In a bleak year for the economy, India’s hopes of strong rural demand providing a fillip are at last being realised.
Nowhere is this more evident than across different segments of the automobile industry — which represents around half of the manufacturing industry in the country.
This is important as a recovery in automobiles indicates a broader recovery may not be too far away.
Sales of India’s largest two-wheeler manufacturer Hero Moto rose by over 800,000 units in October, which is the highest monthly sales by the company since its inception in 1983.
The country’s second-largest carmaker Hyundai India sold 56,605 units during the month, which is again a record. At the same time, largest carmaker Maruti experienced an 18% growth largely on the back of entry level cars and hatchbacks.
Two-wheeler sales – a barometer of demand — are set to drop by no more than 15-17% this fiscal year largely helped by rural demand, according to a CRISIL study.
Rural India leads the upturn
Much of the rebound is on the back of a bountiful monsoon, which has occurred for a rare second year in a row. India’s seasonal monsoon rains stood at 109% of the long period average this year.
With much of urban India on an extended lockdown due to the pandemic, it is the rural demand that as anticipated has emerged as a ray of hope.
According to CRISIL, sales of two-wheelers in rural areas are expected to grow by 500 basis points more than urban demand during the fiscal year. The hinterland accounts for half of two-wheeler vehicles that are sold.
With water reservoir levels at 87% on average, the country is expected to reap a good winter crop following a record summer crop harvest.
Particularly, segments such as two-wheelers are expected to drop by no more than 11-13% this fiscal year, as these robust vehicles are popular with farmers.
But that is not all.
Even tractor sales are expected to rebound strongly following good winter and summer crop harvests. This comes at a time when few people in urban India are buying vehicles.
Steps to improve farm income
Tractor sales in India are expected to grow by 10-12% this fiscal year following successive good seasonal crop harvests, according to India Ratings. During April-September, tractor sales rose by 10%.
The central government has taken several measures to improve farm income, including dismantling the Essential Commodities Act that placed restrictions on stocks of certain commodities, as well as give farmers the freedom to sell their produce anywhere in the country.
It is not segments with direct links to farm production that are benefiting from the rural demand. Even housing and construction sectors, which have virtually ground to a halt in urban areas, are expected to benefit from rural demand.
Long steel sales, which are used mainly in housing and construction, are expected to drop by only 12-15% in the current fiscal year.
Economists say that it may take up to 18 months for demand to recover to pre-Covid levels, but the underlying strength in the rural economy offers hope that the impact on business during this period is likely to be less than anticipated earlier.