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Resource centre on India's rural distress
 
 

Rural India loses steam: Demand for tractors, agriculture machinery, durables decline as income falls, prices rise
-The Economic Times
 
In 2007, 27-year-old Kaushalendra from Bihar shunned the placement frenzy, which would see many of his colleagues earn fat salaries, in favour of a more homespun alternative: Selling fresh vegetables on a push cart to residents of his hometown Nalanda. 
Rural Boom
Putting together whatever money he had, Kaushalendra began the venture in 2008 and soon started doing well. People didn't mind paying a little more if they saw value in it and despite the global financial crisis, the rural economy was doing well. Four years on, it is a different story. "Forget about the premium products, people have stopped buying our fresh vegetables and are happy with cheaper goods," he says. 

Far away in Nashik, Maharashtra, transport operator Faruk Pathan is rueing his misfortune as he contemplates his now-depleted line of trucks. Last year, he used to do 80 trips a month carrying vegetables to Gujarat. That number has now come down to 18-20. "I had to cancel my plan of purchasing two new trucks and instead sold four trucks as they were just standing idle. I had to prepay my debt," Faruk says. 

As the UPA government prepares to present the most crucial budget of its second tenure, it is facing a slowdown across vast parts of rural India. Falling prices may be a boon for consumers, but it can mean lower income and less money to spend on the local theatre, eatery and nearby bazaar for farmers, agri labourers and others dependent on agriculture. In the past three months, prices of many agricultural products have crashed, forcing families to cut back on expenditure. 

ET on Tuesday featured a story on retail firms doing well due to a sudden pick-up in demand in cities, but the picture in rural India appears to be getting bleaker. Worried companies, aware of the danger this can pose to their profitability, are now going back to the drawing board to figure a way out. So are finance ministry mandarins. 

Distress Signs are Everywhere 

In 2009, as the global financial crisis threatened to overwhelm India Inc and drown their P&Ls in red, it was rural demand that kept the economy buoyant. A protracted rural slowdown can hamper all recovery efforts and spell trouble for the overall economy next year. The signs are everywhere. 

Agricultural output growth is expected to decline to 2.5% in FY12 from 7% in FY11, according to the advanced estimates released by the Central Statistical Organisation, or CSO, the government's official statistician. Sales of tractors and agri machinery have slowed in the past three months and so have consumer products. Entrepreneurs, small traders and shop owners are increasingly finding conditions tough. 

"How can the market grow when farmer earnings are declining?" says S Sridhar, CEO of Escorts Agri Machinery. "The constant drop in food inflation for the past four months mirrors slowed demand for tractors," he adds. Maruti Suzuki India, which sells every fifth car in villages and small towns across India, acknowledges growth has come down. 

"Growth has been slowing in the current fiscal with demand in rural markets impacted by several macroeconomic factors like availability of finance and higher interest rates on auto loans," says Shashank Srivastava, Maruti Suzuki India chief GM (marketing). Emami, which gets 50% of its sales from rural markets, says sales growth is down almost 10%, the first time in two years. "We struggled to meet targets in some pockets," says Krishna Mohan, CEO, sales, supply chain and HR. 

"There is pressure due to food inflation, election fatigue in the north and fall in government funding for projects like NREGA (National Rural Employment Guarantee Act) in some states." Consumer durables maker Samsung India says rural markets slumped significantly in December but recovered a little towards end-January, especially for refrigerators and television. 

"There is a huge focus on strengthening distribution in rural markets. This will counter any effects of slowdown in sales," says Samsung India Vice-President (home appliances) Mahesh Krishnan. Rival Panasonic is also hopeful, adding that a few categories have pulled down the entire market. Manish Sharma, Panasonic India director marketing and sales, says in tier-II and tier-III markets, sales have fallen 10-15% since November with the worst affected being direct cool refrigerators, small-screen LCD television and window air-conditioners.