The India-US trade relationship faces challenges as Trump has increased tariffs from August. (AI image)
Indian companies are betting on robust demand from smaller towns and villages to counter the impact of US President Donald Trump’s 50% tariffs on India. India’s GDP grew at a 5-quarter high of 7.8% in the April-June period. Private consumption showed a 7% increase, driven by robust rural demand and higher agricultural wages.The India-US trade relationship faces challenges as Trump has increased tariffs from August on the majority of Indian exports to the US. This heightened duty structure is expected to negatively impact labour-intensive sectors like textiles and jewellery manufacturing, particularly in major urban centres.
During June quarter earnings calls, companies ranging from biscuit manufacturers to construction material providers highlighted strong rural consumer demand, noting that stable prices and anticipated good harvests would maintain spending amongst the 900 million rural residents. According to NielsenIQ quoted in a Bloomberg report, rural consumption has exceeded urban market growth for six consecutive quarters.
Trump tariffs: Why India Inc is betting on rural India
Rural economic indicators show positive trends, with rural wage growth reaching its highest level in over seven years, Citigroup Inc has said. Official statistics indicate a substantial reduction in the disparity between rural and urban monthly per-capita consumption levels.
Steady outperformance
Rural India’s predominantly agricultural economy remains relatively sheltered from the effects of steep US tariffs, making it a crucial growth target, Sudhanshu Vats, joint managing director at Pidilite Industries Ltd told Bloomberg news.To enhance market presence, Pidilite is expanding its distribution network and establishing branded outlets in smaller towns with populations under 12,000. The company is also increasing its waterproofing centres and deploying mobile customer support vehicles to strengthen its service delivery.“We’ve seen very good growth this quarter,” Varun Berry, managing director at Britannia Industries Ltd., told investors last month, despite the global economy going through turbulent times. The bread and cookie maker expects to retain its growth momentum with a focus on India’s rural markets, he said.Consumer spending represents over 50% of GDP in India, with rural consumption rapidly approaching urban levels. Recently, Prime Minister Modi announced GST reforms and rate cuts in his Independence Day speech. These are expected to be implemented just in time for Diwali.
Consumption boost
“The timing of GST reforms is apt,” Tanvee Gupta Jain, chief India economist at UBS Securities, said in a note, adding that counter-cyclical policy measures were necessary to counter tariff uncertainties. The tax cuts will boost household consumption over the next two to three quarters, she added.Rural-focused company shares have performed better than general market indices, indicating investors’ confidence in their resilience against tariff challenges.“We see large volumes of contribution coming from rural segment,” said Nikhil Doda, co-founder of Archian Foods Pvt., which sells a popular cumin-flavoured fizzy drink, Lahori Zeera.The organisation, which rivals Coca Cola Co. and PepsiCo Inc., provides special cooling containers to rural vendors selling their Rs 10 ($0.1) drinks, as many small shops lack refrigeration facilities. The company derives substantial revenue from smaller towns.Rural consumers are showing interest in sampling new products, notes K. Ramakrishnan, managing director for South Asia at consumer research firm, Worldpanel by Numerator. “All the contributing factors to boosting consumption in rural areas are strong for India.”