With extended lockdowns in most parts of India, the production of all non-essentials was at a halt or at minuscule levels in April and May until the economy was unlocked. This move reduced demand in the short-term, but owing to intrinsic domestic demand, we are optimistic about future business expectations
Better Outlook of Rural Economy
However, hope has arisen from India’s rural part as the agriculture sector appears to have been relatively less impacted by the lockdown. This part of the country never truly went into a harsh lockdown, and thus procurement, harvest, and consumer activities have remained unaffected. Farming continued during the lockdown, especially for rice and wheat cultivation. The return of migrant workers caused a surplus of agricultural labor. This resulted in the fact – more land was brought under cultivation than ever before. As a result, the country has witnessed a good season of rabi harvest.
Rural Auto Demand to Avert COVID Impact
A better rural economy is driving the overall growth. We are witnessing the demand recovery in two-wheeler and car segments and it is skewed towards the semi-urban and rural markets.
In June 2020, Maruti Suzuki, the country’s largest carmaker, witnessed a surge of 40% in rural sales. Hero MotoCorp, the country’s largest 2-wheeler maker, sold four times as many two-wheelers in June 2020 as it did in May 2020. The company noted that a significant part of the market demand is emerging from the rural and semi-urban markets
Rural Sentiment Lifts Tractor Sales
Tractor sales have largely remained strong even during the lockdown period as the government allowed its sales even before other automotive manufacturers could resume their operations. In June 2020, Mahindra tractors, the country’s largest tractor manufacturer, saw a 12% YOY growth in tractor sales.
“The timely arrival of the south west monsoon, combined benefits of a record Rabi crop, Government support for Agri initiatives and very good progress in the sowing of the Kharif crop have led to positive sentiments among farmers. These underlying factors along with better cash flows in rural markets have helped boost tractor demand during June” – Hemant Sikka, President – Farm Equipment Sector, M&M
High-frequency indicators like higher cumulative rainfall in the first week of July, improved area sown under Kharif crops, suggest a stable condition of the rural economy. Further, the budget for the Mahatma Gandhi National Rural Employment Guarantee Scheme has been raised to Rs 1 lakh crore due to the COVID-19 crisis.
Hence, we expect a faster recovery in rural India, while the urban part will take a little longer to come back to normalcy. The rural part of India, which has two-thirds of the country’s population and 70% its workforce and generates 46% of the national income, will play a pivotal role in moving ahead the Indian economy and auto industry. PSR
Aditya Kondejkar is a Research Analyst – South Asia Operations, with Power Systems Research
