Rural consumption improving, set to narrow gap with urban consumption: Morgan Stanley economist

“When we also look at some of the data points such as volume growth by certain data aggregators for FMCG companies, then also it shows that rural volume growth for FMCG products is improving,” said.

Rural consumption is showing signs of recovery and should continue to pick up as the capex cycle picks up further, Morgan Stanley’s Chief India Economist Upasana Chachra said in an interaction with Moneycontrol.

“When we look at high-frequency rural data like fertilizer sales, tractor sales, or rural unemployment rate credit in the agriculture sector or a host of such data points like two-wheeler sales, etc, then rural activity continues to gradually improve, in our view,” Chachra said.

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“When we also look at some of the data points such as volume growth by certain data aggregators for FMCG companies, then also it shows that rural volume growth for FMCG products is improving,” she said.

Chachra said rural consumption was lagging urban for now and was growing off a low base, but it is steadily improving.

“We will see a slow-paced improvement in the rural demand over the next year as well. The gap between urban and rural should narrow because rural should get support from improvements in labor market conditions, which we can see with the pickup in capex, construction activity, and real estate activity, which helps to absorb a lot of this surplus non-farm rural labor,” she said.

That would accelerate the process of labor-sending money back from urban or semi-urban areas to rural areas. This in turn would create the cycle for consumption and growth in rural.

Urban consumption, on the other hand, continues to well, Chachra said.

“Most of the high-frequency data, especially related to say services-related data points, are doing fairly well. And that's what we can see in the Q3 data set, that the services sector has continued to recover further. But I think the gap between urban and rural should further close in 2025,” she said.