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Anatomy of the rural rush

Anatomy of the rural rush
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First Published: Mon, Mar 23 2009. 09 44 PM IST

Updated: Mon, Mar 23 2009. 09 44 PM IST
The meltdown in the US financial industry has hurt key sectors of the urban Indian economy, including information technology, exports, real estate, infrastructure and financial services. Jobs have been lost in many sectors and consumer spending has declined in some categories in the cities.
But what has happened in rural India? How has the economic slowdown affected the villages and small towns of India where at least 80% of our population lives? Since mandis (wholesale markets), agriculture mills and many agri-implement manufacturers are located in small towns with a population below 50,000, these towns, too, display a rural character and can be clubbed with villages.
Nearly 70% of the working rural population is engaged in agriculture, which accounts for 50% of rural income. Agricultural gross domestic product has grown for four consecutive years on the trot—a feat achieved for the first time in 40 years. A record harvest of 230 million tonnes of foodgrains last year, coupled with an increase of 40% in the minimum support price of wheat and paddy (unhusked rice) over the last two-year period, has resulted in a sharp rise in farm incomes.
Wages under the National Rural Employment Guarantee Scheme , or NREGS, have been revised up by at least 30% this year. Including the money earmarked in the vote-on-account moved in Parliament for 2008-09, the spending on NREGS is estimated at Rs66,800 crore.
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The salaried class accounts for 11% of the rural workforce. Most are employed in government jobs as bank employees, schoolteachers, and in electricity and municipal departments. Not only are their jobs secure, they have benefited from the recent salary raises recommended by the pay commission.
On the expenditure side, almost one-third is spent on food. Since the country achieved record food production last year, and with rural incomes continuing to grow, there is no reduction in spending on food.
The so-called fast moving consumer goods, or FMCG, sector accounts for the next highest spending, and that has recorded 20% growth in the second quarter of 2008-09. Rural areas and small towns account for 60% of the FMCG market in India. And as prices of many durables have fallen in the last two years, rural buyers are upgrading from regular to flat screen TV sets, and from national to international brands. Villages and small towns are driving demand for most durables, and this segment now accounts for 63% of all India sales.
A recent study by MART found that people living in rural areas spend an average Rs5 lakh on a wedding and, despite the economic slowdown, they have not reduced that spending. Nor have they cut expenditure on annual pilgrimages. We know the real estate sector in our cities has been the hardest hit; in rural India, the construction sector is booming because house construction is for self-use (and not a speculative investment), and there is still a genuine shortage of at least 15 million houses.
Apparel is another major area of household spending. Interestingly, the young in rural India have switched to wearing readymade garments (the brands are local and regional, not national), driving village tailors out of business; these tailors have been forced to look for work in garment factories in nearby cities!
In telecommunications, 70% of the growth is coming from rural India. It is expected that out of 300 million new connections by 2012, nearly 200 million will come from rural India.
With a much lower penetration level in most categories than the cities, the rural market will take years, if not decades, before it reaches saturation levels.
On the savings side, rural India has very conservative habits. Savings are put in post office accounts or bank fixed deposits. As a result, people living in rural areas have not experienced any erosion of wealth as their urban counterparts have.
How does the future look for rural India? For the first time since independence, huge public as well as private investments are being planned in agricultural infrastructure—warehouses and cold storage facilities—and in improved seeds and crop diversification. We are blessed as a country to have all 14 agro-climatic regions, and can grow any fruit, vegetable or commodity available anywhere in the world. With a boost in agricultural investment, technology and proper planning, India has the potential of becoming the food supplier to the world. Government spending on rural development programmes will continue to increase irrespective of which political party is in power, because every party knows that the vote banks live in our villages.
Rural citizens have become much more aware and demand better facilities today. This should lead to better road connectivity, electricity in more homes and e-connectivity in the villages. All this will give a boost to trade and consumption.
In this hour of economic crisis, rural India could become the saviour of corporate India. But are the CEOs listening?
Graphics by Ahmed Raza Khan and Jayachandran / Mint
Pradeep Kashyap is founder and chief executive of MART, a New Delhi-based rural market consultancy. Respond to this column at feedback@livemint.com
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First Published: Mon, Mar 23 2009. 09 44 PM IST