Sustained improvement in rural sentiments

by Mahesh Vyas

The Union Budget was received with substantial enthusiasm in rural India and with an equal dismay in urban India. This is what we observed on the day of the budget when rural sentiments soared by 8.7 per cent and urban sentiments fell by 4.7 per cent. This divergence continued till the end of the week of the budget announcements. Rural consumer sentiments in the week ended February 4 were 3.5 per cent higher than they were in the preceding week and, by a similar comparison, urban consumer sentiments were 3.4 per cent down.

This divergence in consumer sentiments continued into the week ended February 11. Rural sentiments rose further by 1.1 per cent and urban consumer sentiments fell by 2.8 per cent.

This sustained buoyancy in rural consumer sentiments is interesting as most agriculture experts have concurred that the budget does not offer much that is new to farmers. If, as government officials have clarified, the 50 per cent markup is only on direct input costs (A2) and family labour (FL) and that it will not include cost of land and capital, then the budget is not offering anything new save for the hype in presentation.

If the farming community had reacted favourably to the budget announcement why have they not expressed anguish with the clarifications? It is unlikely that information asymmetries played a role only in one direction, ie it delivered the good news quickly but did not deliver the bad news equally quickly. So then, are the farmers happy with the assurance of a 50 per cent markup on the kharif crop? Perhaps, they are. It is entirely possible that they consider it prudent to consolidate the small gains they have achieved from the budget for now and fight another battle another day in their long-drawn war to wrangle their perceived entitlements.

Like in the case of demonetisation when most analysts (including yours truly) were proved thoroughly wrong that the draconian measure would hurt sentiments of the average consumer, we may be proved wrong again that the half promise of MSP in the budget compared to the demands from farmers and recommendations of the MS Swaminathan report would lead to farmers revolting against the BJP.

It is likely that the farmers have tasted blood. Their agitation has succeeded even though it is work in progress. It is likely that they have a steely resolve to continue to battle to get a greater share of the fiscal pie in the future. Historically, MSPs were almost always announced very late. Now, they have an assurance in hand well before the crops are sown. They have progressed in overcoming at least some price uncertainty.

As of early February, rabi sowing was 0.8 per cent lower than it was a year ago. But, it is still higher than normal rabi acreage. It is therefore quite likely that the rabi crop will not be too bad. There were no reports of the weather turning bad to hurt crops. However, the geographical distribution is skewed with northern states doing badly and the southern states doing much better on sowing. This shows in the 16.7 per cent increase in rice cultivation this rabi season.

Crop prices have been largely stable. Prices of pulses have fallen, but farmers are covered with government assurances. Vegetable prices have been strong and prices of fruits and even cereals have remained stable. Broadly, rabi will be a good season. An assurance that the kharif crop will possibly face a similar outcome is good reason for rural sentiments to remain buoyant.

The next move is with the rain gods. Note that the budget announcements reduce the price risks faced by farmers, but it does not remove the production risk. Nearly half of India’s gross cropped area still depends upon rains. If the monsoon turns out to be good, then farmers in particular and rural India in general should see prosperity that will spill over into higher spending after a long time.

Corporate India can see in this a possible hope of rural demand picking up by September 2018. This is also the time when the benefits of the MSP awards for farmers start flowing out - in time for the ensuing festival season. October and November are the festival-intensive months this year. Within these two months we see the nine-day festival of Navaratri and Durga Puja followed by Diwali, Id-e-Milad and then Guru Nanak Jayanti.

It could be a good festival season after a very long time if the rains live up to it and if there are no shocks like demonetisation.

First Published in Business Standard Link

Unemployment Rate
Per cent
6.2 -0.0
Consumer Sentiments Index
Base September-December 2015
93.5 0.0
Consumer Expectations Index
Base September-December 2015
93.9 0.0
Current Economic Conditions Index
Base September-December 2015
92.8 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 17 Sep 17 Dec 17 Mar 18
New projects 2.33 1.38 1.24 2.15
Completed projects 0.87 1.21 1.02 1.07
Stalled projects 2.67 0.69 0.93 3.34
Revived projects 0.30 0.34 0.23 0.14
Implementation stalled projects 0.73 0.72 0.58 1.05
Updated on: 25 Apr 2018 8:20PM
Quarterly Financials of Listed Companies
(% change) Jun 17 Sep 17 Dec 17 Mar 18
All listed Companies
 Income 9.6 7.9 11.9 9.0
 Expenses 9.9 9.0 12.9 9.6
 Net profit -19.9 -18.1 -13.9 6.9
 PAT margin (%) 5.3 5.5 4.9 14.7
 Count of Cos. 4,482 4,469 4,431 85
Non-financial Companies
 Income 10.2 8.2 13.2 5.4
 Expenses 10.5 8.2 12.3 6.8
 Net profit -25.1 -6.0 12.7 -1.1
 PAT margin (%) 5.2 6.2 6.4 13.2
 Net fixed assets 9.2 5.5
 Current assets 78.7 8.5
 Current liabilities 11.0 22.7
 Borrowings 10.4 -2.3
 Reserves & surplus 5.2 0.4
 Count of Cos. 3,460 3,443 3,428 61
Numbers are net of P&E
Updated on: 25 Apr 2018 8:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.5 1.5 5.1 1.6
 Expenses 5.6 1.7 5.1 0.7
 Net profit 0.0 -10.3 23.7 9.2
 PAT margin (%) 3.1 2.8 3.6 8.3
 Assets 9.5 10.0 6.9 3.3
 Net worth 8.5 11.4 6.0 2.8
 RONW (%) 5.8 4.9 5.9 12.7
 Count of Cos. 25,647 23,668 20,755 19
Non-financial Companies
 Income 4.7 0.6 4.7 1.5
 Expenses 4.9 0.0 5.2 0.6
 Net profit -8.6 18.4 18.0 10.7
 PAT margin (%) 2.0 2.5 3.1 7.4
 Net fixed assets 13.3 17.3 5.4 4.4
 Net worth 6.9 12.0 4.4 2.9
 RONW (%) 4.6 5.1 6.0 11.5
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 11.8
 Net working capital cycle (days) 66 65 62 38
 Count of Cos. 20,897 19,807 17,287 17
Numbers are net of P&E
Updated on: 18 Apr 2018 11:50AM

Time series available from 1990 onwards