As monsoon knocks on the doors, can it revive demand for consumer durables?

The Indian Meteorological Department has forecast a the fourth straight year of normal monsoon rainfall. The IMD classifies normal rainfall as between 96% and 104% of the Long Period Average (LPA). This forecast brings some relief to the economy, which is currently grappling with high food inflation and slowing global growth. Usually, a shortfall in monsoon rainfall can be attributed to the expected development of El Nino conditions during the monsoon season. It is widely known that the chances of low rainfall increase in an El Nino year, and the delayed monsoon arrival has already caused some deficit in rainfall.

However, it is important to note that there is no one-to-one correspondence between the emergence of El Nino and deficient monsoon rainfall in India. Previous experiences have shown that the emergence of El Nino does not necessarily mean a significant drop in rainfall or the occurrence of a drought. Moreover, the resilience of Indian agriculture towards adverse weather shocks, particularly deficient rainfall, has undeniably increased over the years. This resilience is primarily due to the increased intensity of irrigation, with the gross irrigated area as a percentage of the gross cropped area expanding.

Nevertheless, the ability of the agricultural sector to absorb the shock of deficient rainfall varies across states and is closely linked to the overall area under irrigation. The sector's response and recovery from such challenges also depends on factors such as cooling of inflation, government spending on the agriculture sector, and the implementation of deeper direct distribution methods. These factors, which are considered more structural in nature, have been highlighted by some major consumer goods companies and will continue to fuel rural recovery.

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The demand for consumer durables in the first quarter of the year has not been great due to unseasonal rainfall. However, there is an expectation of some recovery in consecutive quarters and a better second half of the year 2023-24. This anticipation is based on the prospect of a longer summer, which is likely to support increased consumer demand. Looking at the key long to medium term growth drivers for the consumer durables sector, various factors remain intact. These include lower penetration levels, increasing urbanization and electrification, rising disposable income and aspirations of the population, changing lifestyles and preferences, technological advancements and innovation, as well as government schemes and incentives.

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The author is Avinash Pathak, Research analyst at LKP Securities

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