Rural sentiments are volatile but they matter

by Mahesh Vyas

The RBI’s Consumer Confidence Survey shows that employment conditions in urban India worsened sharply following demonetisation and the condition has not improved since then. Since the December 2016 survey, 39 per cent of the respondents have been saying that the employment conditions have worsened compared to a year ago. This ratio had never touched 39 per cent before. In fact, the past average was close to 30 per cent. Therefore, this is a sharp jump in the proportion of respondents saying that the job market has worsened.

The RBI’s survey is limited to only six cities. But, its results are in sync with what we have been observing in the BSE-CMIE unemployment measure. We have reported the same phenomenon in the form of a consistently falling labour participation rate in urban India. The BSE-CMIE covers over 320 cities and towns of all sizes. It is therefore more representative of urban India. It shows that the labour participation rate in urban India fell from 45 per cent in October 2016 to 41 per cent in May 2017.

Labour conditions in rural India are relatively stable because agriculture and related activities provide low-productivity jobs to many through the year. But, consumer sentiments are quite volatile here. RBI’s consumer confidence surveys do not cover rural India. But, its monetary policy statement mentions “fire sales” during the demonetisation period.

The BSE-CMIE-UMich surveys include responses from over 3,000 villages. Nearly two hundred villages are surveyed every week and these provide insights into the wild fluctuations in rural sentiments.

In general, rural consumer sentiments have been better than urban sentiments. Yet, rural India was up in anger in Maharashtra, Madhya Pradesh and to a lesser extent in Haryana and Gujarat during the past week.

Farmers in Nashik-Ahmednagar in Maharashtra and in Mandsaur-Neemuch in Madhya Pradesh have been agitating since early June. The immediate reason for the agitation is a sharp fall in prices for agricultural products following a bumper kharif crop. Onions, soyabean and arhar are the major crops that caused the stress. While supplies flooded markets, demand was subdued because of low availability of cash. Excessive supplies and poor demand led to market prices crashing far below government-announced minimum support prices.

The BSE-CMIE-UMich consumer sentiments indices captured this very well. Rural sentiments rose during November and December as the kharif crop output turned out to be very good. Then, by January 2017 when the cash-crunch caused by demonetisation played out fully to bring prices crashing, the rural sentiments came tumbling down.

However, the demand by the agitators is for loan waivers and a lot more. Maharashtra’s partial loan waiver announced on June 3 did not help. The government was forced to extend this to total loan waiver on June 11. Madhya Pradesh announced that it would make purchases of agricultural products to ensure that agriculture remains profitable to the farmer. Uttar Pradesh has asked banks not to send notices to farmers to service their loans till it organises funds for the promised loan-waiver.

It is clear that state governments are ruining their finances, their markets for agricultural products and also markets for credit.

It is also clear that the farming sector, and by extension the rural sector, is succeeding in wresting favours from a hapless government. This is a battle of nerves with wide implications. Agriculture is a risky business. As a result, rural consumer sentiments are a lot more volatile compared to urban consumer sentiments.

A good crop and the ability to wield political power has kept rural sentiments high in the past. The rural index of consumer sentiments has been 4.4 per cent higher than the urban index. However, it is 1.6 times more volatile. This has implications on rural demand, in particular, the sustainability of rural demand.

During the week ended June 11, the rural index of consumer sentiments fell by 2.3 per cent after having fallen by 9.2 per cent in the previous week. It could well recover the lost ground quickly in the coming week as Maharashtra and Madhya Pradesh have made generous concessions to the farm sector.

Rural sentiments matter. They matter because rural India is big and its sentiments are volatile. Tracking rural consumer sentiments is important for state governments to be alerted of the angst as much as it is important for consumer goods companies to anticipate demand and reduce the risks associated with its volatility.

First Published in Business Standard Link

Unemployment Rate
Per cent
3.2 -0.0
Consumer Sentiments Index
Base September-December 2015
94.9 0.0
Consumer Expectations Index
Base September-December 2015
95.4 0.0
Current Economic Conditions Index
Base September-December 2015
94.1 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 16 Dec 16 Mar 17 Jun 17
New projects 2.37 1.44 2.91 1.55
Completed projects 2.21 0.94 1.81 1.02
Stalled projects 0.65 1.01 0.35 2.45
Revived projects 0.91 0.17 0.62 0.29
Implementation stalled projects 0.37 0.81 0.33 0.63
Updated on: 28 Jul 2017 9:20AM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.3 7.7
 Expenses 1.9 6.4 11.8 8.7
 Net profit 14.6 40.4 18.0 0.7
 PAT margin (%) 6.9 6.1 6.2 12.6
 Count of Cos. 4,494 4,492 4,357 320
Non-financial Companies
 Income 0.6 6.0 11.8 7.3
 Expenses -0.2 7.3 15.4 8.6
 Net profit 26.7 24.7 -0.7 -2.1
 PAT margin (%) 6.9 6.2 6.4 12.5
 Net fixed assets -9.2 7.6
 Current assets 8.1 2.4
 Current liabilities 11.6 9.3
 Borrowings 3.1 5.4
 Reserves & surplus 8.4 7.7
 Count of Cos. 3,491 3,493 3,401 232
Numbers are net of P&E
Updated on: 28 Jul 2017 9:30AM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 9.9 5.0 1.0
 Expenses 12.8 9.8 5.1 1.2
 Net profit 1.0 -2.3 1.4 -14.2
 PAT margin (%) 3.5 3.2 3.2 3.1
 Assets 14.3 12.3 9.4 8.7
 Net worth 9.6 9.6 8.8 7.6
 RONW (%) 6.8 6.2 6.1 5.4
 Count of Cos. 25,169 22,706 21,937 18,146
Non-financial Companies
 Income 11.9 9.6 4.1 0.0
 Expenses 12.2 9.3 4.3 -0.6
 Net profit -8.5 -2.7 -5.9 8.1
 PAT margin (%) 2.4 2.2 2.2 2.8
 Net fixed assets 12.9 11.6 13.2 12.6
 Net worth 7.8 8.6 7.4 6.9
 RONW (%) 5.5 5.1 4.9 5.6
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 1.9 1.9 2.1
 Net working capital cycle (days) 72 69 67 66
 Count of Cos. 19,615 18,084 17,557 14,859
Numbers are net of P&E
Updated on: 22 Jul 2017 1:04PM

Time-series available since 1992-93