Rural demand outpaces urban demand amid heavy rains, Economic Survey shows

In its September economic survey, the Ministry of Finance highlighted the growing gap between rural and urban demand in India in the first half of FY25. Rural demand remains strong, supported by favorable monsoon conditions, increase in minimum support prices (MSP) for kharif crops and government-backed programs such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

Spending in rural areas increased, reflected in fast moving consumer goods (FMCG) sales rising 5.2% according to NielsenIQ, as well as higher rural vehicle sales, especially three-wheelers (up 7.4%) and passenger cars cars (growth by 4.9%). According to the Federation of Automobile Dealers Associations (FADA).

Moreover, a recent study by the National Bank for Agriculture and Rural Development (NABARD) shows that 37.6% of rural households reported an increase in income and 80.1% reported an increase in consumption.

This optimistic outlook, bolstered by government initiatives, improved crop prospects and rising average price of rabi crops, is expected to further boost rural demand.

On the contrary, demand in cities has slowed down noticeably.

FMCG sales growth in urban areas slowed to 2.8 per cent in the first quarter of FY25 from 10.1 per cent in the same period last year. Sales of city cars also decreased by 2.3% due to lower traffic and seasonal factors.

Despite the recent surge in consumer optimism according to the RBI Consumer Confidence Survey, the urban segment remains sluggish.

While demand in rural areas is showing robust momentum, urban demand may get a boost from the ongoing festive season, although early signs point to a cautious consumer base, the report said.

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