Farm-loan waiver to help two-wheeler sales

A silent buzz has returned amongst the country's motorcycle companies. For several months now, their sales have dwindled due to slowing of demand. Tata's small car, Nano, threatens to further choke the demand of two-wheeler.

Succor could soon be on its way in the form of the Centre's Rs 60,000-crore farm loan waiver scheme. Even as policy pundits try to figure how much it will actually cost the exchequer and how the package will be implemented, motorcycle producers are convinced it will improve rural disposable incomes and boost sagging sales.

"The farm loan waiver means more buying power in the hands of people in the rural sector. It is likely to fuel demand for two-wheelers in these markets," a Hero Honda executive says, adding: "The excise duty cut on two-wheelers and the consequent reduction in prices of all our models are also likely to have a positive impact on our sales."

Not just motorcycle companies, makers of cement, fertilisers and FMCG too are silently celebrating the package, which will benefit about 40 million rural households.

At present, almost half of motorcycle and FMCG sales and over a third of cement sales in the country happen in rural markets. The package could clearly spell a bonanza for these sectors.

The waiver will not put additional money in their hands, but will reduce their liabilities and hence improve their disposable incomes. Finance Minister P Chidambaram had hoped in his Budget speech that 50 per cent of this money would be saved and the rest spent.

The waiver has brought a fresh lease of good luck for the FMCG companies. The urban market for their produce has shown unmistakable signs of stagnation. Any improvement in the rural markets could lift their fortunes.

"The waiver will lessen the financial burden of rural population and allow them to purchase daily items such as soap, detergents etc. This should result in improved rural demand for our products," says H K Press, executive director and president of Godrej Consumer Products Ltd.

"From the rural retail perspective, it will put an additional Rs 60,000 crore in the hands of the consumers," says L S Rathore, the chief operating officer (agri-business) of Tata Chemicals, which runs around 600 rural retail stores under the brand Kisan Sansar. Clearly, Rathore expects sales to pick up in these stores soon.

Several cement and fertiliser companies too say that demand will now pick up in rural households. "The farmers will be able to buy more agricultural inputs at the right time. Fertilisers may see some impact on their demand," says Ajay S Shriram, chairman and senior managing director, DCM Shriram Consolidated Ltd. The company sells fertiliser under the Shriram brand.