Rural consumption is expected to outpace urban household consumption by the end of the ongoing financial year, market research firm Kantar said on Thursday.
The rural market may see a volume growth (excluding atta) of 6.1 per cent by the end of FY25, up from 4.4 per cent in FY24, a report titled ‘The Rural Challenge’ stated.
On the contrary, volume growth in urban markets is expected to remain flat at 4.2 per cent, it added.
The market has been impacted by factors such as demonetisation, introduction of goods and service tax (GST), Covid-19 and inflation. Moreover, a host of unique factors are influencing demand in the rural market. These include migration, as an increasing number of people living in rural areas are moving to the cities.
Household contribution from rural has gone down to 65 per cent in 2023 from 70 per cent in 2004.
Development costs are also rising for rural consumers. With more access to LPG cylinder-based stoves, electricity connection, and vehicles like motorcycles, spending on these utilities have gone up too.
“Rural growth has largely been led by growth in population and households, rather than by consumption. While factors like demonetisation, GST and inflation affected rural late but they affected the segment more. Moreover, the significant development in rural has also led to an increase in costs for the rural households and is taking away spending on FMCG products,” K Ramakrishnan, managing director- South Asia, Worldpanel Division at Kantar, told Business Standard.
“According to Reserve Bank of India (RBI) data, the number of accounts in rural areas and the amount of money saved in those accounts are also growing at a high pace. This, too, has caused a decrease in consumption in rural India,” he added.
The rural markets are an important area for the FMCG sector. According to the report, half of the FMCG sector’s volume and value is generated by the rural market. While 51 per cent of the FMCG market value growth came from rural, they contributed 52 per cent to the overall volume growth in FY24.
While average consumption in the rural markets stood at 0.58 times of urban, the average spending was 0.55 times that of urban.
The report observed that the rural market is going to see a seismic shift once there is stability in the macro market.
FMCG companies have started seeing green shoots of revival in rural and expect this to continue on the back of cooling inflation and a good monsoon season.
“We are optimistic of a gradual uptick in consumption trends over the course of next year, considering predictions of a normal monsoon, improving macroeconomic indicators, continued government spending on infrastructure building, and lower inflation,” Mohit Burman, chairman, Dabur India had said in the company’s annual report.
“We expect a favourable monsoon, which will support agribusiness and consequently spur rural growth. Besides, a big wedding season with limited days in July is also expected to enhance large-scale out-of-home consumption of several products from our portfolio,” Angshu Mallick, chief executive officer (CEO) and managing director (MD) of Adani Wilmar had told Business Standard earlier.
First Published: Jul 25 2024 | 8:21 PM IS