Mumbai: Every second rural household in India has either a television or a fan today and such households spent more on so-called discretionary items between 2004-05 and 2009-10, according to a new report by rating agency Crisil Ltd that highlights the upward mobility that many rural households in India witnessed in the second half of the last decade—a period when the country’s gross domestic product (GDP) grew at an average rate in excess of 8%.
Discretionary spending of a typical rural Indian household rose from Rs.14,000 in 2004-05 to Rs.24,000 in 2009-10, growing at about 11% every year, and faster than the inflation rate of nearly 6% a year over that period, Crisil said in the report released on Wednesday.
To be sure, the economic slowdown has altered the trend.
Private final consumption expenditure growth, an official estimate of consumer spending fell to 3.98% in the June quarter over the year-ago period after growing by 4.86% in the same period the previous year. And since 2009-10, the average inflation rate has been 8.88%, as compared to 6% in the survey period.
“Rural spends on discretionary items and consumer durables have slowed this year (2012) over the survey period,” said Vidya Malve, chief economist, Crisil.
Growth in the Rs.52,000 crore consumer durables market (comprising television sets, refrigerators, washing machines, etc.) has seen a sharp drop—from 14.2% in 2010-11 to 2.5% in the fiscal ended March 2011-12, according to data compiled by the Centre for Monitoring Indian Economy Pvt. Ltd (CMIE), an independent economic think tank headquartered in Mumbai and industry lobby, the Federation of Indian Chambers of Commerce and Industry (Ficci).
Still, the Crisil report does point to the pervasive nature of growth in the second half of the 2000s.
According to it, Kerala and Punjab topped in terms of discretionary rural household spending that increased 14.5% and 11.5%, respectively, between 2004-05 and 2009-10. In Maharashtra and Bihar, the growth was 12.1%; it was 12.2% in Gujarat; and 11.4% in Madhya Pradesh.
The lowest growth was in Andhra Pradesh (2.1%), West Bengal (6.8%) and Karnataka (7.8%).
Across India, the number of rural households that own electric fans increased from 38.4% in 2004-05 to 55.2% in 2009-10 (although it is debatable whether spending on a fan can be categorized as discretionary), and those with television sets increased from 25.6% to 41.7%. Ownership of bicycles, two-wheelers, cars and jeeps also increased significantly.
Spending on discretionary items varied across states for households with similar income levels, depending on the quality or availability of infrastructure such as roads and electricity, Crisil said.
The rating agency estimates that nearly 12 million additional rural households in Uttar Pradesh and 4 million more in rural Bihar would have owned electric fans by 2009-10 if they had better access to electricity.
Consumer electronic companies such as Videocon Industries Ltd confirmed the trend. Sales in rural markets for Videocon nearly doubled in volumes between 2005-06 to 2009-10.
“In 2005-06, rural sales accounted for 25-27% of our overall volumes and 10-12% in terms of value as compared to 40-45% of volumes and 20-25% of value sales in 2009-10,” said Jaideep Rathore, chief operating officer, Videocon Industries.
He said the company has schemes for rural consumers which include stabilizers and convertors to overcome fluctuation in electricity and some basic backup in case of electricity failure. However, rural India still lags urban India in terms of ownership of durables by a wide margin.
Rural India accounts for about 68% of total households across India, but only 42% of rural households had TVs as compared with 76% in the cities in 2009-10. The comparable numbers for electric fans is 55% and 91%; two-wheelers, 14% and 33%; and cars and jeeps, 1% and 7%.