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Why rural demand remains weak?
Nov 25, 2015

Demand in rural India remains far from recovery. Monsoons were 14% short on a long term average basis after a 12% shortfall witnessed last year. And to add to its woes, the rainfall deficiency has been in states that are not adequately irrigated. The penetration of irrigation facilities remains low in states such as Uttar Pradesh, Bihar, Maharashtra, Karnataka and Andhra Pradesh, making their agrarian economies dependant on the rain gods. Therefore poor rainfall in these states has impacted the Kharif crop.

Also the global meltdown in commodity prices has adversely affected realizations, pulling down farm income. Moreover, the government has not hiked wages under the government sponsored employment schemes for rural India. Therefore, rural income and demand continue to remain weak. This demand downturn has hit companies such as Hindustan Unilever, ITC, Mahindra Finance and Shriram Transport Finance. These companies derive a large part of their sales from rural India.

However, things are likely to improve in future on expectations of a better winter crop. Higher infrastructure spending outlined by the government is also likely to kick-start projects and translate into higher rural wages going ahead.

Data source: Livemint, IMD, Agriculture Ministry, Crisil

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