BackBlurring the line between rural and urban markets
Underlying theme of Jaitley’s budget was bridging urban and rural divide and bringing rural consumer on par with urban counterpart by boosting rural income and facilities
Premium(Bloomberg)
Termed positive and incremental, Budget 2015 is a mixed bag for the urban middle-class consumer. Even while his eating out and other entertainment excursions—including watching films, are set to become more expensive owing to an increase in service tax—some of the processed food items he consumes may become cheaper as excise duty comes down.
Prices will also go up for cigarettes and other tobacco products, aerated drinks and mineral water. Leather footwear priced at ₹ 1,000 and above may become cheaper as the excise duty halves to 6% from 12%.
In an interview on Lok Sabha television after his budget speech, finance minister Arun Jaitley said he was putting more money in the pockets of the salaried class. Even though there was no change in the income tax slab for them, he offered more tax benefits to consumers who invest in health insurance and pension schemes. The transport allowance exemption was also increased from 800 to 1,600 per month.
However, the underlying theme of Jaitley’s budget speech was bridging the urban and rural divide and bringing the rural consumer on par with his urban counterpart by boosting rural income and facilities. “In terms of communication, the rural and urban divide should no longer be acceptable to us. We have to ensure connectivity to all the villages...," he said. He referred to the government’s Digital India programme and the plan to build a National Optical Fibre Network of 750,000km, spanning 250,000 villages.
To be sure, rural consumers are open to trying out new technology for the sake of convenience, status and for entertainment, according to a study conducted by market researcher IMRB. The findings of the research, conducted over five years, indicate that the lines between the aspirations of rural consumers and the city folk are blurring as their dreams converge. That’s perhaps why it was not just connectivity or the divide between the digital haves and have-nots that Jaitley was concerned about. He also intended to put more money in the hands of the rural consumers, improve their access to education and healthcare and create opportunities for them through skills development.
Jaitley mentioned that agricultural income has been under stress. So, he allocated a big corpus to rural infrastructure development and other credit funds to improve the lot of the small and marginal farmers. Commenting on the move, Aditya V. Agarwal, director of the Kolkata-based Emami Group, said: “Focus on upliftment of rural economy with allocation of funds in irrigation, road connectivity, economic sops— including rural development schemes like MGNREGA—is also expected to have a bullish effect on the rural market of FMCG products, provided we have normal monsoon conditions." MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) is the rural jobs programme.
Volume growth of FMCG (fast-moving consumer goods, or home and personal care products ) and food items declined in 2014, according to an IMRB Kantar World Panel report.
Harsh Pati Singhania, director, JK Organisation, and vice chairman and managing director at JK Paper Ltd, pointed out that in the budget, “There has been a concerted effort to boost agricultural productivity through support to irrigation, extending farm credit and move towards a national agricultural market to enable better farm produce and boost agricultural incomes..."
The finance minister also spoke of skills development and providing access to education and medical facilities in every village. “With rural population still forming close to 70% of India’s population, enhancing the employability of rural youth is the key to unlocking India’s demographic dividend," he said.
For the purpose, under the Deen Dayal Upadhyaya Grameen Kaushal Yojana, 1,500 crore has been set apart. Disbursements from this will be through a digital voucher directly into a student’s bank account.
According to the IMRB study on urban and rural aspirations, the percentage of people in small town and rural India, and urban India (towns with population in excess of 100,000) who believe that “education lifts the status of the family" is roughly the same.
In a December interview, Neeraj Chandra, head of the consumer care division at Emami, the maker of Fair and Handsome cream and Navratna oil, said the priority consumers in rural, small town and urban markets attach to spending on personal care, snacks, and media and entertainment is similar. “There is definitely a convergence of urban and rural taking place not just in terms of aspirations, but also in terms of access and lifestyle choices."
The convergence between rural and urban markets is a result of better communication—both physical (road infrastructure) and electronic (mobile, television). And that is perhaps what the finance minister wishes to build on.
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