Deficient rainfall will dampen rural demand

Deficient rainfall will dampen rural demand

By SHAILENDRA TYAGI | | 11 October, 2015
Rainfall deficiency of about 14% this year coupled with a moderate hike in the minimum support price for cereals would bring down discretionary spending in the rural economy, impacting the sale of two-wheelers, tractors and consumer durables like TVs and fridges. But, the overall kharif output is estimated to be better than last year because sowing has been quite encouraging despite less than normal rainfall. “The overall growth in agricultural production this year is likely to be better at 1.5% as compared to the lower base of 0.2% achieved last year,” says Sunil Sinha, principal economist, India Ratings & Research. In a year of deficient rainfall, the first curtailment would happen on discretionary items. Although rural demand is not likely to collapse totally due to less rainfall but it would surely dampen the rural sentiment. According to the rating agency Crisil, the rainfall deficiency this year is highest in the north-west region which contributes to about 46% of the food gain production in the country. Uttar Pradesh has the highest deficiency at 46% followed by Haryana (36%), Punjab (31%) and Maharashtra with 25 % less rainfall. The destruction of the cotton crop in Punjab, valued at over Rs 4,500 crore, would add to the distress of farmers in Punjab. Farmers growing commercial crops like cotton usually take bigger loans for financing the crops and its destruction might escalate farmer suicide rates in the state. Almost half of India’s GDP comes from rural areas and as agriculture suffers, the biggest impact will be on rural demand, which has already slowed down. Moreover, the farm incomes have suffered due to the falling productivity of agriculture, unfavourable input costs and output price dynamics. Therefore, “rural focused sectors such as two-wheelers and tractors are likely to remain under pressure owing to deficient rainfall,” says Bharat Gianani, Angel Broking. This is the third consecutive quarter of lackluster volumes for two-wheelers.For tractors, a second year of weak rainfall has caused sales to fall nearly 16% so far in the current fiscal, adds Crisil. In fiscal 2015, sales had dipped 13%. Falling export prices of agricultural commodities is likely to perpetuate rural distress. India exports about 11% of its rice production and 3% of its wheat to the international markets.  
 

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