India: Patchy monsoon may weigh on demand for consumer goods

  • India’s consumer goods companies are uncertain about the outlook for demand as below-normal monsoon rain in some states is set to hit incomes in rural areas, which had shown a robust revival in the past three quarters.
  • Early optimism about prospects for the June-September rainy season has given way to doubt at India’s biggest consumer goods company. A bad or patchy monsoon impacts the consumer goods sector with a lag, mostly after the third of fourth quarter.
  • Between 2008 and 2012, growth in consumer product sales in rural areas was almost double than that of urban markets, helping the overall segment expand about 18%. With deficient monsoon rain in 2014 and 2015, rural consumption growth fell back.
  • The trend reversed in the past three quarters, with sales of consumer products in rural markets outperforming urban India by a factor of 1.2, largely on the back of good monsoon rain that resulted in better farm income with a lag.
  • The monsoon in 2018 has left 21.4% area of the country moderately to extremely dry, according to India Meteorological Department (IMD) data at the end of the four-month season.
  • Overall, however, the southwest monsoon ended with rainfall 9% short of the long period average (LPA), which is considered ‘normal’ by the IMD, thus marking three straight years of adequate monsoon rain.
  • While companies still feel government initiatives including higher MSP could boost rural demand, some fear rising raw material prices may squeeze volume growth.
  • Over the past decade, sales of branded daily-use products in the nation of 1.3 billion people have increasingly relied on the rural hinterland, home to about 800 million people whose purchasing behaviour depends on farm output.

External Link: https://economictimes.indiatimes.com/news/economy/agriculture/patchy-monsoon-may-dampen-demand-for-consumer-goods/articleshow/66230467.cms

16-Oct-2018


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