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Is a Rural Recovery on the Cards?
Fri, 19 Aug Pre-Open

After eleven months of continuous contraction, consumer non-durables turned positive in the month of June. If experts are to be believed, the growth was mainly on the back of a revival in the rural consumption. So is the rural consumption finally recovering?

Firms like Hindustan Unilever, Dabur, Godrej Consumer, ITC are cautiously optimistic about the future. While the reported financial performance for the June 2016 quarter was disappointing, expectations of plentiful rains and the higher pay and pension benefits from the seventh pay commission for central and defense employees are key variables to look out for.

The Indian Meteorological department had forecasted that the monsoon rainfall in the country will be 106% of the long period average, averaged across the country. With monsoon season through midway, the country looks set for normal rains this year. A better monsoon will help improve yield and increase production which in turn will benefit the farmers, increased food production will help keep inflation in check thus enabling savings which will help improve discretionary spending of the consumers

Consumption will also benefit from the implementation of the seventh pay commission and the passing of the goods and services tax legislation. . The revised pay scale will be enforced from August, with arrears from January 2016 paid in full. The transformation of the rural spending patterns over the years is an interesting phenomenon.

The rural demand has now moved beyond basic food products and while the consumption of aspirational products is comparatively lower than in cities, it is a growing market. There is an increasing demand for such products in smaller packs which is an encouraging sign for the FMCG companies.

We think, India is well placed among its global peers and there are encouraging signs of a revival in discretionary spends to help boost consumption.

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