Big Corporations Feel The Pinch As Rural India Grapples With Inflation, Subdued Demand

“I have dropped plans to upgrade to a car,” said Umeshwar Kumar, a farmer in Uttar Pradesh whose crop wilted in this year’s harsh winter, preceded by the weakest monsoon in five years.

Chhatrapal, a farmer from Himachal Pradesh, bemoaned the absence of snow in the higher Himalayas, leading to near-zero shipments from his apple and pear orchards. “My savings ran dry and I sold my produce for a pittance to feed my family,” he added.

To put things into perspective, let’s look at the numbers. Automakers saw small-car sales in rural India plummet by 75 per cent in the October-December period (Q3, FY 2023-24). Put together, all carmakers sold only 35,000 units in Q3.

Sales of motorcycles and other two-wheelers, often the favoured mode of transport in villages due to affordability and pliability, fared better but shrank nonetheless by 39 per cent and 25 per cent, respectively. Paradoxically, SUV and large-car sales jumped in the same period.

In rural India, wages have remained stagnant, with the ban on wheat and rice exports also hurting incomes. Rainfall, critical to India’s agriculture economy, also remained below par, threatening harvests and exacerbating the already overbearing financial stress. Signs of impending money turbulence in rural areas were evident in September itself, when steep inflation in food, other daily essentials and fuel, along with lower wages and weak sentiment, began to have a cascading effect.

FMCG Hit

It isn’t just the automobile sector, but the whole of the manufacturing sector that has been negatively impacted by the slump. The fast-moving consumer goods (FMCG) companies haven’t been spared the rot, despite many predicting the slowdown.

For instance, companies like ITC, Hindustan Unilever, Dabur, Marico and Tata Consumer admitted in their Q2 earnings call that rural demand lagged behind urban markets for the first time in a year and a half. Q3 earnings that are being reported as we speak show no indication of the trend getting reversed soon.

Financial honchos at many large corporates concede that despite their best efforts, they had not been able to circumvent the sales slump in the face of liquidity pressures, rising inflation and patchy monsoons.

In India, FMCG firms operating in the rural market face many challenges— smaller size compared to urban India, remoteness and higher transportation costs, geographically scattered rural markets, poor internet and road connectivity, and deep-rooted people-and-preference diversity.

“For some quarters, we have been finding it tough to offload even our best-selling brands because expendable incomes are running low or are non-existent,” said the marketing head of a packaged consumer goods firm. Considering that his company sells much of the fruit juices, hair oils and instant foods readily available, that’s a raw statement, reflective of the times that confront rural India, its people and the companies operating there.

No Festive Season Push

When we talk of rural India, no story on sales figures or product adoption can be complete without speaking of the offtake in mobile shipments, and there lies a tale all in itself.

In a quarter that saw festive sales jump in an otherwise depressing market season, sales of mobile phones and devices slithered by 2 per cent to 14.86 crore units in 2023. The saving grace was that it marked a recovery from a steeper decline in the previous year. An additional shocker was well-known brands took a beating, while little-known and far-cheaper Chinese brands saved the blushes as far as overall numbers were concerned.

It is against this backdrop of falling numbers that a wary India Inc. is carefully monitoring rural market demand to see how long the pain will persist. There are a few who expect a late monsoon to kickstart demand in the next month or two, but a larger number see rural sales picking up only in the next financial year.

“It is only after the ongoing quarter and the new harvest that we will see greater disposable incomes and a resultant increase in purchasing power,” said another marketing head. “That’s because given the upcoming developments of national interest on some fronts and parliamentary elections in April-May – the first quarter of the new financial year, heady days could be long in the coming.”

There are other monkey wrenches in the works. Climate change is fast moving from dinner tables to boardrooms. It is a big business risk for everyone—from carmakers to skincare companies; from cola makers to those offering hair oil and noodles; and from soap manufacturers to those selling fruit juices.

Why? Because corporations cannot control the impact of climate change. And two, because freakish weather systems are repeatedly impacting the bottom line; quite harshly so.

India is at a cusp where much of its population lives between the blurry lines of social nepotism and grassroots inflation. Some compare the life of the average rural Indian to that of the open sea amid a storm. While that storm rages, its vengeance will continue to be felt each day—in the lives of the rural populace. And in the balance sheets of its large city-based businesses.

(The writer is an independent journalist, based in New Delhi. Views expressed are personal)