Why Bharat will fail to cheer India Inc in FY20

Falling incomes and longer winter to translate into lower demand for at least some months.

Illustration: Uttam Ghosh/Rediff.com

The new financial year is not much cheer to companies which generate a large chunk of sales in rural India.

Their chief executives say slowing economic growth and falling rural wages are leading to a sharp fall in demand, one that will reflect in the next few quarters.

A longer winter season has delayed offtake of summer season products.

A liquidity crisis is also pinching the dealers and wholesalers, unable to stock afresh.

Tractor sales, often considered a proxy of the rural economy, have been muted since December; that was after brisk growth in the earlier part of 2018-19.

Says Rajesh Jejurikar, president of the farm equipment sector at Mahindra & Mahindra: “With a CAGR (compound annual growth rate) of 16 per cent in the last four years, the tractor industry has grown from over 500,000 in FY16 to almost 800,000 in FY19.

"This can be attributed to factors like availability of retail finance, government's investments in rural and agriculture projects, as well as a good crop on the back of a good monsoon.

"With this as a backdrop, we expect a single digit industry growth in the next fiscal (2019-20).”

Raman Mittal, executive director at Sonalika Group, the second largest tractor maker by volume, is more hopeful.

“In the coming year, with the effect of farm loan waivers in many states, increase in the MSP (minimum support price of crops) and ease of finance availability will drive the industry’s growth in northern and southern states, while marginal growth is expected from eastern and western states.”

Two-wheeler sales, skidding for the past three months, show signs of getting worse, with rural sales dipping.

A Hero MotoCorp dealer from Madhya Pradesh said has an inventory of 50 days.

“This is at a time when getting credit has become tough, as most lenders have become extremely cautious,” he said.

A Hero MotoCorp spokesperson didn’t respond to queries.

Automobile dealers said they were bracing for worse.

“We don’t see anything improving before onset of the festive season,” said another dealer. He said his retail sales were down by a fifth from a year before.

Heads of consumer product companies say lack of liquidity and the agrarian distress is a big contributor to the slowdown.

With almost two-third of the population in rural India, these firms plan to expand distribution.

With per capita rural consumption a fourth of urban India and far below international standards, these chief executives (CEOs) said rural India clearly offers immense room for growth.

“We are hoping there would be some rise in demand once the elections are through and the stimulus package announced in the (Union) Budget is implemented.

"I am of the view that the slowdown will not prolong and growth will come back by the first quarter of the next fiscal year,” said Sunil Duggal, CEO at Dabur India.

Sumit Malhotra, managing director at Bajaj Corp, said rural India is not doing well.

“Also, election spending has not been pronounced. Many were expecting to see a spike in consumption due to the elections but it hasn’t happened.

"I see growth coming back with a lag. It won’t bounce back immediately and will take time,” said he.

Kamal Nandi, executive vice-president at Godrej Appliances, said demand for cooling category products usually picks up by the end of February.

However, winter was longer this year and demand has been hit.

“We are hoping that the scenario will change in April, when temperatures will rise across the country. Demand for cooling products should improve,” he said.

CEOs of cement firms said their demand was expected to be muted in the April-June quarter.

After the elections, June on, industry officials expect resurgence in demand.

“Infrastructure and housing, both rural and affordable, is expected to drive demand after the elections,” said H M Bangur, managing director of Shree Cement,

With inputs from Avishek Rakshit