Mumbai: A lot is riding on the rural consumer right now. The prospect of a bumper summer crop after good rains this year has raised hopes that rural consumption will be strong at a time when urban consumption has been sluggish. It is little wonder that consumer goods companies, equity investors and policymakers are betting on rural spending to lift demand in the Indian economy.

How much of the rural consumer story is hype? A close look at the data since 2004-05 shows that there have indeed been important changes in the structure of rural demand. One such change is the growing importance of discretionary spending.

For perhaps the first time ever, the average rural household spent more on stuff other than food in 2011-12. As the accompanying chart shows, the share of spending on durable goods (such as furniture and electronic devices) and entertainment has nearly doubled over the past seven years. Rural spending on clothes, on footwear, on consumer services (such as telephone and repairing charges) and on conveyance have also seen a sharp jump over the same period.

Consumer goods companies have been investing to strengthen their rural distribution networks, as a recent report by Credit Suisse points out. Banks have finalized plans for an unprecedented expansion of their rural branches over the next few years. It may not be a surprise to see firms in other sectors aiming to expand their rural reach over the next few years.

Note: The analysis has largely relied on estimates based on the uniform recall period data for 30 days since such estimates are considered the least controversial by economists.

This is the first in a several-part series Mint will run over the next few weeks. Next: The urban-rural divide.

Close