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Indian Rural Market

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Indian Rural Market

August, 2014


Rural India generates around 50 per cent of India's gross domestic product (GDP) and is home to nearly 70 per cent of the country's population. This market is a mix of growing incomes and aspirations of around 850 million consumers who inhabit 650,000 villages in the country. Some of India's most notable biggest companies generate a third of their consumers or business from rural India.

Consumption patterns in rural areas are also gradually mirroring those of their urban counterparts. Due to this changing trend and the size of the market, the hinterlands provide massive investment opportunity for private players. Rural India was home to 75 per cent of all new factories built in India in the last decade. Also, factories in the hinterlands account for around 70 per cent of new manufacturing jobs.

Market size

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

Rural consumption per person is also believed to have increased by 19 per cent yearly in the period 2009-12, including some impulse-driven categories.

Rural India is today viewed as a major hub for investment by India Inc. In the period 2009-12, spending in rural India touched US$ 69 billion.


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

India's GSM operators added 2.58 million rural users in April 2014, a 0.88 per cent increase from that recorded during March 2014, taking their total user-base to 297.16 million. Bharti Airtel, India's largest operator by revenue and users, headed the charts with an addition of 0.99 million new users. The company had a total of 94.75 million rural users as of April end, as per data by industry body Cellular Operators' Association of India (COAI).

Indian Institute of Management, Calcutta (IIM-C) in collaboration with US hospital CHI St Luke's Health, Houston TX, and Indian rural hospital chain Glocal Healthcare, is launching a one-year certificate healthcare executive management programme. Expected to begin in August, the course plans to provide management learning with built-in hands-on elements. "The programme's interdisciplinary orientation is to enrich the managerial and leadership capabilities of its participants," as per Mr Rajesh Babu, Programme Director, IIM-C.

Vodafone India has extended its Project Samridhi in Karnal in an effort to boost sales and give greater employment opportunity to women in the region. The telecom company has appointed 100 women, from rural Haryana, to sell prepaid recharges and e-top-ups. The women have also been trained on the fundamentals of the business. "We believe that economic empowerment of women is a building block in social development. Our successful stint at Narnaul has reaped great results and we are determined to extend it to other parts of Haryana," as per Mr Tejinder Khurana, Business Head-Haryana, Vodafone India.

Honda Motorcycle and Scooters (HMSI) is establishing a 'rural vertical' in a bid to compete with 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 the hinterlands.

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 Government of Odisha, for an e-healthcare programme aimed at the betterment of rural regions in the state.Under the 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 training.

Government Initiatives

Banks are working on establishing 'Rural ATMs' which will have the capability to dispense currency notes of smaller denominations, as per Mr R Gandhi, deputy governor, Reserve Bank of India (RBI). "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," he added.

State Bank of India (SBI) has announced a one-year fellowship programme for rural areas for 2014, named 'SBI Youth for India (SBI YFI)', which aims to draft and encourage the youth in the country to become change agents in the hinterlands. The fellowship programme targets young professionals and graduates who are passionate about leading the change for a better India.

With the growing demand for skilled labour among Indian industries, the Indian government aims to train 500 million people by 2022, and is seeking participation of private players and entrepreneurs for the purpose. Several corporate, government, and educational organisations are putting in the effort to train, educate, and generate skilled workers.

Road Ahead

Global information and measurement company Nielsen predicts that the FMCG market in rural India will top US$ 100 billion by 2025. Online portals are also anticipated to be instrumental for companies trying to break into rural markets, in the near future. The Internet allows for a cheaper means of widening a company's reach, by overcoming geographic barriers. With rural India gradually being empowered with computers and smartphones, it is just matter of time before the Internet establishes itself in the hinterlands.

Additionally, as per an Accenture report, the annual rural per capita consumption grew at 19 per cent in the period 2009-2012, which was 2 per cent over urban consumption. Another report by McKinsey Global Institute states that by 2025, annual real income per household in rural India will increase to 3.6 per cent from the 2.8 per cent of the past two decades.

Exchange Rate Used: INR 1 = US$ 0.0165 as on August 25, 2014

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