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Increased prices result in slow consumption in rural markets

Increased prices result in slow consumption in rural markets

Increased goods prices in rural markets have resulted in low consumption. 

NielsenIQ, research, and analytics firm flagged signs of moderate demand in rural markets for two consecutive quarters. 

The September quarter (2021) report depicted a 2.9% y-o-y volume dip in consumption. 

Furthermore, the December quarter portrayed a 2.6% y-o-y slip in packaged consumer goods volume. 

While people in rural areas bought cheaper products, the sector reported growth led by demand in urban areas. 

Slow consumption in rural and urban markets

The burden of increased prices slowed the consumption in rural markets by 4.8%, while the urban markets slipped by 0.8%. 

Furthermore, slow consumption seems stagnant as February’s Union Budget failed to uplift consumption. 

The Union Budget did not reduce direct taxes or increase rural job guarantee schemes. 

Additionally, the Union Budget cut off the Mahatma Gandhi National Rural Employment Guarantee Scheme allocation. 

In the last two years of the Pandemic, the scheme above provided benefits for rural households. 

What do experts say about increased prices?

As per Rajat Wahi, partner at Deloitte India, the base rate effect due to Q4’20 and Q1’21 came out strong after the lockdown. 

He said, “it was also the time when a lot of labor had moved back home, and that drove up consumption in rural markets backed by government support.”

He further said, “overall inflation due to fuel price hike is impacting price of fertilizers, cooking oil, etc., forcing rural consumers to trade down and hold back consumption.”

Increased prices have not slowed consumption, and customers are going back to purchasing small packs of products. 

Chief executive and MD of Adani Wilmar Ltd Angshu Mallick said, “categories like staples have seen a high price increase in last two quarters, leading to large price growth in rural markets and, hence impacting the volumes.”

Factors affecting slow consumption in rural markets

While Mr. Wahi believes geopolitical tensions would not slow down consumption in rural markets, the Russian-Ukraine crisis could further inflate fuel prices. 

The crisis would also depress demands and affect the supply chain resulting in high raw material prices. 

Nevertheless, senior VP of the rural business division at Usha Internation Ajay Sharma has witnessed improved sales in rural India in the past two months. 

He further added that global unrest contributes to depressing buyer sentiment. 

He said, “while the effect was more on packaged consumer goods, consumer durables still being a developing market were little less affected barring in the East which saw a downward trend owing to the lower cost of rice crop.”

Additionally, he warns, “one can only wait and watch to see how it really pans out and what impact it will have on the oil prices and inflation as these two factors would impact the demand and consumer sentiments across markets.”

Lastly,

While various experts contemplate the impact of increased prices, the results are unpredictable.

Given the current global scenario, slow consumption in rural markets is here for the foreseeable future. 

Also Read – Increased tax slab may yield ₹1.50 lakh crore annual revenues

Johannah is a passionate traveler. She is seeking remote places across India and exploring the benefits of being a Nomad. She has completed her bachelor's in Psychology Hons and diploma in Graphology. Being able to write helps her to share her experiences and be independent to travel anywhere.

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