Decline in Tractor Sales and Farm Exports Drive Rural Consumption to Lowest in Six Quarters

Rural consumption in India has hit the brakes, logging its slowest growth rate in half a dozen quarters during the first quarter of fiscal year 2023-24 (1QFY24). The growth rate has inched up just 2.8 per cent year-on-year (YoY), which is a far cry from the 2.9 per cent seen in the preceding quarter and the robust 7.9 per cent recorded in the same period last fiscal year.

Scrutinizing a collection of ten proxy indicators, analysts have endeavoured to piece together the puzzle of this rural consumption slowdown. The picture that emerges is painted with a sharp decline in tractor sales and farm exports as major culprits. However, this gloom is lightened by the glimmers of improvement in farmers' terms of trade, a hearty five-quarter high in fertilizer sales, and a rise in farm credit.

The fiscal playground for rural areas tells a different tale, though. Fiscal spending in the rural domain posted a sprightly 7.5 per cent YoY growth in 1QFY24, handily surpassing the 5.9 per cent in the last quarter and in stark contrast to the 17.5 per cent YoY plummet in 1QFY23.

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Not content to simply crunch numbers, the report dials in Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) data to back up its assertions. Apparently, the appetite for employment among households, as per MGNREGA, was ravenous during the opening quartet of FY24, making a significant departure from FY23's figures and the average of FY18-20.

The urban spending avenue paints a brighter picture. The amalgamation of nine proxy indicators unveils a 6.4 per cent YoY upswing in 1QFY24 – a feat that marks the highest surge in three quarters. This stellar performance outshines the 3.9 per cent YoY advance seen in 4QFY24. The heroes of this resurgence are the robust growth in real personal credit, the turbocharged sales of passenger vehicles (PV), and a substantial uptick in real non-farm consumer imports.

While the urban arena seems to have grabbed the bull by the horns in the last quarter, it's a possibility that consumption growth itself remained in a stupor during 1QFY24.

However, hope isn't just a distant glimmer; it's firmly tethered to upcoming events. Analysts are weaving expectations of a rural spending revival around the impending state elections scheduled for the close of 2023 and the grand spectacle of general elections set for the following year. Despite the current sluggishness, the prospect of a resurgence in rural consumption remains firmly on the horizon.

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