The country's rural demand is vulnerable and could be further impacted by the "dual blows" of lower income and high food inflation due to an erratic monsoon, according to a domestic rating agency.
The upcoming festivities may lead to a rise in consumption demand but such an increase will depend on the extent of the skewed monsoon impact, CareEdge Ratings said in a report released on Tuesday.
Consumption, including rural demand, is considered an important factor influencing the overall GDP growth in the country. Some FMCG players have already flagged concerns on the rural demand front.
"Rural demand remains vulnerable and can be hit by a dual blow of higher food inflation and lower income," the rating agency said. It said the risk to farm income remains high as uneven distribution of monsoon has affected the sowing of certain crops and can adversely affect yields.
The cost of living is also rising due to high food inflation and expected hit to agriculture due to an erratic monsoon, it added.
Monsoon has been deficient so far and there is no certainty if the situation will improve. The risk to rabi — the winter crop sowing — remains high as reservoir levels remain significantly below the 10-year average in eastern and southern India, the agency said.
The government is wary of the troubles on the inflation front and is taking steps to limit price rise, the rating agency said, adding that withdrawal of pandemic-era revenue expenditure led by a steep reduction in subsidy bills will further squeeze rural consumers' wallets.
