Indian companies are betting on small towns and villages to sustain growth at a time the third-largest Asian economy is bracing for pain from US’s punishing 50% tariffs.
Businesses from biscuits makers to building materials suppliers underscored the buoyant rural demand in investor calls for their June quarter earnings, adding that low inflation and the prospect of a good harvest will ensure the 900 million Indians living outside cities keep spending. Consumption growth in India’s countryside has outpaced that in urban markets for six straight quarters, according to data analytics firm NielsenIQ.
Demand in rural India, dominated by its agrarian economy, is a bit more insulated from the impact of the exorbitant US tariffs, making it an important focus area to get growth from, Sudhanshu Vats, joint managing director at adhesives and paint maker Pidilite Industries Ltd. told Bloomberg News.
India’s gross domestic production in the three months through June expanded at the fastest pace in more than a year. Private consumption grew 7% on the back of strong rural demand and improvement in agriculture wages.
The growth, however, risks hitting a speed-bump after US President Donald Trump doubled the 25% duty on Indian exports from August on more than half of goods shipped to the US — its biggest market. The levies will almost certainly bruise labor-intensive industries such as textiles and jewelry, which are concentrated around large cities.
Meanwhile, real rural wages rose at the fastest pace in more than seven years, according to data from Citigroup Inc. The gap between rural and urban monthly per-capita consumption has also narrowed significantly, official figures showed.
“We’ve seen very good growth this quarter,” Varun Berry, managing director at Britannia Industries Ltd., told investors last month, despite the global economy going through turbulent times. The bread and cookie maker expects to retain its growth momentum with a focus on India’s rural markets, he said.
Pidilite is adding distributors and setting up branded stores in smaller towns, with population of less than 12,000, as well as expanding waterproofing centers and mobile customer support vans, to drive growth.
Demand Stimulus
Consumption accounts for more than half of the GDP in the world’s most populous nation, and mass spending in its hinterland is fast catching up with that in cities. Last month, Prime Minister Narendra Modi announced tax cuts that aim to shield the economy from the negative impact of US tariffs.
“The timing of GST reforms is apt,” Tanvee Gupta Jain, chief India economist at UBS Securities, said in a note, adding that counter-cyclical policy measures were necessary to counter tariff uncertainties. The tax cuts will boost household consumption over the next two to three quarters, she added.
Shares of rural-focused stocks have outperformed broader indexes, suggesting investors see them as a hedge against tariff risks.
“We see large volumes of contribution coming from rural segment,” said Nikhil Doda, co-founder of Archian Foods Pvt., which sells a popular cumin-flavored fizzy drink, Lahori Zeera.
The company that competes with Coca Cola Co. and PepsiCo Inc., even provides “insulated chill boxes” to rural sellers of its 10-rupees ($0.1) beverage, as most small shops don’t even have a refrigerator. Small towns are a significant contributor to the company’s sales.
There is an inclination amid rural consumers to try newer products, according to K. Ramakrishnan, managing director for South Asia at consumer research firm, Worldpanel by Numerator. “All the contributing factors to boosting consumption in rural areas are strong for India.”
Source Name : Economic Times