Demand for consumer goods has been under pressure in rural India, with higher prices of everyday essentials from milk to wheat flour forcing people to cut back spending on both other essentials and discretionary purchases.
However, inflation eased in April and May, bringing some relief for consumer goods makers like Maggi instant noodles-seller Nestle India.
In the June quarter, rural markets posted staggered growth, with sales volumes climbing 4% on demand for staples as well as non-foods, improving from a 0.3% rise in the previous quarter, market researcher NielsenIQ said.
Rural markets volumes had fallen roughly 2%-5% in the preceding four quarters.
"(The recovery in the rural markets) combined with a 21% growth in modern trade augurs well for the upcoming festive seasons," said Roosevelt D'Souza, lead, customer success, NIQ India.
"Modern trade" includes large supermarket chains, while mom-and-pop stores make up "traditional trade."
Overall, the value of the consumer goods industry rose 12.2% in the April-June quarter, improving from a 10.2% growth in the previous three months and clocking its best quarter in a year and a half.
Consumption growth, meanwhile, was at its highest in two years, helped by price cuts.
"The reduction in input costs, if continued to be passed on to consumers, will only increase consumption benefiting all three - manufacturers, retailers and consumers," D'Souza said.
However, growth could come under pressure given that India's retail inflation likely accelerated to 6.40% in July, as per a Reuters poll, breaching the upper end of the Reserve Bank of India's 2%-6% tolerance band for the first time in five months.
(Reporting by Praveen Paramasivam in Chennai; Editing by Savio D'Souza)