With 70% of India?s population, 56% of income, 64% of expenditure and 33% of savings, rural India not just provided the cushion to India?s economy amidst the global financial crisis, but led the road to recovery as well.
As per the just-released report, Challenges Before an Integrated India, by FICCI and Nielsen, this 70% of the Indian population amounts to 815 million, translating into a total of 151 million households, providing a humongous consumer base for anything from colas to cars.
Rise in purchasing power backed by government spending in National Rural Employment Guarantee Act, Sampoorna Grameen Rozgar Yojna, Pradhan Mantri Gram Sadak Yojana and Swarnjayanti Gram Swarozgar Yojana with a total allocation of Rs 53,500 crore in 2009-10 and the growing minimum support price for crops at 10% to 15% year-on-year between 2005 and 2008 have fueled the rural consumption story.
Allocation for NREGA has been stepped up to Rs 40,100 crore for 2010-11 and with Rs 66,100 crore provided for rural development, the stage seems set for the rural consumer, emerging as the best bet for businesses. Pradeep Kashyap, founder and CEO, MART, says, ?Currently, the $500-billion rural market will double by 2020, which would be equal to the Canadian or South Korean economy. The government will spend Rs 48,000 crore in FY?11 in Bharat Nirman, leading to rapid infrastructure development? a 53% increase from FY?10.?
Nielsen research for the 12-month period ending November 2009 estimates that the FMCG market in India grew by 14%, with rural growth punching at 18%, much higher than 12% in cities. Accordingly, the rural contribution to FMCG sales remains much higher in states that have a significant rural population. Contribution of rural India to total FMCG sales amounted to 62% in Bihar, 55% in Kerala, 51% in Assam, 50% in Chhattisgarh, and 49% in Uttaranchal. Within this segment, personal care products grew faster in rural areas than the urban areas during January-May 2010.
In 2009, rural India grew more than urban and ?sachetisation? led the revolution. As stated in the FICCI-Nielsen report, though the non-food category has been at the same level, the FMCG growth was driven by the food category. And, the rural growth was not just for any particular trade channel, but the average monthly sales grew at chemists, general stores, grocers and paan-plus outlets. Detergent bars, beverages, milk-food, branded biscuits and packaged tea showed moderate to high sales.
To cash in on the opportunity, companies are coming up with custom-made rural ventures. April 2009 marked the launch of GCPL?s ambitious Project Dharti, which aims to increase the company?s focus on rural India, generate sales in rural India that within a year would overtake the contribution of the urban areas; and expand GCPL?s distribution network within three years to 50,000 villages and 8,000 small towns across India. The country?s biggest packaged goods marketer, Hindustan Unilever, too, has just gone on a marketing overdrive in rural India with its Khushiyon Ki Doli initiative to expand its distribution reach here.
And, as expected, the growth story continues in the consumer durables sector as well. The urban consumer durable market is growing at almost 10% per annum and the rural durable market is growing at 25%. There is an ever-increasing demand for motorcycles, colour televisions and white goods, with colour TVs leading the pack with a 235% growth. As per NCAER estimates, in 2010, demand in rural households will be 66 million for colour TVs, 73 million for motorcycles and 35 million for white goods. Pradeep Lokhande, CEO and founder of Pune-based Rural Relations, says, ?Even if there is no food to eat, TV is becoming a must in rural households. And it?s a family decision, even the smallest child in the house has a say in it.?
Led by the demand for two-wheelers, entry-level cars and tractors, rural and semi-urban markets already contribute about 40% of the sales for the auto industry. Rural India accounts for over one in ten cars sold by the country?s biggest carmaker, Maruti Suzuki. Mahindra & Mahindra, too, is bullish on the rural and semi-urban markets, with its utility vehicle, Scorpio, clocking 60-65% sales from the rural markets.
According to TRAI, there has been a rise of almost 100% in the use of mobiles by rural subscribers with 201 million mobile subscribers. As per reports, rural India accounts for 40% of Nokia India?s $5 billion annual revenue. D Shivakumar, VP & MD, Nokia India, had reportedly pointed out, ?Today, the drivers in urban and rural areas are the same in terms of aspiration, quality and price, differing only in order. In five-ten years, I see a very different rural India. In sheer economics, there will be 30% more expenditure in the next 20 years compared with the past 20 years.?
NCAER estimates that by 2015-16, over two-thirds of the rural incomes will be from non-farm sources. About half of LIC?s policy holders are from rural India. While the penetration is still lower, it contributes more due to the higher base. As per the 2008 study, Insurance in Next 2 Years, by Assocham, the rural India opportunity was pegged at $23 billion for insurance companies. And, the story can go on and on. The fact is that all players, from commercial banks to medical companies, are eying the great Indian rural pie, making those 815 million Indians the most desirable targets. Fortune at the bottom of the pyramid!