The rural Indian economy is showing impressive growth in consumption, with a number of factors supporting this growth. These factors include increasing incomes due to good monsoons and government initiatives and schemes; employment opportunities in infrastructure and industry projects across the country and; emphasis on local employability.
This new consumption will include a high share of packaged foods, personal care, consumer durables and IT products, two- and four-wheelers, and fashion accessories, among others. Over the last five years, some consumer product companies have recognised the potential of rural markets and invested time and resources to tap into this opportunity - understanding and segmenting the consumer, based on their spends and lifestyles.
Some companies have re-engineered products, pricing and packaging to customise features and value relevant for these markets. For instance, LG has Sampoorna, a customised TV; Godrej soaps has introduced 50-gm packs and Samsung has launched Guru - a mobile that can be charged with solar energy. Some players have developed new communication and distribution channels within the hinterland (HUL's Project Shakti; Tata Tea's 'Gaon Chalo') and some have created completely new products.
The Union Budget for 2010-11 has hiked the allocation under the National Rural Employment Guarantee Act (NREGA) to US$ 8.71 billion in 2010-11, giving a boost to the rural economy.
According to a study by research firm The Nielson Company, the fast moving consumer goods market (FMCG) in rural India is tipped to touch US$ 100 billion by 2025 on the back of "unrelenting" demand driven by rising income levels. According to the study, rural India now accounts for more than half of sales in some of the largest FMCG categories.
The study found that:
Several FMCG firms, including ITC and DCM, have been registering faster and higher growth 1`in the sales of their goods in the rural markets as compared to the urban markets.
Some of the FMCG companies such as Godrej Consumer Products, Dabur, Marico and Hindustan Unilever (HUL) have increased their hiring in rural India and small towns in order to establish a local connect and increase visibility.
Swiss FMCG giant, Nestle plans to make further inroads into the rural markets. The company has asked its sales team to deliver "6,000 new sales points every month in rural areas" to expand its presence in Indian villages, according to Antonio Helio Waszyk, Chairman and Managing Director, Nestle India.
At present, rural consumers spend about US$ 9 billion per annum on FMCG items and product categories such as instant noodles, deodorant and fabric, with the pace of consumption growing much faster than urban areas, as per the findings.