Rural consumption is facing headwinds in the wake of double-digit price increases and dim prospects of income
The Indian rural population is spread across 6.3 lakh villages and constitutes 64 per cent of the total population. However, it contributes only 37 per cent of overall consumption of Fast Moving Consumer goods (FMCG). Historically, rural consumption has been growing at 3-5 per cent points higher than urban, driven by increasing disposable income and growth of Micro, Small & Medium Enterprises (MSME) sector on the back of successful rollout of government policies towards higher Minimum Support Prices (MSP), fertilizer subsidies, Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme and Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
Rural consumption is currently facing headwinds in the wake of double-digit price increases and lower visibility of future income among rural households. However, in the long term, rural markets possess immense growth potential, and the upcoming budget is expected to provide adequate focus on job generation, capability development and infrastructure related initiatives which can have a multiplier effect towards driving growth in rural consumption.
The Indian agriculture sector is still dependent on the timely arrival of monsoon, as a result there is a need to protect farmers from vagaries of weather conditions. The Government needs to focus on enhancing benefits and coverage of crop insurance schemes and focus on increasing coverage under micro-irrigation (like drip, sprinklers, etc.) which has proved more efficient than traditional techniques.
India is one of the countries with significant post-harvest losses. There are 8,000 cold storages having 35 million metric tons capacity across India, but 59 per cent of this capacity is concentrated in only four states – Punjab, Uttar Pradesh, Madhya Pradesh and Gujarat.
In addition to encouraging private sector to develop such facilities through foreign direct investment (FDI) and tax incentives, the Government can also incentivize Farmer Producer Organizations (FPOs) and Self Help Groups (SHGs) to develop low capacity warehouses and micro cold storages for reducing wastages of small farmers. An average agricultural household in India has 60 per cent of their annual income in debt. The Government can increase outlay towards initiatives/schemes aimed at financial inclusion and generate greater awareness on existing schemes which extends credit guarantees to MSMEs/ FPO/SHGs for working capital financing and term lending with interest subvention.
Additional outlay under NABARD Fund can be committed towards providing credits to processing units even outside designated food parks for modernization/ upgradation. According to the NSS, the annual income of a farm household was Rs 1.23 lakh, whereas average debt was Rs 74,100 from July, 2018 to June, 2019. With increasing internet and smartphone penetration in rural markets, the Government can focus on improving access to information for farmers through online trainings, advisory services on agriculture, horticulture, animal husbandry and other allied sectors.
Expediting 5G rollout, with network availability, will also help speed up implementation and adoption of Agri-tech in generating more opportunities and employment in Rural India. Market linkages can facilitate better price realizations for farmers. The Government can look at accelerating adoption and integration of National Agriculture Market (eNAM) with the Agri-markets across the country through policy levers like synchronization of quality standards in agricultural produces, standardization of sorting/grading systems and systematic and accelerated registration of farmers, traders, and other ecosystem players in the portal.
Rural reach has been a challenge with higher cost of logistics driven by less-than truckloads. Government impetus in fast-tracking National Logistics Policy implementation, coupled with integrated information platforms, will reduce inefficiencies in movement of goods, increasing access and opportunities for rural India.
Micro-clusters through setting up rural entrepreneurship hubs in districts under ‘One District One Product’ initiative is an excellent opportunity to promote the rural economy. Interventions include support through training, better exposure to markets and setting up of facilities for value addition. This can promote entrepreneurship opportunities for rural youth.
In addition, the Government can also consider providing a separate allocation to create a dedicated Venture Capital (VC) fund for new age startups focused on servicing the rural economy. With global recession looming in the horizon, the upcoming Budget presents the Government a timely opportunity to unlock the levers for harnessing the growth and employment potential of the rural economy.
(Anand Ramanathan is Partner, Deloitte India; Rounak Baheti is Director, Deloitte India; and Soumya Bose is Manager, Deloitte India)
