Plough Back Their Bounty

t’s a paradox of plenty for the Indian rural consumer. Thanks to misguided government policies and private sector mismanagement, most farmers are sitting on bumper crops of paddy, cotton, pulses and sugarcane. They’ll have to wait to reap the benefits of high domestic and global prices. Sugarcane farmer Rakesh Sharma of Shamli, UP, says, “Sugar mills are yet to start operations...there’s no money to spare for festive purchases. The high prices we got last year went to repay debts.”

Despite this agonising wait, farmers are expected to get a better deal this year. Together with higher farm growth prospects is the continuing government thrust to raise rural incomes. To capitalise on an improved rural scenario, companies have mounted aggressive price and promotion campaigns. “Good kharif production and prices and brighter prospects for the rabi crop are favourable for rural growth. We hope to ride on that opportunity,” says Shiv Kumar, CEO of ITC’s rural business division.

The higher numbers for consumer durables growth in August is a positive indicator. “The growth has come largely from rural demand. The marginal propensity to consume rather than save is higher in rural areas so any additional income leads to higher consumer demand,” avers N.R. Bhanumurthy of NIPFP.

But some of the farmers Outlook spoke to warned that higher prices for their produce would not compensate for a 10 per cent rise in input costs. “It has become difficult to purchase seeds, fertiliser, diesel. So how can we think of buying new clothes or gold?” asks Rajkumar Dahiya of Sonepat. He says many paddy farmers in Haryana have been hit by pest and blight damage as they couldn’t afford to buy insecticide on time.

One clear indicator of the drift is that this year, higher costs have dampened the enthusiasm to buy gold. “Compared to last year there’s a 15 per cent shift from gold to silver in rural India, particularly in Rajasthan and UP,” reveals Anjani Sinha, president, Indian Bullion Market Association. And then, despite high food inflation promising competitive remuneration, a dampener for the rural growth story is a slowdown in microfinance/bank credit flows.