Apart from rainfall, some other factors which need to be monitored for rural improvement are free food grains for rural India and government policies on MGNREGA
New Delhi: According to a report by Nuwama Institutional Equities, forecast of El Nino could lead to deficient rains this summer, which could affect consumption in rural India.
“Rain deficit that an El Nino year could present could derail the recovery in rural FMCG. Adding perspective, rural India makes up 36% of the sales pie for a typical consumer company and is an important focus area considering per capita consumption, said Avneesh Roy of Nuwama Institutional Equities in a report.
Last week, the US weather agency National Oceanic and Atmospheric Administration (NOAA) indicated the possibility of an El Niño year. El Nino has an inverse relationship with the monsoon, which means that there is usually less rainfall during such a year. This results in lower sowing and thus lower crop yields, affecting farm income.
India last saw El Nino effect in 2018.
“We have seen that lack of rainfall is a major factor that catalyzes the rural slowdown. Pan-India rainfall in FY23 was 6% above the long period average rainfall. Nevertheless, populous states like UP, Bihar, Bengal and Jharkhand reported shortages, affecting paddy sowing. Apart from rainfall, some other factors that need to be monitored for rural improvement are government policies on free food grains and MGNREGA for rural India. Another indicator will be how the market shapes up, which will then be linked to what happens to the harvest, and growth in farmers' net receipts and rural wages," analysts at Nuwama said in their note.
The report comes as rural demand for packaged consumer products remains sluggish. However, there were signs of improvement in the December quarter. High inflation generally hurts domestic demand, prompting consumers to cut back on higher-priced items.
“An El Nino year has appeared to rear its head, as a plethora of rural issues are being ironed out with the help of easy inflation, free food policy expansion of the government and expectations of a bumper crop. With this, the prospects of India getting a normal monsoon are now fading away. A more reliable picture of what could happen will emerge only closer to April-May."
However, the rate at which rural volumes declined has slowed down.
“The December quarter price increase for rural has been higher than the September quarter and MAT numbers, so rural areas are seeing some green shoots. Farm incomes are improving and sowing of the winter crop has been good. Besides, better recovery on food, construction services getting back to normal, government remittances will have a positive impact," analysts said.
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