New Delhi: Over the past five years, real rural wages have experienced a negative growth, primarily due to subdued consumption demand.
In contrast, urban consumption has been growing.
Several factors indicate sluggish consumption in rural areas, as pointed out by experts.
The fall in two-wheeler sales
The data for the charts below have been taken from Sales Pulse, collated by How India Lives.
While passenger vehicle (PV) sales have been posting record numbers, two-wheeler sales have been increasing by only a meagre percentage.
But note that in the July-September quarter of fiscal 2024, the small car segment, which includes micro and mini cars, saw a record decrease in its share of passenger vehicles, Mint reported.
According to the Economic Survey of 2022-23, two-wheelers “witnessed the lowest sales in the last ten years”. This was attributed to an increase in long-term, third-party vehicle insurance premiums, that resulted in 10-11% increase in total upfront insurance cost, especially for two-wheelers, reported the Hindu.
As we can see in the chart above, during the COVID-19 lockdown, two-wheeler sales dropped to 161,314 units, followed by sharp fluctuations until January 2023.
As on September 30, 2023, two-wheeler sales stood at 1.31 million units. However, it’s still below pre-pandemic levels, when two-wheeler sales were around 1.8 million units in November 2019.
Vehicle registrations in the renewable category show a steady rise. This category includes hybrid vehicles.
According to news agency IANS, citing a report by Cyber Media Research, India saw a 120% growth in the second quarter (July-September) of 2023, driven by a 400% surge in hybrid vehicles.
Meanwhile, the country’s top luxury car brand Mercedes-Benz said that 2023 was its best year in the India market, as it sold 17,408 four-wheelers in 2023, up 10% year on year.
Audi India announced that its sales in 2023 grew by 90% to 7,931 units. In the coming days, BMW and other luxury players in this niche segment are also expected to report record sales, the New Indian Express reported.
Jobs under MGNREGA
The share of the workforce in agriculture had fallen to 42% in FY19 but went up to 46% in the following year and has stayed around those levels, the Financial Express reported.
Experts told the business daily that this scenario could point to the elevated demand for jobs under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and is an indication of the surplus labour supply in rural India.
The demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) can be an indicator of employment needs in rural areas. The number of people demanding MGNREGA work reflects the demand for manual labour in rural regions. A higher demand may suggest increased unemployment or underemployment.
The chart below shows how demand for MGNREGA work has kept on rising, while seeing sharp fluctuations, since the COVID-19 pandemic. As on June 30, 2020, more than 63 million people demanded MGNREGA work. As of October 2019, close to 16 million people demanded MGNREGA work. However, the demand for such work was even high before the pandemic.
As of November 2023, till when the latest data is available, 20 million people demanded MGNREGA work, which is higher than pre-pandemic levels.
Separately, while the Periodic Labour Force Survey (PLFS) shows a decrease in the unemployment rate in rural areas from 5.3% in 2017-18 to 2.4% in 2022-23, and in urban areas from 7.7% to 5.4%, the finer details reveal a different picture.
The data shows that a significant number of individuals in India are engaging in self-employment or unpaid labour.
Santosh Mehrotra, economic adviser in the erstwhile Planning Commission, had told the Indian Express that PLFS tends to include some work as employment even when it is not paid for. This is in contrast with the Centre for Monitoring the Indian Economy (CMIE), which estimates employment numbers on the lines of the International Labour Organisation (ILO), and it shows much higher levels of unemployment compared to PLFS.
In January, CMIE reported that youth unemployment in the 20 to 34 age group has been on the rise. It attributed the rise in unemployment to rural unemployment as against urban joblessness.
Therefore, until rural wages recover, consumption demand is expected to remain tepid.
Persistent low demand in the FMCG sector
Big companies have been pointing to the slowdown in the fast-moving consumer goods (FMCG) sector.
“Obviously there is a slowdown as far as FMCG is concerned. We are seeing a clear slowdown in rural [areas]. Despite us continuing to get deeper into rural areas, getting into more villages, etc., we have started to see the rural economy to splutter a bit. However, these are macro issues which companies like us cannot sort out,” Varun Berry, executive vice-chairman and managing director (MD), Britannia Industries Ltd, said during the company’s post earnings call, reported Mint.
Marico said that while urban sentiment improved sequentially, instances of higher food inflation and uneven rainfall distribution led to a slower-than-expected pace of recovery in rural demand.
Saugata Gupta, Marico MD and CEO, told Mint that rural demand continues to lag urban. “Having said that, when we look at the overall volume growth, demand is not the only factor. There are other things that have happened. There has been some inflation and some down trading and in some of our categories, that down trading can be to smaller brands, or to unbranded goods,” he told the business daily.
Hindustan Unilever and Dabur also said that the rural markets are lagging behind urban ones.
Meanwhile, India imported $27.84 million worth of chocolates, a 45% increase over the previous year, the Economic Times reported in December. It said that the market is anticipated to witness the entry of more high-end foreign brands.
