Sustained improvement in rural sentiments

The Union Budget was received with substantial enthusiasm in rural India and with an equal dismay in urban India. This is what we observed on the day of the budget when rural sentiments soared by 8.7 per cent and urban sentiments fell by 4.7 per cent. This divergence continued till the end of the week of the budget announcements. Rural consumer sentiments in the week ended February 4 were 3.5 per cent higher than they were in the preceding week and, by a similar comparison, urban consumer sentiments were 3.4 per cent down.

This divergence in consumer sentiments continued into the week ended February 11. Rural sentiments rose further by 1.1 per cent and urban consumer sentiments fell by 2.8 per cent.

This sustained buoyancy in rural consumer sentiments is interesting as most agriculture experts have concurred that the budget does not offer much that is new to farmers. If, as government officials have clarified, the 50 per cent markup is only on direct input costs (A2) and family labour (FL) and that it will not include cost of land and capital, then the budget is not offering anything new save for the hype in presentation.

If the farming community had reacted favourably to the budget announcement why have they not expressed anguish with the clarifications? It is unlikely that information asymmetries played a role only in one direction, ie it delivered the good news quickly but did not deliver the bad news equally quickly. So then, are the farmers happy with the assurance of a 50 per cent markup on the kharif crop? Perhaps, they are. It is entirely possible that they consider it prudent to consolidate the small gains they have achieved from the budget for now and fight another battle another day in their long-drawn war to wrangle their perceived entitlements.

Like in the case of demonetisation when most analysts (including yours truly) were proved thoroughly wrong that the draconian measure would hurt sentiments of the average consumer, we may be proved wrong again that the half promise of MSP in the budget compared to the demands from farmers and recommendations of the MS Swaminathan report would lead to farmers revolting against the BJP.

It is likely that the farmers have tasted blood. Their agitation has succeeded even though it is work in progress. It is likely that they have a steely resolve to continue to battle to get a greater share of the fiscal pie in the future. Historically, MSPs were almost always announced very late. Now, they have an assurance in hand well before the crops are sown. They have progressed in overcoming at least some price uncertainty.

As of early February, rabi sowing was 0.8 per cent lower than it was a year ago. But, it is still higher than normal rabi acreage. It is therefore quite likely that the rabi crop will not be too bad. There were no reports of the weather turning bad to hurt crops. However, the geographical distribution is skewed with northern states doing badly and the southern states doing much better on sowing. This shows in the 16.7 per cent increase in rice cultivation this rabi season.

Crop prices have been largely stable. Prices of pulses have fallen, but farmers are covered with government assurances. Vegetable prices have been strong and prices of fruits and even cereals have remained stable. Broadly, rabi will be a good season. An assurance that the kharif crop will possibly face a similar outcome is good reason for rural sentiments to remain buoyant.

The next move is with the rain gods. Note that the budget announcements reduce the price risks faced by farmers, but it does not remove the production risk. Nearly half of India's gross cropped area still depends upon rains. If the monsoon turns out to be good, then farmers in particular and rural India in general should see prosperity that will spill over into higher spending after a long time.

Corporate India can see in this a possible hope of rural demand picking up by September 2018. This is also the time when the benefits of the MSP awards for farmers start flowing out -- in time for the ensuing festival season. October and November are the festival-intensive months this year. Within these two months we see the nine-day festival of Navaratri and Durga Puja followed by Diwali, Id-e-Milad and then Guru Nanak Jayanti.

It could be a good festival season after a very long time if the rains live up to it and if there are no shocks like demonetisation.


Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.

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