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Rural India: Glitter in times of gloom

Apr 13, 2009

No company can afford to ignore two third of the consumer population pie. However inaccessible they may be and whatever changes may be required in the company's strategy to attract them. No wonder, the growing power of the rural consumer (accounting for 64% of country's total consumer base) is forcing Indian blue chips and MNCs to flock to rural markets. Not only FMCG companies but even banks, auto, telecom and retail companies are finding it difficult to keep themselves away from the lure. Fathom this. 70% of India's and 12% of globe's population lives in rural India and contributes 50% of country's GDP. Their population of 750 m is more than that of US, UK, France, Japan, Italy and Germany put together. In fact, as per Mckinsey, despite rising urbanisation, 63% of India's population will continue to live in the rural areas even in 2025.

Surging ahead in terms of growth
As per National Council of Applied Economic Research (NCAER), rural market accounts for 55% of LIC policies, 70% of toilet soap consumption, and 50% of TV, fans, bicycles, tea and wrist watch consumption. So as a target market, it is attractive not only because of the size, but also because of impressive growth potential.

Rural GDP has been witnessing strong growth in the last four years (avg of 4%) not only on the back of increase in minimum support prices for the agri-products but also due to availability of alternative employment opportunities.

Source: Business Today

In 2008, the rural areas grew at a robust rate of 25% as compared to 10% growth in urban retail market According to a McKinsey, rural India, would become bigger than the total consumer market in countries such as South Korea or Canada in another twenty years. It would grow almost four times from estimated size of US$ 577 bn in 2007. While the per capita income is lower than urban areas, the customer base is thrice that of urban areas.

Resilient to slowdown
On account of negligible tax liability and little or no burden of loan repayments, the Indian rural population has a higher propensity to save. The rural areas account for 33% India's total savings. Being more conservative than their urban counterparts, the rural populace has not burnt their fingers in the real estate or stock market bust. Further, the rural income distribution pattern is also changing and the bottom is getting narrower.

While 18% of rural India has earnings in the range Rs 45,000 to Rs 215,000 per annum, 58% of urban population earns in this range. However, 27 m individuals form a part of this income bracket in rural areas while in urban areas it is about 29 m; of which large base is already tapped.

No of households (m)
Demographic classification Urban Rural Total
Rich ( income greater than Rs 1 m per annum) 4.8 1.3 6.1
Well off (income greater than Rs 0.5 m per annum) 29.5 27.4 56.9
Total 34.3 28.7 63.0
% of total 54.4% 45.6%
Source : Ministry of Communications & Information Technology , India

As per the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the rural market is becoming increasingly attractive for FMCG, automobiles and organised retail businesses. Rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care, and hot beverages. FMCG sector in rural areas is expected to grow by 40% as against 25% in urban areas in the coming quarters. The size of retail market in India is estimated at US$ 280 bn of which the rural retail market works out to be US$ 112 bn. This is expected to double in next 4 to 5 years because of the huge potential. Even auto companies in recent times are witnessing shift in trend as they are gearing to explore the huge market potential lying in the rural areas.

% of households owning products (2008)
Top 20 cities Other cities Rural
Car 23 5 3
Bicycle 37 61 69
Colour Tv 68 47 17
AC 5 3 0
Refrigerator 63 34 8
Computer 8 3 1
Source: Mint

As rural India becomes more lucrative and the government becomes more committed to its development, schemes like the rural employment guarantee, Bharat Nirman, focus on rural education, debt waiver plan and higher support prices will aid the rural demand. Although the penetration levels are still very low, the scope is huge. And India Inc. is not letting go of this opportunity.

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2 Responses to "Rural India: Glitter in times of gloom"

V.K.Ramanathan

Feb 20, 2011

In spite of the above mentioned facts, which are quite encouraging from the overall perspective, the cost of production of food grains, and other agricultural produce is very high affecting the whole population, rural and urban. This is because of small land holdings, making it difficult to bring down the cost of production, by the use of farm mechanization. All restrictions in the way of consolidation of land holdings should be removed. Will the Government take the initiative? Ramanathan, Thane West.

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iqbal

Oct 21, 2010

Hi! Yes very interesting, informative, and candid
I'am loving it

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