Exploring India's rural market potential

With rural disposable incomes outstripping urban ones, there is a lot of scope for the expansion of the rural market base.

 
By D K Bose, Kunal K Sinha
Last Updated: Sunday 28 June 2015

Baiting the rural market: A to CONSUMPTION is a constantly evolving process influenced by a multiplicity of factors, of which the major ones are disposable income, level of awareness and standard of living. Different societies go through specific consumption patterns at different points of time.

Mahatma Gandhi's statement that "India lives in her villages" was apt considering that over 620 million people live in the more than half a million Indian villages. It is, therefore, interesting to assess the current situation in rural India, and analyse macro-level patterns and trends while appreciating the fact that differences do exist at the micro level.

At present, rural income constitutes 56 per cent of the total income and is growing at the rate of 5.6 per cent; urban income, on the other hand, is growing by only 5.4 per cent annually. Nearly Rs 14,000 crore was invested in the development of the rural sector during the Seventh Five-Year Plan. This led to increased rural disposable income. The relatively low cost of living as compared to that in the cities has also increased the value of this income.

A recent survey by the National Council of Applied Economic Research reveals there are 33 million households in rural India with a monthly income of Rs 1,000 or more. Interestingly, there are only 25 million urban households in this bracket. Monthly rural expenditure averages at approximately Rs 175 per person on consumer goods, but as much as 25 per cent of them spend Rs 215 and more each month. This is not much less than the urban per capita average monthly consumer expenditure of approximately Rs 266.
Exposure levels Television has been a major cause of an explosion in awareness levels, which has complemented the rapid changes on the economic front. Access to new information and knowledge has become a part of daily life, at least among the affluent. Today nearly 75 million rural adults are exposed to television regularly and many more to radio. A significant number of them are aware of developments beyond the confines of their villages.

The second major catalyst has been the increase in literacy levels and consequent migration of sizeable chunks of the population to cities and towns. Such migrants bring back on trips to their villages all the experience of urban living.

The third element that has influenced rural consumption patterns is the social change that has affected the age-old practice of investing in land. A significant number of people are choosing to invest in consumer durables rather than in land. The development of communication systems, both road and telecommunication, has provided the necessary foundation for increased economic activity.

This all-round spurt in economic activity, greater access to information and the development of the communication system has provided a golden opportunity for traders. On the one hand, it has led to the availability of packaged goods and, on the other, it has provided channels to make consumer durables available. A receptive public has accepted packaged products for washing and cleaning. Television sets, cosmetics and food and beverages have also found acceptance. The increased level of transactions in these categories improved the rural market share from 28 per cent in 1985 to 37 per cent in 1989, a growth from Rs 800 crore in 1985 to an estimated Rs 5,000 crore at present.

This clearly indicates that a vast market has emerged in the rural sector, which is bigger, in size at least, than the urban sector. The core today may be confined to 9 million households, but there are another 24 million households waiting to join. While current consumption is mainly restricted to essentials in the packaged category, it won't be long before consumer durables start making inroads. The next century will certainly witness the entry of personal products in this sector. India will then truly be the world's largest consumer society.

---D K Bose is vice-president, Hindustan Thompson Associates Ltd.

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