Oct. 21 (Bloomberg) -- For Dayanand Sakharam Kute, it seems money is finally growing on trees.
Well, not trees exactly. But it’s sprouting from the ground. This year’s crop of tomatoes and ivy gourd on his 4 acre farm in the village of Pimpri Pendar is looking so bountiful that the 58-year-old farmer is thinking of buying his first car. That’s manna from heaven to Eknath Pardeshi, a salesman for Tata Motors Ltd., who’s been coming over every few days since September to pester Kute, riding his motorbike about 30 kilometers each way along potholed roads east of Mumbai.
“This year is a good year for us farmers,” said Kute, who predicts his income will triple to about 1.5 million rupees ($24,500) this year. “Prices of tomatoes, onions, grapes and vegetables have been good. Everybody’s had a good harvest.”
A favorable monsoon is enriching Indian farmers and encouraging them to splurge -- behavior that’s increasingly a rarity among city slickers these days. Companies from Tata Motors to HDFC Bank Ltd. are targeting villagers as consumers in Mumbai and New Delhi come to grips with the slowest economic growth in more than a decade and accelerating inflation.
“If you look at urban centers, there’s a slowdown,” said Mohit Arora, executive director at research company JD Power & Associates. “Rural markets offer a large base of untapped potential. With the current slowdown in traditional markets for cars, it’s inevitable that carmakers will look at rural India.”
Tata Motors, maker of the $2,400 Nano, has assembled an army of 500 salesmen -- Tata calls them “outreach executives” -- to target prospective rural customers.
Pardeshi is among them. The 26-year-old says he’s sold about 30 cars since joining about 1 ½ years ago, sometimes by telling customers that buying an auto will make other villagers think they are a “badda sheth,” meaning powerful man in the local Marathi dialect. Pardeshi makes house calls because the Tata dealership is too far away for most customers, he said.
Tata Motors isn’t alone in noticing the rising wealth outside cities. New Delhi-based Maruti Suzuki India Ltd., which outsells all other automakers in the country, has customers in 50,000 villages and estimates every third car it sells today goes to a rural buyer, according to Mayank Pareek, the company’s sales chief. In 2008, rural areas accounted for about 3.5 percent of deliveries, he said.
Narayangaon, the town where Pardeshi lives, and neighboring Manchar have recently attracted a spurt of interest from automakers amid rising farm incomes, which are tax-free by law in India. Mahindra & Mahindra Ltd., the nation’s biggest SUV maker, opened a new dealership this month and General Motors Co. opened a Chevrolet showroom in the area in September.
Banks are also interested. HDFC Bank, India’s largest lender by market value, is increasingly relying on loans in villages and small towns for its retail business, Chief Executive Officer Aditya Puri said in an interview this year.
About 70 percent of Indians live in towns and villages and the growth in their spending outpaced that of city dwellers in the past two years of available data, according to figures compiled by Crisil Ltd., a credit-rating company owned by Standard & Poor’s. Prime Minister Manmohan Singh has poured more than $70 billion into boosting incomes in India’s countryside since 2004, helping double rural consumer spending.
Boom to Bust
This year’s monsoon delivered the most rainfall since 2007, according to the India Meteorological Department. More rain means bigger crops and, since the government sets a floor on prices, farmers don’t need to worry about a glut in the market. India will spend $14 billion this year to boost its 59 million- ton food stockpile.
Among those taking advantage of the windfall is Shantaram Batwal, a 47-year-old onion farmer in Netwad Ganeshwadi, about 160 kilometers from Mumbai. After years yearning for a car, he finally bought a new Tata Indica hatchback last month after prices of onions more than tripled to 70 rupees a kilogram from 20 rupees in June.
“Today, even farmers can afford to live comfortably,” Batwal said.
By contrast, consumer sentiment has dipped in metropolitan areas such as Mumbai and New Delhi, according to Debopam Chaudhuri, vice-president for research at ZyFin Research. Jewelers in Mumbai say fewer customers are buying as more people pawn family trinkets and heirlooms.
Nationwide, India’s economy is struggling. HSBC Holdings Plc forecasts gross domestic product will expand at the slowest pace in more than a decade; ZyFin Research estimates consumer sentiment has fallen to the lowest since October 2011; the rupee tumbled to a record low this year; inflation is hovering at about 10 percent; and Standard & Poor’s warned it may cut the country’s sovereign debt rating to junk status.
“Agriculture appears to be one bright spot,” Chaudhuri said in an interview.
However, good fortune for farmers can be fleeting. Only last year, India had its driest monsoon season since 2009, hitting crops from cotton to sugarcane. More than 2,200 farmers in India committed suicide in the past four years as drought drove them deeper into debt.
“If in a particular year the monsoon is not good or farm output dips, then sales too will fall,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai. “Those factors aren’t in anybody’s hands and are hard to predict.”
Kute, who typically walks around bare foot, wearing grimy, baggy white pants and a long white shirt, is taking advantage of the good times while they last.
“A car gives you status,” he said, finally ending Pardeshi’s ordeal when he ordered a 610,000 rupee ($10,000) Indigo sedan from the Tata salesman last week.
--Editors: Young-Sam Cho, Ben Richardson