q3 FY23 after rising 6.5% and 5.5% in Q1 and Q2 FY23, respectively.

Some of the proxy indicators include real agri wages, tractor sales, fertiliser sales and agri export, among others.

The slowdown in rural consumption in Q3 FY23 was primarily led by a four-quarter-low growth in real agriculture Gross value added (GVA), a continued fall in non-agricultural wages, and a sharp slowdown (nine-quarter-low growth) in two-wheeler sales, the report said. A continued decline in farmers’ terms of trade (negative for eight quarters now), a drop in real farm exports (first decline in 10 quarters) and a three-quarter-low growth in real farm credit in Q3, were other reasons why Q3 2023 witnessed a slowdown in rural consumption.

A decline in terms of trade means that farmers are paying a higher price for agri inputs and services like diesel, fertilisers and electricity than they receive on the sale of their produce.

The report looks at factors that affect the farm sector adversely within the rural sector and also a few metrics that indicate the overall health of the rural sector.

According to data from the India Meteorological Department (IMD), winter rainfall that is useful during the Rabi season appears to have been weak this year. Except October 2022, all the other months up to January 2023 have had lower rainfall compared to the normal range as well as last year's level. Despite that, Rabi sowing has increased this year supported by comfortable water reservoir levels . The ‘terms of trade’ for the farm sector too have not improved. Based on five items (high-speed diesel, electricity, fertilisers, pesticides, and agricultural machinery & implements), the report estimates that farm input prices grew about 24% YoY over April 2022-January 2023 v/s a growth of only about 9% YoY in farm output prices during the corresponding period a year ago. This highlights the continued stress in farmers’ income.

On the bright side, Q3 2023, saw an approximately 1% YoY growth in real farm wages, which came after three quarters of consecutive declines. Also, after declining 9.9% YoY in the first nine months of FY22, the government’s real spending towards the rural sector has once again risen by a sharp 13.4% YoY in the first nine months of FY23.

To sum up, rural consumption has started ebbing. The report states that going ahead, though the central government continues to focus on the rural sector, weak income growth combined with higher interest rates could bring down overall consumption demand further.

SEE ALSO:
Women only make up 13% of sales leadership roles in India: LinkedIn
Note Shortcuts to Noise Cancellation, Google introduces enhancements to Android and Wear OS at MWC 2023