Rural India accounts for 70% of India’s population, 56% of national income, 64% of total expenditure and one-third of the total savings, a recent analysis by NCAER shows. The traditional vision of the rural economy as purely agricultural is clearly obsolete. There is a vast gap between the consumption patterns of rural and urban consumers but rural markets have huge potential—and there is a lot of money there too.
These markets call for scanning and sieving ideas and plans, market research, consumer behaviour studies, product strategies, channel selection and distribution, supply chain management, media selection and focused communication. Rajesh Shukla, a senior fellow at National Council for Applied Economic Research, or NCAER, India’s leading economic research institution, spoke to Mint on the potential of rural markets. Edited excerpts:
Rural India has grown tremendously in the past few years. Could you give us a brief overview of how this market looks in terms of population, demography, income groups and consumption trends?
In real terms (at 1999 prices), the size of the rural economy will be about Rs16 trillion in 2012-13 as compared to Rs12 trillion in 2007-08. The share of non-farm income will be about two-thirds of the rural economy by 2012-13. The term “non-farm” encompasses all non-crop agricultural activities: It includes manufacturing activities, electricity, gas, construction, (the) mining and quarrying trade, transportation and services in rural areas. It supplements employment to small and marginal farm households, especially during the slack season, and reduces income inequalities and rural-urban migration, which has fallen from 6.5% in 1981 to 2.8% in 2001.
With this economic growth, what’s expected is a major shift in income demographics. For instance, the share of low- income households (Rs45,000 average household income at 2004-05 prices) in rural India will decline from 58% in 1995 to 27% at present to 14% further in 2012. On the other hand, the middle-high income households (Rs2.25 lakh average household income at 2004-05 prices) will constitute about half of the rural households. These constituted 13% of total households in 1995-96.
Despite reports that rural markets are growing fast, most consumer product makers are either not present or have limited exposure to these. Why? Is it the affordability factor or companies’ inability to connect and communicate better with consumers?