Rural India accounts for around 50 per cent of India’s gross domestic product (GDP) and houses nearly 70 per cent of the country’s population. The market is a unique mix of burgeoning incomes and growing aspirations of around 850 million consumers who inhabit about 650,000 villages in the country. Some of India’s biggest companies generate one-third of their consumers or business from the hinterlands. Hindustan Unilever (HUL) generates about 40 per cent of its total business from these rural markets which also accounts for 30 per cent of Coca-Cola and Maruti’s turnover. Of Airtel's 8.6 million DTH customers, about a third comes from rural regions in the country.
Consumption habits of people in rural regions are progressively mirroring those in urban areas.Due to this changing trend and the massive market, the hinterlands offer tremendous investment opportunity for private players. Rural India housed 75 per cent of all new factories built in the country in the last decade. Also, factories in these areas account for around 70 per cent of new manufacturing jobs.
Rural India is now being seen as a major hub for investment by India Inc. In the period 2009–12, spending in rural India reached US$ 69 billion.
The per capita gross domestic product (GDP) has grown at a compound annual growth rate (CAGR) of 6.2 per cent since 2000, in the country’s rural areas.
Rural consumption per person is said to have risen by 19 per cent yearly in the period 2009–12, which includes some impulse-driven categories.
At the end of 2013, mobile penetration in rural India was 41 per cent, while handset penetration was a little over 30 per cent. According to industry estimates, there are more than 250 million handsets in rural regions of the country, of which nearly 30 million users access the Internet on mobile phones.
The following are some of the major investments and developments in the Indian rural sector:
Honda Motorcycle and Scooters (HMSI) is establishing a ‘rural vertical’ in an effort to compete with market leader Hero MotoCorp which has an extensive rural distribution network. Honda plans to improve its 100cc bike segment and bring about a new entry point for HMSI in the country. The company will build its distribution network through the addition of 1,000 sales points within a year, of which 70 per cent will come from rural markets.
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, for an e-healthcare programme aimed at the betterment of rural regions in the state.Under this partnership, Biocon Foundation and OTTET will establish an electronic diagnostic facility, an e-Health centre managed by local entrepreneurs, at all Primary Health Centres (PHCs) in Odisha. Canara Bank will provide financial assistance for the entrepreneurs while Biocon Foundation and OTTET will provide the necessary training.
Bajaj Electricals Ltd plans to set up an integrated research and development (R&D) centre that will help the company create cutting-edge technology and drive innovation across its three business verticals. The company is seeking to increase its focus on non-urban regions, and plans to make appliances aimed specifically at the needs of the rural market, such as irons and mixers. “The R&D centre will study market needs and make what the consumer wants,” said Mr Shekhar Bajaj, CMD, Bajaj Electricals.
The Tata Group has asked its companies to cooperate with each other in a bid to serve the country’s rural regions in a more effective manner. This ‘routes-to-market’ strategy is the first of other major initiatives being tried out by the company. The plan is still nascent but it is believed that Tata Strategic Management Group, the Group’s in-house management consulting arm, is working with the companies and will likely launch a pilot project shortly.
The Ministry of External Affairs together with CSC e-Governance Services India Ltd is set to launch Passport related services through the extensive network of more than 100,000 common services centres across the rural regions. This would help bring down the digital divide in India. Under the Passport Seva, the Ministry of External Affairs has made it compulsory to complete the form filing process online, which would include payment of applicable fee and scheduling appointments for seeking Passport related services.
State Bank of India (SBI) has announced a one-year fellowship programme for rural areas named ‘SBI Youth for India (SBI YFI)’ for 2014, which aims to draft and encourage India’s youth to become change agents in the rural regions. The fellowship programme targets young professionals and graduates, who are passionate about leading the change for a better country.
With the rising demand for skilled labour among Indian industries, the Indian government plans to train 500 million people by 2022, and is seeking participation of entrepreneurs and private players in the space. The Centre is constantly taking steps towards improving rural education, with rural India, too, embracing online learning in a big way. Several corporate, government, and educational organisations are putting in the effort to train, educate, and produce skilled workers. Job-oriented vocational courses are today offered online which equip students with specific skill sets as well as a degree.
Consumption patterns in rural markets are undergoing a change. Brands are no longer a novelty and premium products are a regular feature. Products which have traditionally been difficult to deliver in these regions are slowly penetrating the market. Amul, for one, has opened parlours in rural areas with their sales believed to be outstripping those from urban areas. There is also big demand for products once viewed as being exclusively urban, such as chocolates, cheese and pizzas.
Nielsen estimates that rural India’s FMCG market will touch US$ 100 billion by 2025. Online portals are expected to play a vital role for companies trying to access these markets. The Internet allows for a cost-effective means to increase a company’s reach by overcoming geographical barriers. Today, with rural India being gradually empowered with computers and smartphones, the Internet will soon gain a foothold.
Exchange Rate Used: INR 1= US$ 0.01668 as on May 8, 2014
References: Media Reports, Press Releases, Press Information Bureau (PIB), Accenture Report, Nielsen Report