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Rural Market

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Rural Market

August, 2012

Brief Overview

Rural India is a powerhouse propelling the economy's growth. Home to two-thirds of the country's one billion consumers, it is the zone where almost half of the national income is generated. Marketers are focussing on the Indian hinterlands to achieve their revenue targets by increasing their presence into the rural markets. Harish Manwani, Chairman, Hindustan Unilever Limited (HUL), considers rural India the epicentre of India's growth story and said that rural India's prosperity could have such ripple effects that it would add 2 per cent to the national gross domestic product (GDP) and facilitate double digit economic growth. The hinterlands provide a US$ 1.8 trillion-opportunity (equivalent to the current GDP) to the Indian economy, according to him.

Market Size

Marketers are eyeing the aspiring rural and semi-urban India to harness growth opportunities. Cable and satellite penetration has helped in a big way to access hard-to-reach rural pockets. Moreover, advertising budgets for hinterlands do not demand much of the liquidity. Marketing of products and services through simple ways like village melas (fairs), nukkad natikas (road theatre), boat branding, mobile vans and wall paintings prove to be very effective and that too at minimal costs. For instance, HUL's initiative Khushiyon ki Doli is an inexpensive medium of multi-brad activation wherein the company reached out to as many as 10 million rural consumers.

Given the number of categories and brands, FMCG companies and automobile giants are the biggest advertisers in semi-urban and rural India. Most of the FMCG firms follow the strategy of coming up with low unit packs for the people residing in hinterlands. Euromonitor International's survey has found that 68 per cent of personal care products were sold in rural India in FY 12 as against 31 per cent in cities.

Thus, markets in rural and semi-urban India are poised to be the future growth drivers due to higher disposable incomes, rising aspirations of people to own quality products and improved infrastructure support extended by the Government for the development of these cities.

Key Investments / Developments

  • IKSL has conceptualised green SIM Card for rural community groups wherein the subscribers receive five free voice messages every day, covering diverse areas from best farm practices to availability of fertiliser and pesticides, market price of agri-commodities, Government schemes and so on. IKSL has divided 18 states into 53 agro-climatic zones and has made its service available in 18 languages. India rural landscape has been transformed in a way through this mobile voice message service.
  • Consumer durables company Philips has decided to develop healthcare products exclusively for rural markets in India. The company's healthcare division is focussing its efforts on developing low-cost products and reasonably priced solutions in cardiology, cervical cancer and mother and child-care segments for rural India.
  • Continuing with its investments to expand its reach in rural areas, Emami, half of whose revenues are generated from rural India only, has widened its distribution network from 0.5 million outlets in March 2012 to 0.6 million outlets, according to a report from Edelweiss Institutional Equities.
  • India's second largest mobile phone company by value and the fastest growing wireless-phone company, Idea Cellular Ltd is targeting rural customers to sustain its 25 per cent growth in revenue. The company expects maximum push from new subscribers in small towns and villages who are also increasing their data usage by upgrading to smartphones.
  • Rural India is also witnessing a transformation when it comes to telecom. The second phase of telecom revolution aims to build broadband networks that would connect almost 2,50,000 panchayats through optical fibre. Meanwhile, operators will enhance the usage of voice platform along with the localised content to ensure widespread adoption in rural zones, according to Media and Telecommunications (TMT) predictions India 2012 report by Deloitte.

Government Initiatives

Government of India has been very proactive to give maximum space for growth to rural areas. Supportive programs like National Rural Employment Guarantee Scheme, minimum support prices for farm produce and other incentives have boosted rural incomes which has facilitated better standard of living for these masses. Moreover, the proposal to increment budget allocation from Rs 10,000 crore (US$ 1.8 billion) to Rs 58,000 crore (US$ 10.4 billion) would give an impetus to rural awakening and growth.

Meanwhile, the Government of India has pledged to enhance the reach of National Rural Health Mission (NHRM) to all villages and towns. It would be implementing a new scheme under which free medicines through public hospitals and health centres would be distributed among the rural Indians.

Road Ahead

Indian rural markets are poised to grow ten-fold by 2025 to become a US$ 100 billion proposition for retailer, according to the Chairman of HUL.

A report by Boston Consulting Group (BCG) and CII projects that small town and rural customers would be the single largest market segment constituting 36 per cent of households by 2020, while rural and urban aspirers will make up the next largest category at 23 per cent of all households..

Exchange Rate Used: INR 1= US$ 0.0179370 as on August 16, 2012

References: Media Reports, Press Releases