Consumer demand in India is the aggregate of the demand of several mini-consumer Indias, each with its own distinctive demand pattern, its own degree of exposure to different environmental forces and its own response to these forces. And like a kaleidoscope, with every jerk, the pieces regroup, and a new picture emerges.
With the most recent and very sharp jerk, the new picture of consumer demand seems to be one in which rural India is far more dominant than it has been in these past few years of strong urban volume and value growth. The glimmer of a rural silver lining to the dark clouds of reduced urban consumer spending is caused by several factors: a good monsoon, relative insulation from the gyrations of the stock market, the recent loan waivers that the government insists have reached the man on the street, an almost self-employed or government-employed population and marketer conduct, in terms of allocating more of the marketing effort and resources to rural India.
So, here’s a quick refresher on rural consumer India based on the recent Market Information Survey of Households, or Mish, study conducted by the National Council for Applied Economic Research (NCAER)—a much-needed primer because rural India is quietly morphing and growing and becoming different while the marketer’s mental pictures of it and of the “villager” often have not kept pace.
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Dipankar Gupta writes, in an insightful article, “The Changing Villager” in Seminar: “Clearly, the village is not what it used to be. When one reads accounts of rural India of the 1950s and 1960s, it appears as if we are describing another country. Where are all those landlords? Those agrestic serfs? Those bonded labourers? They are difficult to find even in Bihar or east UP. But this should not be startling. If 80% of the landholdings are below 5 acres, where is the scope to hire workers on the farm? In fact, there is an excess of family labour in most agrarian households. This is why villagers hope to send as many of their boys as they can to the city.”
Gupta makes the case that many of those living in the villages do not work there, but work in the nearest town, and commute. He also says, rather scathingly, that “it is not uncommon to sit through a treatise that claims that the heart of India pounds in the fields and rests behind mud walls”. He says that not only do “gross statistics disprove such a notion”, National Sample Survey (NSS) data at the household level asks not quite perfectly crafted questions. So, while it continues to be true that much of India lives in villages, the profile of villagers and how they impact domestic consumption need to be periodically assessed, and our mental models of the market changed too.
How important is rural India to India’s “domestic consumption-driven gross domestic product (GDP) growth” story? Seventy per cent of India’s population, 56% of income, 64% of expenditure and 33% of savings come from rural India. The rural share of popular consumer goods and durables ranges from 30% to 60%.
Where does rural income come from? In 1980, two-thirds of rural income was farm income while one-third was non-farm income. By 2012, NCAER estimates that the situation will be exactly the reverse. In 2007, by NCAER estimates, the split was about 40-60, 41% being the farm income. Whenever we discuss this statistic at meetings, people wonder, quite puzzled and sceptical, about what this non-farm income comprises. It encompasses a range of non-crop agricultural activities, manufacturing activities, trading, shop-keeping and professional and other services providers—electricity generation, construction, mining and quarrying trade, transportation and haulage services, tailoring, carpentry, jewellery, blacksmith, handloom and handicraft-making, oil processing, paddy-husking, fishing, coir rope-making, village services, teaching, bank jobs and so on.
Also, the mental model that agriculture and non-agriculture activities (and hence income) rest with different households is incorrect. Most agricultural households supplement their farm income with non-farm activities. Then there are those who are landless and not engaged in agriculture at all. About 40% of rural households have no land at all. Considering the remaining 60%, half of them are marginal farmers owning less than 2ha of land. Less than 4% are large farmers with more than 10 acres. Yet, despite accounting for under 5% of rural households, these large farmers and village landlords dominate our mental picture of the consumer.
Though farm owners still account for 41% of rural income between all of them, they are not the richest. While the belly of the market is still the farmer, the creamy layer on which to build a premium rural consumer goods business is the non-farm educated, non-agricultural worker’s household.
In fact, if we profile the creamy layer or the rural households which are in the top quintile (top 20%) in terms of income, we find that 39% are land-owning farmers, 31% are regular salary/wage earners and another 18% are self-employed in non-agricultural activities. So, close to 60% of the top-earning households are urban, in the sense that they earn their money from non-agricultural work.
The point to remember when examining all rural data is that a small percentage of a large number is a large number. One percent of rural India is 1.4 million households, 10% is at least 10 million households.
Rajesh Shukla is senior fellow (chief statistician) at NCAER and Rama Bijapurkar is an independent management consultant. Comments are welcome at firstname.lastname@example.org