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November 24, 2012

Indian Rural Market: Brief Overview

Facts state that India's 70 per cent of the population resides in hinterlands and 56 per cent of the overall consumption comes from there. Rural Indians are no more inferior to the country's urban clan. Increase in incomes, rising non-farm employment opportunities, higher aspirations and the Government's focus on rural sustainability schemes are major factors that have been driving the rural markets' growth. Rural spending was significantly higher at Rs 3,75,000 crore (US$ 67.57 billion) than urban consumption at Rs 2,99,400 crore (US$ 53.95 billion) between 2009-10 and 2011-12; wherein rural consumption per person outpaced its urban counterpart by 2 per cent, according to a study by CRISIL and preliminary data released for 2011-12 by the National Sample Survey Organisation (NSSO).

Rural markets are also very viable targets for marketers as a young population; rising income and low penetration of many consumer durables imply that they are a strong source of demand. Moreover, the consumption pattern in rural areas is witnessing a shift from necessities to discretionary products. The survey has revealed that about one in every two rural households now has a mobile phone and around 42 per cent of rural households owned a television in 2009-10, up from 26 per cent in 2004-05.

Another study made by the Boston Consulting Group (BCG) has found that small town consumers (those residing in tier-4 towns) are spending higher on premium products as against their peers in urban lands. Such consumers moved up the value chain during 37 per cent purchase occasions as against 31 per cent in metros in 2011-12. India Inc is definitely determined to tap higher aspirations and the urbanising consumer in smaller towns.

Key Investments/ Developments

  • Bajaj Electricals is contemplating to launch an economy brand that aims to transform the face of consumer electronics business in rural India . These products, to be priced much lower than Bajaj's existing products, would be offered with a different finish and design. Targeting the Indian rural mass, the new economy brand would consist of the entire range of Bajaj's existing product portfolio, including lighting products, appliances such as irons, water heaters, immersion equipment, and low-cost fans. Depending on the market response, some rural-specific products could also be added
  • One of the leading private banks, HDFC Bank has opened 36 new branches in Haryana out of which 26 have been inaugurated in rural areas. Apart from improving the bank's accessibility to the rural areas and reducing the transaction costs for the clients, the move would also facilitate financial inclusion across the country
  • Marketers are very upbeat about the rural markets in India. Leading automobile majors like Mahindra and Mahindra, Hyundai, Maruti and Toyota are building strong bases in hinterlands. On the other hand, Mr Nitin Paranjpe, Managing Director, HUL, has stated that the company added one million outlets pan India over 2010-12, thereby trebling its direct reach to the rural consumers. He reported that the company is gaining greater momentum from sales in rural areas rather than the urban spaces
  • Aviva Life Insurance, that had joined hands with Basix and Royal Sundaram Alliance General Insurance (RSA) in 2002 to increase penetration in rural India, believes that there is still a lot of scope in-there. The venture is planning to adopt a retail format under which insurance products would be sold at the doorstep of the rural clients at affordable cost through the Basix branches. This model would be launched in 60 branches and 1200 common service centres across 11 states by the end of 2012-13

Internet Adoption in Rural India

Internet and mobile revolution has given rural India a complete makeover. Rural areas offer a great potential for growth in internet usage with the number of claimed internet users in these spaces to be reached at 45 million by December 2012, according to the recent IMRB survey, conducted jointly with the Internet and Mobile Association of India (IMAI). The number of claimed internet users has witnessed a compounded annual growth rate (CAGR) of 73 per cent since December 2010.

The mobile revolution has majorly driven this transformation as they have become an important point of internet access for everyone. As of June 2012, there are 3.6 million mobile internet users in rural India. This has grown 7.2 times in the past 2 years, the study reveals. Around 12 per cent of this population access internet through their phones. Economy models and lower prices of mobile phones have facilitated the penetration of mobile devices in rural India.

The penetration of the computer literates among the rural population is 8.4 per cent while the penetration of claimed internet users has grown from 2.68 per cent in 2010 to 4.6 per cent in 2012. The penetration of active internet users has enhanced from 2.13 per cent in 2010 to 3.7 per cent in 2012.


Rural India- Government Initiatives

The Government of India is planning to re-launch its most ambitious national program in January 2013 to facilitate electricity through decentralised renewable energy sources. Rural India will be exposed to the world's most efficient lighting system - light emitting diode (LED) in place of compact fluorescent lamps (CFL) in the subsidised solar powered home lighting systems for rural homes. The Government aims to provide LED lights to around 400 million homes that do not have an electricity connection by 2017. The Government also hopes that the initiative will encourage domestic manufacturers to further slash the prices. For the initial phase, the Government has decided to buy 5,00,000 LED solar lanterns to be provided at highly subsidised rates to people in rural India.

The Indian Government has also allowed the execution of the next phase of India Post's IT modernisation program by earmarking US$ 880 million to be invested in the post office network. The proposal, forwarded by the Department of Posts, involves implementation, operation and maintenance for upgraded IT systems in all of India's 155,000 post offices, with the execution to be completed in a phased manner over a two-year period. The major focus area for the India Post IT Modernisation project is to computerise all post offices PAN-India, including branch outlets in rural areas and create an "urban-rural network spanning across the length and breadth of the country".

Rural Market - Road Ahead

CRISIL study estimates that over 60 per cent of India's population would be residing in rural areas in 2026. A huge chunk of this population will climb the consumption ladder to rub shoulders with today's affluent states. Policy initiatives and support from the Indian Government is expected to give immense boost to rural Indians and their aspirations.

Mr Beni Prasad Verma, the Union Steel Minister, believes that India's rural markets would be bigger than the markets in some of the developed countries in the next few years. These markets would drive the growth of not only the steel industry but of other industries as well. Therefore, steel companies should focus on rural marketing, he said.

Exchange Rate Used: INR 1= US$ 0.01802 as on November 24, 2012

References: Media Reports, Press Releases.