Why rural demand recovery is delayed and when can it be seen normalizing? Expert decodes – what should investors know

While rural demand has shown an increase in the past 2-3 quarters due to higher income from crops, dairy and employment, it has not translated to an increase in demand due to high inflation and volatility, a domestic brokerage firm Prabhudas Lilladher said in a report.

The brokerage suggests that high inflation and a volatile environment are resulting in sentiment impact at the bottom end of the Pyramid, which is hurting demand.

Factors that would lead to recovery in rural demand

Soil moisture and water reservoir levels indicate a good Rabi harvest which should boost farm income and rural sentiment.

Lower employment demand under MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) indicates pick-up in infrastructure, construction, and other economic activities. Even the rural wage levels are now 20 per cent above the pre-covid levels.

The low employment demand in MNREGA is supported by the rise in average wages which has risen by 20 per cent vis-à-vis pre-covid levels.

We expect an increase in government expenditure in rural India ahead of the FY24 general election which will boost demand from the fourth quarter of this fiscal or the first quarter of the next fiscal.

Water reservoir across the country is at a healthy level of 89 per cent which will aid in a robust Rabi crop in the upcoming season.

The inflation has begun to cool down across major commodities, fuel, and major agri commodities as well.