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Business News/ Opinion / Online-views/  Narendra Modi faces the brunt of the vagaries of nature
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Narendra Modi faces the brunt of the vagaries of nature

Untimely spring rains which damaged the rabi crop, forecast of a below-normal monsoon have put the spotlight back on rural distress

Photo: BloombergPremium
Photo: Bloomberg

Nature has been unkind to Narendra Modi in the first year of government. The deficit rainfall in 2014 and the unseasonal showers earlier this year have aggravated the agrarian crisis. The ensuing tepid demand in the rural market has reflected poorly on his government’s performance.

The untimely 2015 spring rains which damaged the winter (rabi) crop just ahead of the harvest and the India Meteorological Department (IMD) forecast of a below-normal monsoon have put the spotlight back on rural distress. The unseasonal rains are said to have damaged crops in 19 million hectares across 15 states. Foodgrain production—of cereals and pulses—is expected to decline by 5.3% in 2014-15.

Rural incomes are under stress not just because of the weather but also because there has been a fall in the rural population claiming employment under the 10-year-old Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

A 24 April Mint report quotes data from the rural development ministry website showing a 50% decline in 2014-15 in households that completed 100 days of wage employment—the minimum guaranteed under MGNREGS. The rural employment programme, credited for enhancing rural income, was launched in 2005 and guarantees up to 100 days of unskilled work in a year to every rural household.

Lower incomes directly impact rural demand for goods and services. For instance, motorcycle sales have contracted in the last few months. Indifferent demand has also impacted the fortunes of consumer goods companies. According to research and information company Nielsen, the overall value growth of different consumer sectors, including fast-moving consumer goods (FMCG), dipped between April 2014 and March 2015 over April 2013 and March 2014. The value growth for urban and rural markets for the FMCG sector declined from 10.6% in 2013-2014 to 7.5% in 2014-2015. While rural topped urban markets in terms of value growth, it declined from 13.2 to 11.3% during this period. In the food segment, too, rural markets growth rate in value terms slowed—from 17.2% to 13%. “It is not that the rural markets did not grow, but they grew at a slower rate than before," said Vijay Udasi, executive director, Nielsen.

Ankur Bisen, head of retail at Technopak Advisors, said there was nothing spectacular about 2014-15 in terms of growth rates.

“You just have to look at categories such as two-wheelers, apparel, construction material and jewellery to see the state of rural demand. It was clearly tepid. It was believed that the sentiment will improve, but it did not translate into demand," he pointed out.

Agriculture in India is still not de-risked as over 50% of farmland is rain-fed. “The purchasing power of the rural consumers was affected to some extent due to the adverse impact of a poor monsoon last year," said Mohan Goenka, director, Emami Ltd, a Kolkata-based personal care company.

Yet several firms managed to buck the trend as rural markets had some pockets of growth. With its “value for money" quality products and focused marketing approach, Emami claimed it managed to insulate itself from the much-discussed ebb in rural demand.

Dabur India Ltd’s chief financial officer Lalit Malik said, “At Dabur, our rural and urban growths are matching, with both in the region of around 12%. It has been steady. However, in our case, urban growth has been slightly ahead of rural."

Dabur, he claimed, did well on the back of a project rolled out three years ago which aimed at doubling the company’s distribution footprint in rural India. Under “Project Double", the firm increased its rural coverage from 14,000 to around 44,000 villages. It is eyeing 60,000 high potential villages over the next two to three years.

However, the forecast of a sub-par monsoon this year is adding to rural worries. Weathermen predict that El Niño will gain strength during the season, affecting agricultural production. El Niño, a global weather phenomenon, occurs when the sea surface temperature in the tropical Pacific Ocean begins to rise, leading to a weaker monsoon in the subcontinent.

There is a possibility of rural demand being affected should there be an El Niño effect which would lead to delayed and uneven rains, said Goenka. That clearly is a bigger worry for companies, according to Nielsen’s Udasi. “Two consecutive poor monsoon years will be too much for the companies. If the rains fail, FMCG demand will really taper off. It is not clear if my clients will keep pace of investment in rural in that case," he said.

Will Modi have to bear the brunt of vagaries of nature? Well, governments have lost power on onion prices in the past, Technopak’s Bisen said.

Shuchi Bansal is Mint’s media, marketing, and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff. Respond to this column at shuchi.b@livemint.com

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Published: 24 May 2015, 11:38 PM IST
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