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Where is India’s economic growth coming from? It’s ‘Bharat’ that’s leading recovery amid pandemic

Eyes are glued on activity trackers like smartphone ownership, mobility data and commercial real estate demand, as India keeps a tight watch on how recovery is shaping up after the coronavirus aided lockdowns. However, these indicators have an urban bias which might be looking away from what the corporate world has been reporting this earnings season — the demand push from Bharat. With a lower number of coronavirus cases in rural India, demand pickup has been better than urban India according to many companies that have reported their first quarter results. But, can rural India, that was said to be broke enough to not even buy a Rs 5 biscuit a year ago, now fuel India’s consumer demand?

Rural demand growing

Britannia, the company which manufactures Parle-G biscuits, was in the news a year ago for saying it could lay off up to 10,000 employees as demand was sinking. In the first quarter of financial year 2021, the company reported Rs 3,384 crore in revenue generated from sales, up from Rs 2,677 crore in the same period last year. Comments coming in from the corporate world strengthen the belief that rural India is where the focus is. Hindustan Unilever maintains that rural areas are witnessing green shoots and is not yet a full fledged revival; however, performance in comparison to urban areas is likely to be better.

“For India to grow there has to be a balanced growth. The balance does not necessarily have to be equal every year. Sometimes there is a lot of urban demand and the rural demand is slow because of a variety of factors and sometimes it is the other way around,” said Vikaas M Sachdeva, CEO, Emkay Investment Managers. Sachedva added that as a whole India and Bharat are actually taking things forward and balancing each other.

It is not just the FMCG space that is witnessing rural India’s growth. Maruti Suzuki recently said that demand from rural India is better than urban. Mahindra & Mahindra’s management said that its internal index for rural spend has been at the highest level for many quarters. HDFC Bank’s Aditya Puri in the conference call with market participants post the April-June quarter results said that rural economy has been isolated from the virus and good harvesting of Rabi crops has helped maintain demand. On the other hand non-banking finance company Bajaj Finance saw moratorium assets under management (AUM) for the rural B2B segment decline from Rs 690 crore in the first phase of the moratorium to Rs 210 crore in the second phase till June end. The rural B2C segment saw moratorium AUM slide down to Rs 1020 crore from Rs 3020 crore. In the telecom space Bharti Airtel said that the company witnessed shift in traffic from urban to outskirts and rural areas and from offices to residential areas, along with surge in data demand.

What’s fueling growth?

“A large part of the government’s economic package is to support the rural economy. If you put these significant government measures together, the objective is to raise the disposable income levels of rural households, get spending going,” Salman Haider, head of global growth markets at Barclays Private Bank told Financial Express Online. Government’s steps have also helped the rural push. “Two things that are looking good for the rural economy are the monsoon which is looking good and the agriculture reforms,” said Vikaas M Sachdeva.

Government support to the rural has ranged from grain transfers, direct cash transfers to women using Jan-Dhan accounts, increased crop procurement, PM Kisan payments, and increased allocation for NREGA.

Can it sustain

Although the rural recovery is looking good for now, the story could change. “While 39% on-year growth in NREGA person days shows good fiscal support, this being a demand-driven scheme, workers opting to work for Rs 200 per day (Rs 50-60k/year) points to a shortage of other work,” said Credit Suisse in a report in July. The global wealth manager while acknowledging the government’s fiscal support, highlighted that  India’s general government expenditure-to-GDP ratio is among the lowest in the world, a reflection of the low tax-to-GDP ratio. 

Even if the rural recovery sustains, a stronger rural sector can only mitigate the ongoing economic damage caused by the crisis but not offset it, Salman Haider said. Bharat and India growing in tandem is what will be the real rush that the economy needs.


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