Rural Economy is doing good, therefore revival will be faster, Market is going up!!
Rural Economy is doing good, therefore revival will be faster, Market is going up!!
In my earlier blogs, I covered “Boycott China” Impact on our economy and market rally!
Today, attempting to share my thoughts on another factor “Revival in rural demand and which is why markets are going up”
Discussion highlight in media is:
1) Rural economy is doing well this time due to better crop in quality and quantity.
2) Tractor sales are good.
3) Rural consumption is picking up!!
4) Loan book under moratorium are reducing.
5) Lower than anticipated NPAs etc.
So, I wonder, if Rural India was in pain for last few yrs, how come one crop season and larger MGNREGA dole out, change the dynamics sustainably? If the rural India had borrowed the money in yester years, they are more likely to repay the loan and de-leverage themselves (important to note that Indians are not credit cultured like western world). If this hypothesis is right than future demand (except basic needs) will suffer. Another point to note is, how rural demand is improving? Aren’t factors like, migration of labour and MGNREGA scheme responsible for the artificial support to demand? Rural India largely consumes basic products (food and essentials). Rural India needs to drive the aspirational product consumption which can be called as the revival. Tractor demand was subdued since years so if there is demand for the same, it can be attributed to necessary replacement demand (can’t wait anymore, but have to change).
Labourers who also support their families in native place (that’s the very reason why they move to cities) which drive the rural demand. The migrant labour is jobless and in his native place. Of the 5 metros – Chennai, Delhi and Mumbai are in lockdown still. I call it lockdown as till the time Local trains, Metro rails and Buses don’t ply, metro cities operate at less than 50% efficiency. In best case scenario, if all the migrant labour will be employed and at the Pre Covid incomes, they would have still lost good 3-5 months of employment and Income. Isn’t it good enough to expect weak demand in future months!! Large rural demand is also supported by the workers who leave India for employment. Gulf countries have many Indians working or doing small businesses there. Their unemployment will have to be factored in. India receives largest foreign remittances in world.
Let’s see another dimension and check the hard numbers of unemployment in India- As per CMIE, unemployment rate in Feb 2020 was 7.76% which spiked upto 23% in Apr and May. Currently the same number is about 13%. MGNREGA helped the unemployment rate come down drastically. Not sure how long the government stimulus will continue. Important point to note is employment does not necessarily mean at the satisfactory salary levels. For example, if skilled labour was earning 25k per month is employed for mere 10-15k per month at farm or MGNREGA. So technically he is employed but his purchasing power has reduced significantly👍.
Let’s examine few industries which employs large number of labour (including white and blue collar jobs)!! Entertainment, Retail, Tourism, Real estate, Hospitality. These industries are going to take lot of time to get back to Pre Covid levels. Isn’t that going to impact the economy for relatively longer time?
I hope I am able to do justice to the “rural demand revival” story and present another perspective to the same. If you agree and find it useful, pls acknowledge the same on FB, LinkedIn and Twitter.
Be careful in allocation to equity. I don’t think markets can sustain rally for long.
Markets are running on steroid doses of liquidity and hopes of global recovery. Nothing in world (or for that matter, India) has changed for good. Helicopter money is just delaying the worst news!!
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