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Rural Market

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Indian Rural Market

November, 2014

Introduction

The hinterlands in India generate around half of the country's gross domestic product (GDP) and are home to about 70 per cent of its population. This market is a combination of growing incomes and aspirations of about 850 million consumers who inhabit 650,000 villages across the country. Some of India's biggest companies generate a third of their consumers from rural India.

Consumption patterns in these areas are also gradually beginning to mirror those of their urban counterparts. Owing to this changing trend as well as the size of the market, rural India provides a tremendous investment opportunity for private companies. The rural regions were home to 75 per cent of all new factories built in India in the last decade and accounted for around 70 per cent of new manufacturing jobs.

The Indian government has earmarked financial inclusion as one of its foremost priorities. In August 2014, Prime Minister Mr Narendra Modi launched the Pradhan Mantri Jan Dhan Yojana, the National Mission for Financial Inclusion. There is enough evidence to suggest that financial inclusion is crucial to reducing poverty.

Market size

Per capita GDP in India has grown at a compound annual growth rate (CAGR) of 6.2 per cent in its rural regions, since 2000.

Rural per capita consumption increased by 19 per cent annually in the period 2009-10 to 2011-12. In the same period, spending in rural India touched US$ 69 billion.

Investments

The following are some of the major investments and developments in the Indian rural sector.

Market leader Hindustan Unilever (HUL) plans to establish 14 new consumer clusters as part of an aggressive initiative to drive growth across smaller but fast-growing markets across the country. "It is imperative to win in all parts of our business and across all channels and geographies, in order to win decisively," as per Mr Sanjiv Mehta, CEO, HUL.

The Indian Institutes of Technology (IITs) will work in close proximity with the Human Resource Development ministry and others in an effort to promote sustainable development in India's hinterlands, under a scheme called Unnat Bharat, as per the IITs. The Institutes will focus on providing sanitation and e-governance, as well as promoting organic agriculture, alternative means of energy and village entrepreneurship.

Seventy-six per cent of all men in rural India own a cellphone, compared to only 29 per cent of the women. To bring down this digital gender gap, telecom service provider Uninor and GSMA plan to invest Rs 1.1 crore (US$ 177,886.84) over seven months. The objective of Project Sampark is to increase women's access to cellphones and bring down barriers such as affordability, mental block or social stigma.

Vodafone India has extended its Project Samridhi in Karnal, Haryana in a bid to improve sales and give more employment opportunity to women in the region. The telecom company has appointed 100 women from the rural regions of the state to sell prepaid recharges and e-top-ups. "We believe that economic empowerment of women is a building block in social development," as per Mr Tejinder Khurana, Business Head - Haryana, Vodafone India.

Canara Bank has extended its support to Biocon Foundation and Orissa Trust of Technical Education and Training (OTTET) for a public-private partnership (PPP) with the Odisha government, with regard to an e-healthcare programme that seeks to improve rural regions in the state. Under this partnership, Biocon Foundation and OTTET will establish an e-Health centre managed by local entrepreneurs, at all Primary Health Centres (PHCs) in the state.

Government Initiatives

The government plans to spend Rs 75,600 crore (US$ 12.22 billion) to supply electricity through separate feeders for rural and agricultural domestic consumption - an initiative aimed at providing round-the-clock power to villages. This outlay is inclusive of expenditure towards an integrated power development initiative which involves strengthening distribution and sub-transmission systems.

The Government of India seeks to promote innovation and technology development in rural and tribal areas of the country. The government plans to form a committee that will study these innovations and submit a report to the department or ministry concerned. The programme, Nav Kalpana Kosh aims to improve rural areas at all levels - governance, agriculture and hygiene, among others.

Banks are working on establishing 'Rural ATMs' which will dispense currency notes of smaller denominations. "We have encouraged banks to find a solution for bringing in rural ATMs... banks will have to find an appropriate technology solution for a different type of ATM to care for the needs of the rural people," as per Mr R Gandhi, Deputy Governor, Reserve Bank of India (RBI).

With the increasing demand for skilled labour, the Indian government plans to train 500 million people by 2022, and is looking out for corporate players and entrepreneurs to help in this venture. Corporate, government, and educational organisations are joining in the effort to train, educate and produce skilled workers.

Road Ahead

Online portals are today viewed as instrumental channels for companies trying to break into the rural market. The Internet allows for a cost-effective means of broadening a company's reach, by overcoming geographical barriers. With the hinterlands gradually being empowered with computers and smartphones, the Internet should firmly establish itself in these areas in the near future.

Measurement company Nielsen expects the FMCG market in rural India to top US$ 100 billion by 2025. Another report by McKinsey Global Institute predicts that by 2025, annual real income per household in rural India will rise to 3.6 per cent from 2.8 per cent of the last 20 years.

Exchange Rate Used: INR 1 = US$ 0.016 as on November 27, 2014

References:Media Reports, Press Releases, Press Information Bureau (PIB), Accenture Report, Nielsen Report