After several quarters of stress in the aftermath of demonetisation and the rollout of GST, the consumer goods sector seems to be back on the growth track led by a pick-up in rural consumption.
A Nielsen report released on Tuesday said consumer goods consumption in rural markets was 1.4 times more than urban markets in the first quarter of 2018 compared to the same period a year ago. This ratio had dropped to 1.1 times for the full year in 2017.
“In India, for a long time now, rural markets have clocked a higher growth than urban markets mainly because the headroom for growth is bigger for the rural space and affordability and awareness is growing there” said Sameer Shukla, executive director, retail measurement services, South Asia, at Nielsen.
“In 2017, we saw urban growth came almost on par with rural growth. This was due to the impact of demonetisation and GST. But now we’re seeing rural growth bouncing back.”
Better monsoons in the last two years after a couple of years of unsatisfactory rains could be another factor, Shukla added.
However, the waning effects of demonetisation and GST are not the only drivers behind the uptick in rural consumer goods consumption. “Perhaps consumer goods companies spent 2017 making their rural distribution channels more efficient after the GST rollout, and we are starting to see the effect of an improved distribution system in rural markets,” said Prasun Basu, president, South Asia, Nielsen.
Nielsen expects rural growth to be strong. “This year too, the monsoon season is expected to be a good one. And a good monsoon is a tailwind for rural consumption growth as it has an effect on both sentiment as well as affordability,” Shukla said.
The report said overall consumption growth stood at 11% in January-March as against 12% a year ago. The full year 2017 figure was 13.5%. Nielsen expects growth in 2018 to fall to 10% to 11%. The reason behind the dip, Shukla said, was the effect of a lower base in 2016, which caused the 2017 growth figures to spike. For April-June, Shukla expects the consumer goods market to grow in the high single digits.
Nielsen said rising crude oil prices and an upward inflation trajectory could pose hurdles, but there could be a way to offset their impact. “Benefits from the GST regime and a better distribution system could perhaps offset the negative impact of macroeconomic factors. But we will have to wait and see if that happens,” Shukla said.