Budget puts rural demand revival at the core of new agriculture measures

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A slew of measures announced in the Union Budget 2025 targeting the agriculture sector is expected to further boost rural consumption, which began recovering from the pandemic blues in mid-last year. Measures such as enhanced credit access, a renewed focus on pulses, and targeted support for aspirational districts are expected to  bolster farm incomes and thereby increase  spending in the rural areas.

Finance Minister Nirmala Sitharaman in her Budget speech 2025 on February 1 announced Prime Minister Dhan-Dhaanya Krishi Yojana, which through the convergence of existing schemes and specialized measures, is expected to cover 100 districts with low productivity, moderate crop intensity and below-average credit parameters, thus benefitting 1.7 crore farmers. "

"This is a positive step towards addressing low productivity while also supporting income enhancement for farmers in these areas. It will also promote processing capacity, benefiting nano and micro-enterprises in rural regions," said Ashok Varma, Partner and Education & Skill Development Expert, Grant Thornton Bharat.

Additionally, a six-year mission has been launched to achieve self-reliance in pulses, with a particular focus on tur and masoor, further supporting agricultural growth.  Centre has also  enhanced the short-term loan limit under the Kisan Credit Card (KCC) scheme from Rs 3 lakh to Rs 5 lakh for 7.7 crore farmers, fishermen, and dairy farmers.

"Agricultural benefits will enhance retail penetration in Tier 2 and Tier 3 markets by improving rural incomes and purchasing power. Additionally, expanded skill development programs will create jobs in the retail front-end sector, further driving sales," said Puneet Mansukhani, Partner - Digital Advisory and Sector Head- Retail, KPMG in India.

The economic survey tabled on January 31 had flagged that social sector initiatives have reduced inequality and increased consumption spending.

It noted that the average monthly per capita expenditure (MPCE) in rural and urban India in 2023-24 is estimated at Rs 4,122 and Rs 6,996, respectively. According to the survey, this is the largest growth in average MPCE between 2022-23 and 2023-24 among the bottom 5–10% of the population in both rural and urban areas.

The FMCG demand in rural India is projected to grow by up to 400 bps more than the urban demand, according to TeamLease. According to market research from Nielsen, price growth was recorded at 1.5% for the consumer goods companies, with rural volume growth surpassing urban growth for a third consecutive quarter, reaching 6%.

As stressed urban consumers cut back on spending, sales across categories — from biscuits to cars — have taken a hit. However, rural areas continue to show consistent trends of upgrade amid digital expansion and rising incomes. Rural consumers are increasingly opting for higher-quality or premium products, even at higher costs.

The economic survey predicts that the impetus from rural demand is expected to continue in the second half of this fiscal, riding on returns from a bumper Kharif crop and higher MSPs for a prospectively good Rabi crop.