Tuesday, October 13, 2009


Pradesh Bhraman – Revisiting rural India

As the 2009 south-west monsoon comes to an end, we try and assess its impact on crop output, farm income and the fallout on consumer demand. Over the past one month, we visited three major crop producing states - Uttar Pradesh, Andhra Pradesh and Madhya Pradesh - to gauge the ground reality. Our visit involved insightful interactions with farmers (small and large, rain dependent and otherwise), auto/tractor dealers, fertilizer dealers and FMCG distributors (of every FMCG company in our coverage and several other unlisted players). Following are the key takeaways:

Huge variations in monsoon impact; irrigation facilities the key determinant
We observed huge variations in standing crop not only among various districts but also within the same village due to differences in irrigation facilities. The fields which are close to river valleys/have good irrigation facilities have seen very little impact. We note that places where sowing/replanting has failed would see sharp declines in output.

Nominal agri GDP unlikely to get impacted
We estimate 2% increase in nominal agri GDP even with 6-7% decline in real agri GDP in FY10. Late showers in August have significantly improved the prospects of the Rabi crop. Also, GoI has increased allocation to NREGS (National Rural Employment Generation Scheme) by Rs100b, which would provide much needed relief to landless laborers/marginal farmers. We expect medium and large farmers (>4 hectares of land) to be better off due to higher crop prices.

Small/marginal farmers to lead consumption curtailment/downtrading
Marginal and small farmers, who are likely to witness income erosion, would cut consumption/downtrade in categories like soaps and detergents. They would postpone big ticket spends like marriages and durables. Sales of paints, bikes and new mobile connections have suffered in some areas within the regions that we visited. However, we expect higher spends on durables, automobiles and housing by medium to large farmers, who would gain from higher crop prices.

Near-term pressures; strong rebound likely in FY11
Drought years in the past have seen good rainfall in the following year, as El Nino is followed by La Nina, which boosts rainfall and crop output. History of droughts in the past 30 years suggests that overall GDP growth in the year following the drought year is 170-590bp higher. A normal monsoon in FY11 would result in bountiful crops and increase in demand.

To see full report: MONSOON 2009