Rural markets shine

by Mahesh Vyas

Consumer sentiments have improved well in September 2021. As of September 25, 2021, the index of consumer sentiments stood at 58.2. It was 53.9 in August and 53 in July. (The index has a base of 100 in September-December 2015.) The improvement in September is across rural and urban regions but, it is rural India that continues to hold promise in spite a few setbacks in recent weeks.

Much of the rapid and impressive gains made by consumer sentiments in rural India in the first two weeks of September were lost in the third week. The rural index had gained 4.9 per cent in the week ended September 5 and then another 9 per cent in the week ended September 12. In a short span of just 12 days the rural index scaled up from 56.8 as of the end of August 2021 to 64.2 as of September 12. This translates into an impressive 13 per cent gain in just 12 days of the month. September 2021 seemed headed for another spectacular increase in rural sentiments.

Then, in the week ended September 19, the rural index of consumer sentiments fell by a rather sharp 8.8 per cent. Gains compared to the August-end level narrowed to 3.1 per cent. The last week, ended September 26, saw stability as the rural index remained unchanged from its previous week’s level of 58.6. After all these weekly gyrations, the rural index of consumer sentiments as of September 26 remains a healthy 3.1 per cent higher than its level in August. This is much higher than the average monthly gain in the rural index of consumer sentiments. The average monthly gain in the past 12 months was 1.1 per cent.

The performance seen in September so far is particularly inspiring because it comes on top of three consecutive months of gains in the rural consumer sentiments index. The gains were 0.4 per cent in June, 10.7 per cent in July and 4 per cent in August. The cumulative gain during these three months was a handsome 15.6 per cent. The rural sentiments index has more than regained the losses it suffered during the second wave of Covid-19. It is this recent momentum in the rural sentiments index that is particularly promising.

It is likely that the rural consumer sentiments index will end September 2021 at a level higher than seen in any month since the first wave of Covid-19. The 30-day moving average of the index of rural consumer sentiments as on September 25 was 61.7. It has been above the 60-mark since September 11. It peaked at 62.4 during September 21-23. The index had never crossed 60 since its fall from 97.1 in March 2020.

Much of the optimism in rural India seen till August 2021 emanated from households that earned between Rs.200,000 and Rs.500,000 per annum. We will learn of the source of the continued momentum in rural sentiments in September early in October.

While the climb-back of the rural consumer sentiments index in recent months is impressive, its return to the pre-Covid levels is still very far. The index was at 110 in December 2019.

Urban India has been lagging the rural hinterlands on consumer sentiments. For example, on September 25, the rural consumer sentiments index at 61.7 was 20.5 per cent higher than the urban index of consumer sentiments which was at 51.2.

Urban India seems to be facing greater challenges at the moment given that it has a slightly higher inflation rate at 5.32 per cent compared to rural India’s 5.28 per cent and a much higher unemployment rate at 8.8 per cent compared to rural India’s 6.2 per cent. What is perhaps, far more relevant is the difference in employment in the two regions. While urban India has lost nearly two million jobs or, about 1.5 per cent of the jobs in March 2020, rural India has offered 1.4 per cent more jobs compared to March 2020. While rural India is able to provide some employment during times of distress, urban India is unable to do the same. As a result, while urban household incomes are depressed, rural household incomes are looking up.

In April 2021 (the most recent period for which this data is available), the average household income in rural India was 7.3 per cent higher in nominal terms than the average monthly income during the pre-pandemic year, 2019-20. However, in urban India, the average household income was 12.3 per cent lower than the average household income in 2019-20. Continued job losses in urban India and depressed incomes are reflected in continued poor sentiments in urban India.

It is unlikely that fortunes of urban India would have turned for any better since April 2021. Rural India, on the other hand, is likely to see yet another good kharif crop in spite of an errant monsoon and delayed sowing this year.

In September, the urban index of consumer sentiments grew by 4.4 per cent. This is higher than the 3.1 per cent growth seen in the rural index in the same time. But, this higher growth was not adequate to reduce the gap between the rural and urban consumer sentiment indices. The difference in the two has grown from 15.8 per cent as of August 31 to 20.5 per cent as of September 25.

Consumer sentiments and household incomes data show that festivities could be brighter in rural India this year.