New Delhi, Feb 26 (IANS): Rural consumption in Q3FY22 is estimated to have grown 2 per cent on a year-on-year (YoY) basis.

The Centre will release the Q3FY22's growth and consumption trends on February 28, 2022.

In contrast, urban consumption grew 3.8 per cent YoY in Q3FY22, following an 8.2 per cent YoY rise in Q2FY22.

According to Motilal Oswal Financial Services Ltd. (MOFSL), the estimated growth in Q3FY22 comes after a decline of 1.7 per cent YoY in Q2FY22.

"Five (two-wheeler sales, farm's terms of trade, tractor sales, fertiliser sales and reservoir levels) out of 12 indicators saw contraction last quarter vis-A-vis seven in 2QFY22," MOFSL said.

"However, sharp growth in agri exports, farm credit and government spending offset the contraction witnessed in those five indicators."

Additionally, faster growth in real rural agri or non-agri wages in Q3FY22 also underpinned rural consumption last quarter, it said.

"Although the rural sector has weakened in 2HCY21, higher growth in CY20 helped it to outperform the pre-Covid trend as of end-CY21."

On the other hand, urban sector grew strongly in 1HCY21 and continued its decent growth in 2HCY21, but it was below the pre-Covid trend as of end-CY21.

"In sum, while rural consumption was 2.4 per cent higher than pre-Covid trend in CY21, urban consumption was 2.4 per cent lower."

"In line with these trends, we believe real private consumption growth would also weaken to 7-8 per cent YoY in 3QFY22, following sharp growth of 13.5 per cent YoY in 1HFY22."

Besides, MOFSL said that rural consumption confirm that better post-monsoon showers are aiding rabi sowing and reservoir levels remain comfortable.

"However, weak rural wage growth and farm terms of trade are not favorable for the rural sector."

"Sustained demand for MGNREGA work, which is almost as high as it was in FY21, is a sign of worry, as wages per person for such work is extremely low at only INR210."

Overall, the weak or strong growth in the rural or urban sector in CY21 or 9MFY22 was led by the base effect (CY20 or FY21), respectively.

"Adjusting for these statistical effects, the rural sector has outperformed the urban sector in the past two years."

"Nevertheless, there is no doubt that consumption growth remains weak on account of a severe blow to the financial position of the household sector in India."