After a period of sluggish growth, rural demand is beginning to pick up and is expected to “gather strength” during the current financial year, V Anantha Nageswaran, Chief Economic Advisor said on Saturday.  

Rural demand, which was seen declining during the first three quarters of FY23, had witnessed a “slight blip” on the positive side during the fourth quarter of last fiscal. The rise in MSP announced recently, the MNREGA demand and increase in construction sector work is likely to contribute to income generation in rural India leading to a rise in consumption.

According to him, some of the FMCG companies have confirmed that rural demand is beginning to see a turnaround and they see the momentum continuing in April and May as well. There has been a growth in rural wages both in agri and non-agri sector. The 2-wheeler and 3-wheeler sales have also witnessed a pick-up in April after slight languishing in February and March.

“These are all promising signs that after a period of sluggish growth rural demand is beginning to pick up. An increase in MSP announced last week and the MNREGA demand and the construction sector work will contribute to income generation in rural India and we have confidence therefore that the consumption blip that we saw in the fourth quarter will actually gather strength as we go into the current financial year,” Nageswaran said while addressing an interactive session organised by Bharat Chamber of Commerce here on Saturday.

Record grain production

The agricultural sector has seen record food grain production and the estimates are steadily improving for 2022-23. Though there are concerns about monsoons and the El Nino effect, the storage in reservoirs is running at 24 per cent nationally which is above the ten-year average. Further, there is adequate availability of seeds for kharif sowing and wheat stock availability with the government that is enough to meet temporary fluctuations in market prices and shortfall. Tractor sales are well above the pre-pandemic levels and fertilizer stocks also comfortable.

“So notwithstanding the current concerns and question marks we have about El Nino effects…..most drought years in India were El Nino years but not all El Nino years become drought years and it is important to remember that an El Nino may not necessarily mean that it will be drought or deficient monsoon,” he said alleviating fears about the El Nino effect on monsoons.

On the industrial front, most companies are looking to increase capacity to meet the growing demand and this is likely to create a virtuous cycle of employment growth and income growth. The corporate and financial sector, which were seen deleveraging and repairing their balance sheets by reducing debt over the past few years, have been able to strengthen their balance sheet and are now ready to expand boosting capital investments in turn leading to job and income creation.

The non-performing asset in the banking sector is lower and the capital adequacy ratio is more than double (of the regulatory requirement). So banks are adequately capitalised to lend when the demand growth happens, he added.