Ramachandra Reddy, 30, owns five acres of arable land in Vatti Meenapally, a hamlet of about 200 households in the Rangareddy district of Andhra Pradesh. The only source of income for his family of six is the farm. In 2010, he had invested Rs 100,000 in cotton and vegetable crops, and made Rs 150,000. In 2011 he invested a similar amount but the returns were bad. The long dry spell played havoc with the cotton and maize crops, while vegetable prices fell sharply. His total income for the year fell to Rs 60,000; Reddy says there is no way he will be able to repay the loan he took from the bank.
Kavitha, who runs a grocery store in the nearby Pulumamidi village, says daily business is down from Rs 3,000-4,000 a year ago to Rs 1,000-1,500 now. Her husband has left to work in a relative’s shop in the nearby town of Vikarabad, to supplement their income. K S Subrahmanyam, manager of the Canara Bank branch, says deposits have come down over 25 per cent from Rs 5.4 crore on March 31, 2011, to Rs 4 crore now, and credit disbursement has risen 15 per cent from Rs 16.16 crore to Rs 18.5 crore. People, he says, have little money to put in their bank deposits. Only the local liquor store seems to be doing well — country liquor as well as beer sells at way above the MRP. Raj Kumar, another shopkeeper, says the liquor store’s daily turnover could be as high as Rs 70,000, compared to his Rs 1,000 (down from Rs 1,500 a year ago).
In Punjab, in the Reeth Kheri village of Patiala, the 1,500 or so people look reasonably happy. Balwinder Singh, 40, bought a tractor, a car and a motorcycle last year, and still managed to save almost Rs 100,000. His current emphasis “is on branded clothes”. Rampal Singh, who doesn’t own land and lives on daily wages, says his income has risen 10-15 per cent in the last year, because farmers are richer. He has bought a motorcycle, saved some money and is now “focused on the family’s needs”. Ravinder Dhamija, a Hero MotoCorp dealer at nearby Rajpura town, says sales are up 20 per cent in the last year, and there is every sign of up-trading: people are ready to purchase expensive motorcycles. Deposits at the State Bank of Patiala branch at Reeth Kheri have soared 25 per cent since March 31, 2011 — fixed deposits have grown 17 per cent.
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The real state of the rural market is somewhere between Vatti Meenapally and Reeth Kheri. There are pockets of affluence and pockets of despondence. The construction of rural roads (293,406 km since the Prime Minister’s Rural Road Scheme was launched in December 2000) has made farming a more lucrative business. Research shows that farmers get 10-15 per cent better prices if they are able to transport their produce to towns nearby. But companies that sell in large numbers in villages say the rural economy is holding out well, but is under strain. That’s because though the minimum support prices for wheat and paddy were raised 9.8 per cent and 8 per cent respectively for the last crop, cotton prices crashed 25 per cent, jute 23 per cent, potato 65 per cent, onion 55 per cent and basmati rice almost 55 per cent.
On the other hand, rural wages have risen 70 per cent in the last three years, which has, along with the National Rural Employment Guarantee Scheme, brought some disposable income to rural households. All told, the government has, to date, spent Rs 146,000 crore on the rural jobs scheme. But this has caused a scarcity of farmhands, and hence a sharp rise in the sale of tractors and other mechanised equipment. Tractor sales have almost doubled from 250,000 in 2009 to 550,000 in 2011. Mahindra & Mahindra, the country’s largest tractor maker, is putting up new capacity near Hyderabad and its production lines are fully booked for the next three months. The company plans to hand out “good” increments in March. Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices, calls it “clandestine mechanisation” of the farm sector.
To take the pulse of the rural economy, Business Standard reporters visited villages in Andhra Pradesh, Orissa, Bihar, Uttar Pradesh and Punjab to speak to farmers, workers, shopkeepers and bankers. Farmers in Punjab and Bihar said they were better off than a year ago (annual income was up 10-50 per cent), while farmers in Andhra Pradesh and Orissa said income was down 20-50 per cent on account of scanty rainfall. In Uttar Pradesh, the rain was fine but the drop in basmati prices caused income to shrink 10-30 per cent. Nirmal Singh Yadav, headman of Bicchia village in the Unnao district and a well-off farmer, says the price of Dehra Dun basmati grown here has fallen from Rs 2,400 a quintal last season to Rs 1,400 now. This is central Uttar Pradesh. However, the sugar belt of western Uttar Pradesh is sitting on huge piles of cash. Chief Minister Mayawati raised the state-advised price of sugarcane from Rs 210 per quintal to Rs 250. Given the crop size of 66.5 million tonnes, this will mean an extra income of Rs 2,500 crore for the 4 million or so sugarcane farmers in the state. The beauty is that the bill for this largesse is being picked up by the sugar mills, not the state exchequer.
Farmers across states said they now spend 10-20 per cent more on staples than they did a year ago. Shopkeepers say customers look for cheaper options when buying toothpaste, soap, biscuits, etc. Discretionary purchases like consumer electronics and automobiles have been impacted in several places. The rise in input costs, especially fertilisers, has eaten into disposable incomes. Ajay Shriram of DCM Shriram Consolidated recently told Business Standard that his Hariyali Kisaan Bazaar chain of 230 rural retail stores has seen a fall in demand in the last three months because onion, potato and tomato prices crashed. “The market is not as buoyant as it was two or three months ago.”
With food inflation in the negative zone and manufacturing inflation hovering around 9 per cent, the terms of trade have moved against the farm sector. Gulati says prices of farm produce peaked last year and are now softening, which is bound to impact disposable incomes. So, it is only in Punjab that big-ticket purchases seem to be happening. Of the five farmers and workers interviewed in Punjab, two recently bought tractors, three bought motorcycles, one bought a four-wheeler and one upgraded his TV. Two of the five in Uttar Pradesh said they had spent more on their mobile phones and one admitted to renovating her house (perhaps because her husband works for the Central Reserve Police Force). Two of the five in Bihar said they had renovated their homes, two bought new mobile handsets, and one bought a DTH connection. None in Orissa and Andhra Pradesh had any money for such purchases. Farmers in Punjab and Bihar alone saved more; all else had either drawn down their savings or defaulted on bank loans.
Strangely, NREGS, which was supposed to provide jobs in villages during the lean seasons, doesn’t seem to have helped much in areas where the crops failed. At least two respondents in Jharkata village of the Cuttack district in Orissa said they didn’t get even a single day’s job, though they have been entitled beneficiaries for three years now. Only one of the five farmers interviewed reported more work, but not because of NREGS — he has taken up work at a brick kiln nearby. The worst fears of observers, that NREGS money leaks out before it reaches the intended beneficiaries, seems to be coming true. However, at Kushwan in the Patna district of Bihar, all five farmers polled said they had got some work under NREGS.
In spite of no NREGS work and the straitened circumstances, none of the families in Orissa, Andhra Pradesh and Uttar Pradesh reported recent migration from their families to cities in search of jobs. One farmer in Bihar said he plans to go to Punjab soon in search of work. In the last few years, apart from NREGS, the work on state roads initiated by Chief Minister Nitish Kumar had provided jobs in large numbers. With that work over, there is in the villages of Bihar once again a growing army of unemployed men. The pressure to go out in search of work has begun to mount once again. However, since a lot of them were employed in construction of infrastructure projects, the current slowdown has impacted their job prospects in faraway places.
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The current quarter, according to Gulati, will be crucial for the farm economy. “Prices have dropped to abnormally low levels,” he says. “The future doesn’t look very good either because global commodity prices are expected to soften, which should have an impact on India.” Companies with large stakes in the farm sector are optimistic but realistic. “There is stress in the market but nothing to panic about,” says Mahindra & Mahindra Farm Equipment Sector Chief Executive (tractor and farm mechanisation) Bishwambhar Mishra. “We are not as bullish as we were earlier.” Apart from farm work, a tractor is also used for haulage and employed in the construction sector. The slowdown in construction has somewhat affected the economics of owning a tractor.
Product categories with high penetration in the rural markets, like fast-moving consumer goods, have begun to feel the pinch. Categories that are under-penetrated and are high on customer engagement believe there is still some juice left here. “I think mobile phones and motorcycles are no longer luxuries but necessities like food, clothing and shelter,” says Hero MotoCorp Senior Vice-president (marketing and sales) Anil Dua. “A two-wheeler is no longer a consequence of prosperity — it is an enabler of prosperity.” According to Dua, rural markets have outpaced urban markets in growth in the first nine months of 2011-12. As a result, in the last three years the contribution of rural markets to Hero MotoCorp’s sales (it is the largest two-wheeler company in the country) has risen from 42 per cent to 45 per cent. Dua reviews the rural markets every quarter, based on feedback from almost 100,000 villages his salesmen touch every month, and he sees signs of a slowdown ahead. “There’s a decline in growth for sure, but it is slower than the decline in growth in the urban market.”
Some are still bullish. Samsung, for example, expects the contribution of rural markets to its sales to improve from 23 per cent in 2011 to 24 per cent in 2012. But a reality check is on the cards.
Sanjeeb Mukherjee in New Delhi, B Dasarath Reddy in Hyderabad, Dillip Satapathy in Bhubaneswar, Satyavrat Mishra in Patna, Virendra Singh Rawat in Lucknow and Vikas Sharma in Chandigarh contributed to this article
