Consumption in rural India slumped to a seven-year low during July-September period (Q2). This is for the first time that consumption of packaged consumer goods by households in rural areas rose at a slower pace than urban areas.
Rural India comprises 36% of overall fast moving consumer goods (FMCG) sector and has historically been outpacing urban India in terms of growth by three to five percentage points. Protracted agrarian crisis which squeezed rural incomes thereby eroding demand for consumer goods has led to the FMCG sector's worse performance (in rural India) in seven years, a Nielsen report said as cited by Livemint on Thursday.
The plunging farm income has not only severely affected farmers but also landless wage workers, who collectively account for two-thirds of entire rural households.
Rural India grew by 5% in value terms during the September quarter. This is a steep fall from 20% reported in 2018. Meanwhile, Urban India grew at 8% as against 14% a year earlier, the report said. The September quarter rate of growth across urban and rural markets plunged to 7.3% from 16.2% in 2018.
Consumption volumes also rose 3.9% in September quarter in comparison to 13.2% in the year-ago period.
"In the last seven years, this is the lowest we are seeing from a rural growth perspective; second is, we have always seen so much potential coming in rural from a commodity to branding perspective that rural always used to outpace urban from a growth point of view. This is the first time around where we are seeing otherwise," Sunil Khiani, head of retail measurement services at Nielsen South Asia told the news daily in an interview.
The slowdown pinched Northern India the most, Nielsen data showed. "North market has seen maximum impact where volume growth is almost flat at 1% in Q3 2019," the report stated. On the other hand, the Southern states' markets, , particularly urban households, continued to log the growth rates and helped boost sales of packaged goods.
Nielsen withheld its annual growth prediction for the FMCG sector at 9-10%. The market researcher slashed its previous growth forecast of 11-12% in the June-end quarter.
Meanwhile, Nielsen researchers have cautioned that the December quarter may cool down further, before picking up pace in the three months to April 30.
The market researcher expects the growth to be in the 6.5-7.5% range in Q4 of 2019. However, the growth prediction for January-March quarter (Q1) 2020 is in the range of 7.5-8.5%. Meanwhile, Nielsen anticipates a rebound in demand early next year.
"We are now finally seeing early signs of the declining trends being arrested," the report said.
The market researcher tracks consumption of FMCG goods in around 80 categories across throughout rural and urban India.