Rural demand spike round the corner

India Inc is preparing itself to meet a sharp increase in demand from the rural and semi-urban markets in the last quarter of this financial year. Cutting across sectors like FMCG, automobiles, paints, cement and consumer electronics, the overwhelming feeling is demand will start picking up from the middle of January.

While FMCG sales growth is expected to ramp up from 3-4 per cent in April-December 2003 to 7-8 per cent in January-March 2004, cement producers hope to end 2003-04 with 6-6.5 per cent growth against 4.4 per cent in April-November thanks largely to a pick-up in rural sales in the remaining months of the year.

And after growing 10-12 per cent in the first eight months of the year, motorcycle sales are set to grow up to 20 per cent over the next 2-3 months.

"As against 5 per cent last year, I expect to close the current financial year with 25 per cent growth in the pipes business," says Prakash Chhabria, deputy MD, Finolex Industries, which makes PVC pipes for rural markets. According to him, pipe-laying is all set to boom in the rural markets and sales will continue to be brisk up to June.

Adds Jagdeep Kapoor, managing director of marketing consultant Samsikha Marketing: "In the next few weeks one will witness a huge surge in demand for all product categories in the urban (semi-rural, semi-urban) markets. Thereafter, demand will start to increase in deep rural products.

Expect at least 25-30 per cent demand growth for 'do good' products like services, 'feel-good' products like colour television sets and 'look-good' products like soaps and beauty care."

Thus, after selling over 200,000 motorcycles in October as well as November, Hero Honda expects to do even better in January and February.

Hero Honda Vice-President (Marketing) Atul Sobti says: "The rural surge will come after the harvest between January and March when farmers start getting money in hand. And going by the look of things, this is going to be extremely healthy demand."

Arch-rival Bajaj Auto, too, is gearing up to meet the increased demand. Says R L Ravichandran, Bajaj Auto vice-president (business development and marketing), "In preparation for the impending rise in demand, we are undertaking a lot of initiatives for the rural and semi-urban markets like exchange of old vehicles, tying up with banks as finance companies don't have the reach in these markets and encouraging our dealers to fund purchases of two-wheelers."

Carlo M Donati, managing director of Nestle India, told Business Standard: "It is inevitable. The monsoon has been good and the harvest season is expected to be good as well." Agrees ITC Chairman YC Deveshwar, "Rural demand is set to pick up early next year."

By all accounts, the FMCG industry is poised for a rich harvest. "The overall growth in the FMCG sector might be 3-4 per cent this year. But this cannot be attributed to a resurgence in the economy. However, there are clear indications that from January-February next year, the feel-good factor will return and there will be increased buoyancy in the rural markets," says a Dabur executive.

Several car makers, including Maruti, Hyundai, Tata Motors and General Motors, say they are sprucing up dealerships in fringe markets. "We expect a strong demand pull from the semi-rural and rural markets next year. There will be a surge not only in sales of utility vehicles but also for passenger cars," says Amit Dutta, vice-president (marketing, sales and aftersales), General Motors India, which is planning to launch a multi-utility vehicle next year.

Experts say the rural consumer has not spent heavily on low-value products in the last two years because of a lack of cash and high commitments they made in financing durables.