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Rural Market

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Indian Rural Market

November, 2013

Brief Overview

There’s no second thought about the fact that the Indian rural market is increasingly becoming the economic powerhouse of the country. The hinterlands, accounting for about 50 per cent of India’s gross domestic product (GDP) and housing nearly 70 per cent of the country’s population, are showing remarkable multiplier effect and thereby excite policy makers and business leaders.

Moreover, rural areas, where 12 per cent of the world population is residing, are witnessing enormous growth in their incomes and crucial shift in consumer behaviour.

Companies have realised this enormous opportunity and are largely tuning their strategies to woo the rural clan through their products and services.

Certain facts that strengthen the position of rural India as an economic segment are enlisted hereafter-

  • Rural India accounts for around 55 per cent of the manufacturing GDP; rural areas were host to nearly 75 per cent of new factories built in the last decade, and rural factories account for 70 per cent of all new manufacturing jobs.
  • Rural consumption per person has increased by 19 per cent yearly between 2009 and 2012; two percentage points higher than its urban peers. In incremental terms, spending in rural India during this period, increased by US$ 69 billion, significantly higher than US$ 55 billion by urban populations.

Key Investments/ Developments

Business conglomerates are increasingly getting attracted by the immense growth potential Indian rural markets possess. They have not only customised their offerings to suit rural consumers, but have also devised innovative ways to convince them and please them.

  • With rural consumers increasing their appetite for better products and high-standard services, fast-moving consumer goods (FMCG) companies intensified their efforts in rural India in 2012-13. FMCG majors like Dabur India and Hindustan Unilever (HUL) vouch for their rural markets and consider them to be extremely critical for the growth of their businesses.

HUL’s decade-old Shakti initiative underwent a technology-overhaul in 2012 wherein about 40, 000 Shakti Ammas were equipped with a basic smartphone. These smartphones had inbuilt software that enabled them to take and bill orders, manage inventory and receive updates on promotional schemes offered by the company. This enhanced their productivity. Reportedly, the Shakti initiative delivers around 20 per cent of Unilever’s overall rural sales.

While HUL empowered rural women as Shakti Ammas, Dabur India made rural people use the company’s sample products and experience the benefits for themselves. The idea was to spread the awareness about the company’s products through the word-of-mouth advertising.

  • Havells India Ltd projects that housing sector, particularly in rural areas, is set to see a boom in coming years. As higher demand for houses imply greater demand for lighting and other domestic electrical goods, the fast moving electrical goods and power distribution equipment manufacturer plans to enter into rural India market with its newly-launched 'Rio' switches.

  • Marketers focussed on the countryside adopt a multipronged approach to reach the rural fragmented markets. They apply various permutations and combinations of strategies to woo the rural consumers. For instance, two-wheeler manufacturer Hero Motors added authorised representative dealers to its existing hub-and-spoke network. Appointed by the authorised dealers, the representatives facilitate easy purchasing and servicing of the bikes for locals. This step added more than 5, 000 touch points to Hero's channel strategy, enabling the company to extend its reach to 20 per cent of India's 600, 000 villages.

Rural India – Government Initiatives

The Indian Government acts as a catalyst in the growth process of rural markets. It envisages various schemes, support policies and relaxed-regulations for companies looking at venturing into rural markets.

There is a lot of demand for skilled labour among Indian industries, and to fulfil the same, the Indian Government is targeting to train 500 million people by 2022 and is encouraging participation of entrepreneurs and private organisations in the space. While the Government is taking one step towards enhancing rural education, the rural India is also embracing online learning in a big way. Several corporate, Government, and educational organisations are initiating numerous efforts to educate, train, and generate skilled workers. Job oriented vocational courses are also being offered online that empowers a student with a particular skill-set and a viable degree.

Similar initiative has been taken by the Shiv Nadar Foundation which has invested about Rs 500 crore (US$ 81.58 million) for establishing world class schools called Vidya Gyan for poor rural children. Part of HCL Technologies founder Shiva Nadar's philanthropic initiative, the foundation has signed a Memorandum of Understanding (MoU) with the Uttar Pradesh Government.

The MoU would enable Vidya Gyan schools to conduct entrance tests across all Government schools in rural Uttar Pradesh to find talent, who would then be provided free education from class 6 to 12 at par with the best private schools in the country.

Vidya Gyan aims to transform the lives of meritorious but poor students from rural parts of the state.

Rural Market – Road Ahead

Consumer preferences in rural markets have shown a paradigm shift over the last few years. Their consumption basket looks very similar to that of urban counterparts. Premium products are replacing basic versions and brands are making their presence felt. Nielsen estimates that the FMCG market in rural India will mark US$ 100 billion by 2025, from the current level of US$ 12 billion. Moreover, the Government's efforts to improve the efficiency of welfare programs with cash transfers will further boost rural consumption; it plans to deposit US$ 570 billion in the accounts of 100 million poor families by 2014.

Online portals are also expected to be very instrumental for companies trying to access rural markets in near future. Internet facilitates a cost-effective means to expand a company’s reach exponentially by overcoming geographic barriers. With rural India getting empowered with computers and smartphones, internet is definitely going to make its way very soon.

Exchange Rate Used: INR 1= US$ 0.01631 as on August 14, 2013

References: Media Reports, Press Releases.