Maiti, Financial Chronicle
August 30, 2012
For the first time in a quarter century, rural India outdid urban
consumption in the past two years, according to a Crisil study.
Rural spending rode on a big increase in incomes, mainly resulting
from non-farm jobs and rural employment guarantee schemes.
A young population, rising incomes and low penetration of many
consumer durables mean that rural consumption has the potential
to remain an important source of demand, the study says.
But to sustain this, says the study, it is critical to substitute
short-term income boosters such as government-sponsored employment
schemes with durable job opportunities in rural areas.
Devangshu Dutta, chief executive of Third Eyesight, a retail
consulting firm, says rural growth comes on the back of increasing
incomes, percolation of aspirations and lifestyle from
urban areas. The trend is clearly visible in the consumption of
fast moving consumer goods (FMCG) in the hinterland.
One company in this sector, Godrej Consumer Products, has seen
strong growth in rural areas... fuelled by wage increases
and enhanced exposure to products, according to P Ganesh,
the companys executive vice-president and company secretary.
The FMCG sector also benefited from development in tier II and
Besides guaranteed rural employment, ever-higher minimum support
prices for farm produce have helped raised rural incomes and standards
Rural demand accounts now for around 40 per cent of Hindustan
Unilevers sales. The company claims two of every three Indians
as its consumers.
Jagdeep Kapoor, CMD of Samsika Marketing & Consultants, estimates
that rural areas give the FMCG industry more than half its income.
The rural population is far bigger than the urban populace. With
the spread of television, internet, rural consumers are now more
aware of brands. Two-thirds of Indias billion-plus population
are estimated to live in villages.
Harish Manwani, Hindustan Unilever chairman, spoke of the importance
of rural India to his company at its recent annual general meeting.
More than 40 per cent of our products are consumed in the
fast growing markets of rural India. We have been pioneers in
developing rural markets through affordable brands and an unparalleled
distribution reach, he said.
Similarly, 35 per cent of ITCs FMCG revenue comes from
rural India. Hemant Malik, COO for the companys FMCG marketing
and distribution, has not seen a change in the consumption patterns
in urban and rural areas. But ITC is closely monitoring this to
build sales strategies.
He says ITC does not expect any change in the FMCG demand and
consumption pattern in rural India. Since FMCG items are
of daily use, consumption may shift towards smaller pack sizes,
and customers may downgrade or substitute items.
Because a majority of Indias population resides in the
villages, the value of goods and services consumed by them has
always been more than in urban India. But the difference has been
narrowing as urban India has been growing faster.
However, during 2009-10 and 2011-12, rural consumption per capita
grew annually at 19 per cent, 2 percentage points higher than
in urban areas, according to preliminary data released for 2011-12
by the National Sample Survey Organisation.
In incremental terms, spending by rural India in these two years
was Rs 3,75,000 crore, significantly higher than Rs 2,99,400 crore
spent by urban people.
With rising purchasing power, a notable phenomenon increasingly
discernible in rural consumption is a shift from necessities to
discretionary goods. One in every two rural households now has
a mobile phone. Even in Indias poorest states such as Bihar
and Orissa, one in three rural households has a mobile phone.
Nearly 42 per cent of rural households owned a TV set in 2009-10,
up from 26 per cent five years earlier. Similarly, 14 per cent
of rural households had a two-wheeler in 2009-10, twice that in
2004-05, although penetration remains well below the urban level
of 33 per cent, says the Crisil report. More than half of Indias
stock of consumer durables such as TV sets, electric fans and
two-wheelers is now in rural India, the report adds.