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Job creation amongst the rural public coupled with increasing wages in rural areas is extremely important for a pickup in rural consumption. The more jobs and money the people have, the greater they will be inclined to spend. This in turn boosts rural consumption.
Corporates catering to the two-wheelers and fast moving consumer goods (FMCG) segment will benefit the most from a rural uptick. If the data provided by Business Standard is to be believed, there are signs of pickup in the job market as well as wages in rural areas. Further, the article goes on to state that four of the six large states have seen an uptick in rural wages. To add to this, 'National Rural Employment Guarantee Scheme' (NREGS) shows a mammoth jump of more than 100% in the number of jobs provided under this scheme.
Historically, increase in rural wage growth has lagged behind the rural Consumer Price Index (CPI). This essentially means that the incremental increase in wages is eaten up by the rising inflation. This leads to a situation wherein a person will not be able to satisfy his/her aspirational needs. Thus, wage increase should always be in sync with the CPI rate. Hence, NREGS scheme should not only give due consideration to creation of job opportunities but it should also take care of the yearly wage hikes.
However, has increase in wages and employment moved things on the ground? Taking ground realities into account, there hasn't been much change in the financials of the top FMCG companies. Their topline growth has been muted on account of subdued demand from the rural areas. The same can be said for two-wheelers wherein the demand continues to remain sluggish.
However, one should also consider that India has passed through two years of deficit rainfall. This has severely impacted the incomes of rural people and thereby delayed their spending on aspirational needs. Hence, a result of the increase in wages and employment levels could possibly be reflected in the next quarters to come. Going forward too, topline growth of the FMCG and motorcycle companies will closely be watched to assess the impact of the increase in the employment as well as wages on rural consumption.
Coming to our key takeaway from the Equitymaster Conference 2016. Narendra Modi has become synonymous with the India story over the past couple of years. The Sensex stood at 24,693, and oil prices were still above the century mark at US$ 104 per barrel. A year later, on 23 May 2015, the Sensex was close to 28,000, and the rupee had weakened to Rs 63.5 per US dollar. But oil prices had crashed more than 40% since Modi became PM. Now, the Indian benchmark stands at 24,492 a drop of 14%. As corporate earnings have slowed, expectations have also come down to align with the reality.
By the way, if you missed the big event, here is your chance to get online access to the video recordings of the Equitymaster Conference 2016
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