Consumption in rural India booming, says report

By Shruti Chakraborty

Consumption in rural India is growing faster than in urban India for the first time in two decades, a new report by credit rating agency Crisil Ltd said. Between 2009-10 and 2011-12, additional spending by rural India was Rs.3750 billion, significantly higher than Rs.2994 billion by residents of urban areas.

The report said that growth in rural consumption was fuelled by a rise in household incomes due to greater non-farm job opportunities and government initiated employment generation schemes. NSSO data shows that during 2004-05 to 2009-10 rural construction jobs rose by 88 percent, while the number of people employed in agriculture fell from 249 million to 229 million. In addition, migrants from villages to urban areas who benefitted from job opportunities in infrastructure and construction projects increased remittances to their families in rural India, which boosted consumption.

For sustaining the rural boom, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas, the report said.

Dharmakirti Joshi, Senior Director & Chief Economist, CRISIL, “To keep the rural growth story intact, the private sector will have to play a larger role, so that India can productively harness the rising working age population in rural areas. Government policies will be vital in enabling the private sector to create rural jobs.” It is therefore imperative to implement the National Manufacturing Policy, with focus on skill development and productive job creation.

Srikumar Misra, CEO of startup Milk Mantra in Orissa said “there is a huge opportunity for entrepreneurs in rural areas, not only as customers but also in terms of a supply base.” Entrepreneurs have set up ventures like rural BPOs and handicrafts projects in rural areas hoping to make the most of this large market. The untapped rural potential remains huge-over 60% of India’s population in 2026 will continue to reside in rural areas, the report said.

Ravi Kiran, Co-Founder of middle India focused growth advisory firm Friends of Ambition said that “from a middle India focus, this should encourage more companies in middle India to build brands because they are placed closer to the rural consumers. Most big brands are based in big cities.”

The report added further that a notable phenomenon in rural consumption is a shift from necessities to discretionary goods. About one in every two rural households now has a mobile phone. Even in India’s poorest states such as Bihar and Orissa, one in three rural households has a mobile phone. Nearly 42 per cent of rural households owned a television in 2009-10, up from 26 per cent five years earlier. Similarly, 14 percent of rural households had a two-wheeler in 2009-10, twice that in 2004-05. For India, a young population, rising income and low penetration of many consumer durables means that rural consumption has the potential to remain an important source of demand.

Kiran added that “the others who benefit from an increase in rural demand is the eCommerce companies because they can see that there is a latent demand, earlier people in villages had to travel to a nearby village to buy things, so now if the focus on improving the logistics is maintained, this could help eCommerce companies. Also logistics companies are poised to benefit.” Investors he says have always been fascinated by rural India, but there is a lack of executors focusing on the rural market.