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The big question is whether the election results will push the Centre to act on faltering rural consumption. One of the first big decisions of the Union Cabinet in Prime Minister Narendra Modi's third term in office has been to hike the minimum support price (MSP) for about 14 Kharif crops. The move is aimed at boosting farmers’ income and consequently improving rural conditions. Other decisions such as the payout on account of the Kisan Nidhi scheme and the boost to affordable housing, are also aimed at boosting consumption.
While the MSP hike is welcome, it is not unusually high. Media reports state that the increase ranges between 1.4 and 12.5 per cent, with paddy, the most widely cultivated crop, seeing a notable 5.35 per cent rise in its MSP. How much this will alleviate farmers’ woes remains to be seen. “What really matters is the level of procurement of these crops and while wheat and paddy see concerted efforts by the government in procurement at MSP, the same does not take place for other crops,” says my colleague Ravi Ananthanarayanan in this article.
Per media reports earlier this month, S&P Global Market Intelligence highlighted that weak private consumption in India remains the largest concern, with rural demand in particular struggling to catch up. This ironically comes at a time when the country’s overall economic growth remains strong. Explaining the rural-urban divide, Barclays Research (India) explains that the slower private consumption is partly attributed to rural consumers while urban consumption has weathered the storm better.
That said, there is more that impacts rural wellbeing than merely farm income and MSP hikes. The annual survey of unincorporated sector enterprises (ASUSE) in the non-agriculture sector, analysed by Manas Chakravarty here, tells a dismal tale of poor wages that the predominantly informal workers are paid. The increase in rural wages for this category was a mere 0.55 percent over the period between April 2021—March 2022 and October 2022-September 2023.
However, all eyes are now on the monsoon. Will it be supportive for rural consumption this year? June has not been very encouraging as early reports suggest a below-normal monsoon for the month. Further, much depends finally on food prices and inflation, which in turn will determine the central bank’s decision on interest rates. “If the monsoon plays spoilsport, the wait for rural consumption revival could take longer than expected, unless the Full Budget rolls out measures that directly impact rural income,” adds Ananthanarayanan.
If one can call it a ray of hope, sales of two-wheelers and some segments fast moving consumer goods have seen traction in the first quarter of calendar year 2024.
The RBI Bulletin's State of the Economy report for this month also sees signs of consumption picking up.
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Vatsala Kamat Moneycontrol Pro
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