Budget 2016: Financial inclusion, MGNREGA to aid growth, says Rama Bijapurkar

Suppliers have underestimated the country's consumption patterns as half of India's rich still stay in rural areas and bulk of rural demand is being met by smaller players and China, says Rama Bijapurkar, Market Research Consultant. She believes urban sector is performing better than rural and eCommerce will be the key driver to meet consumer demand. However, rural economy remains a concern as drought and low construction activity have been hurting consumption, Bijapurkar tells CNBC-TV18. In such conditions, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has always served as a benchmark for rural employment. She is of the view that at a time when logistics and cost of living are significantly high, MGNREGA forms a major source of income for the poor. She believes increased access to infrastructure will help revive rural economy.  Below is the verbatim transcript of Rama Bijapurkar’s interview with Nigel D’Souza & Reema Tendulkar on CNBC-TV18. Reema: Give us a ground situation now. In the past, when we have spoken to you, you have indicated that the rural economy is looking up, in fact the growth has been slightly better than the urban economy but how is the situation been in the last six months and what can we expect from the Budget to improve the situation?  A: When all the stars are aligned, the rural economy does quite well. At the moment we are seeing the reverse situation. It is a fact that half of rich India lives in rural India and most of poor India lives in rural India too. So, we are seeing that the agriculture between the drought problem and between construction actually seizing in many places. It is like a double whammy because a lot of rural consumers are either engaged in agriculture or engaged in some form of labour related to construction.  So, the situation in different states is a little bit different but by and large it is not as good as we like it to be. So, consumer companies are certainly not very pleased about the state of rural demand. I think it is what it is, you have cycles and on a trend basis, obviously, half of India’s economy is in rural India, it is already there, so sometimes urban does badly, rural does well. Right now with the reversal, rural is doing badly, urban is not so bad. So, you have to just hedge your bets and have a multipronged strategy.

Nigel: In fact we haven\\'t had a great monsoon the last time around. So, auto sector on the whole really has got a bit of a knock. What is your sense in terms of the demand on the ground. Are you seeing demand coming through, do you expect the best is yet to come. We are hearing about a lot of companies talk about capacities coming on stream. I was listening in to an interview that you did in the past. You said that demand really is yet to catch up. A: Yes, as I said half of rich India actually lives in rural India. There is demand, it is awaiting the right kind of supply and we should be careful to not let a few things that go wrong or percent growth as compared to expectations actually make you say that there is not enough demand because this feasting and fasting bullish and bearish mentality consumer demand aren\\'t really warranted at all. So, yes, it is true that as long as you had NREGA it served as a sort of Libor Rate for labour so people earn more. At the moment when it isn\\'t there you are actually finding that the benchmark rate for labour and a lot of rural India does depend on daily wage and labour is actually downwards but if we have a good year a year later then we are going to be signing a completely different tune. So, I am optimistic. Reema: So, rural demand should pick up because you speak to a lot of consultants, you consult a lot of companies. Are they increasing their capacity to cater to increased rural demand? A: Right now we have a consumer that is far more ready than a supplier in many areas. In fact forget rural demand even below the top 20 percent of India is not really served by a lot of companies. We have underestimated our own consumption. So, some companies are certainly adding capacity. But the bulk of Indian consumption is actually being served by small suppliers in small sector and of course by China. So, the consumer is underserved both in terms of quantity and quality of goods that actually is available from the larger sector. So, that is why one is really hoping that it will be e-commerce that will drive servicing demand for things that consumers want for which there is repressed demand which large companies are not catering to at all today.

Nigel: The big event that the market is looking forward to is Budget 2016. This time around expectations are not great but what can they do really to spur growth? A: What I would like is taking cognisance of the fact that most of Indians are self-employed and extremely in modest in income. I would like to actually see outlays that enable these people to earn more. That would actually spur consumption a lot more and we are a consumption driven economy. What helps them earn more is basically more financial inclusion, better living condition. So, labour productivity goes up. Increased access to infrastructure as well as affordable transport, not some metro or smart city that is going to come up seven years later, we need that too. But a more immediate solution for many of these and when people are enabled to earn more they actually will because right now the logistics of living and the cost of it is really quite significantly high. I would also like to see a significant outlay in women safety because that is another way of making sure that more people are up and about and working longer hours, certainly for cities. Reema: Which will go faster, rural economy or urban economy according to you in the coming years and secondly which will be the sectors that could see the highest consumption, will it be autos i.e. tractors, will it be the FMCG goods, will it be the real estate sector because the Prime Minister is talking about housing for all in the next few years or will it be the irrigation companies that you believe could be the biggest beneficiary? A: The key point is that it is suppliers conduct that will determine what happens to their sector. Right now we seem to assume that the consumer through some magic fingers will actually suddenly be going to be beneficial to certain sectors. Of course housing will take off if you provide the right quality at the right price which we have still not been able to do. So, clearly whenever you drop prices on anything by having a reasonable quality taking cognisance of the fact that we are a large economy of modest income people things have worked. So, suppliers should actually understand that the consumer is ready willing and waiting and supply has to actually come to them. So, the sectors that do actually proactively understand the structure of demand in India and work for it will actually be the winners. As for rural versus urban we have had nine years where rural India actually grew faster than urban India. In any case what is really happening is this whole discussion of rural versus urban doesn\\'t make a lot of sense because from a consumption point of view we are at last seeing a scaled market which is rural urban continuing market, call it urban call it whatever you like. It is that mass market that we actually expect to see getting quite significantly consolidated going forward.