Fact Check

No, Rural Consumption is Not Falling. Don’t Fall for Such Headlines

consumption in rural india

The devil lies in the detail, they say. Sometimes, the headlines that appear in the news portals are totally different than the detailed news. This time, its Livemint. Livemint’s headline disagrees with its actual report.

Nielson in its quarterly report has claimed that the FMCG sector growth rates are the lowest since last seven years.

This report was quoted by Livemint with this headline-

On the other hand, when we read the article, we find that it actually talks of “consumption growth” and not “consumption”. Consumption was not at a low but actually grew at 5%!

Consumption vs Consumption Growth

Consumption is one concept and growth in consumption is another. Numbers about consumption depict the absolute volume of FMCG goods consumed. Consumption growth is the relative increase in the consumption of FMCG goods over the last year (called as Year-on-Year comparison).

As an example, let’s say we spend Rs 100 this month. Next month we spend Rs 120. This makes the growth in the rate of spending as 20%. In the third month we spend Rs 130. The growth rate in spending now is barely 8.33% (130-120/120). While the growth rate of spending has reduced from 20% to 8.33%, the absolute spending has increased from Rs 100 to Rs 130.

Why the difference is important

If the headline says rural consumption has hit a seven-year low, it means sales have gone in negative. This means there is such a slump in demand that people are not buying FMCG products at all. It means the sector has posted negative growth rate. But is it the reality?

The fact is the growth rate of consumption has gone down, but is still positive. It means the rural people have definitely increased their consumption but the rate of increase is smaller. Nevertheless, spending has increased is an uncontested fact.

(Source- Business Standard)

The above image shows growth rates in FMCG in rural and urban areas. They are not absolute consumption rates. They are growth rates. The growth rate was 20% last year in the same quarter while it is 5% in this year’s quarter. Thus, rural consumption of FMCG products has grown in absolute terms but the rate of that growth has reduced to 5%.

Social media handles associated with the Congress and those opposed to the current administration predictably latched onto this false narrative that consumption is down.