Rural Demand Takes A Hit In Q3fy23 As Fmcg Volumes Taper

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Rural demand takes a hit in Q3FY23 as FMCG volumes taper

ri-calendar-2-lineFeb 6, 2023

By: BlinkX Research Team

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Rural markets are in a bind as demand is falling amidst high inflation and dwindling income levels. This has hit rural purchasing power for two-wheelers, tractors, agri products and FMCG products. Critics pointed out that smaller government allocations for rural schemes in Budget 2023 could weigh on rural sales growth. FMCG companies are at the receiving end. Even if broad demand is not hit, rural consumers prefer smaller sizes.

 

Budget 2023-24 allocation for core rural schemes is down 16% compared to the revised estimates for FY23. Even without food subsidies, it is still 6% lower. In FY21, the rural allocation was at Rs8.5 trillion and in FY24 it is down to Rs5.4 trillion. Support for rural programmes had held up consumption during the pandemic. Now that is being gradually unwound, but inflation is still high so rural demand is hit.

 

Look at the contrast. In Q3FY23, rural FMCG volumes contracted -2.8% YoY while the urban volumes actually grew by 1.6%, as per data released by Nielsen Research. Demand in the hinterland has been badly hit by inflation. The impact is also felt in the savings cover. In H1FY23, the net financial savings of Indian households fell to a 30-year low of 4% of GDP compared to 7.3% of GDP in FY22. Dis-savings are hitting rural consumption in multiple ways.

 

FMCG companies like Hindustan Unilever hope that the rural slowdown would bottom out once inflation peaks out. HUL is betting on higher farm incomes in Rabi season but average real rural wages are lower in October 2022 YoY. Between November 2021 and October 2022, the real rural wages contracted for 11 months in succession. FMCG companies like Dabur, Asian Paints and most FMCG companies other than Britannia have been witnessing a sharp contraction in rural demand. It is a real tightrope walk.

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