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November 30, -0001

Winds of change

Contrary to commonly-held perceptions, incomes in rural India have gone up dramatically over the years. Rural markets are growing two-times faster than urban markets and for many product categories, rural markets account for well over 60 per cent of the national demand. Both consumption and production have grown substantially and food grain production was in excess of 227.3 million tonnes in 2007-08 which was an increase of more than 10 million tonnes over the previous fiscal.

According to a McKinsey survey conducted in 2007, rural India, with a population of 627 million, (approximately 74.3 per cent of the total population), would become bigger than the total consumer market in countries such as South Korea or Canada in another twenty years. And it would grow almost four times from its existing size in 2007, which was estimated at US$ 577 billion.

Therefore, leading global players like Intel, Microsoft, Shell, Philips, Siemens and Bosch are keen to foray into the rural Indian market to capitalise on the growing opportunities.

  • Microsoft is planning IT-enabled kiosks for rural India.
  • Intel too plans to develop a custom-made solution for the rural market. The company has plans of participating in rural education, health and entertainment.
  • Shell, in May 2008, introduced cooking stoves for rural women in Tamil Nadu and Karnataka in May 2008. Philips, Siemens and Bosch are planning to make cooking stoves for rural India as well, and are close to finalising the product design.


According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the number of rural households using fast moving consumer goods (FMCG) products has grown from 136 million in 2004 to 143 million in 2007. A pointer to the fact that rural consumers are moving away from commodities to branded products.

In a report by market research firm AC Nielsen, in April-May 2008, it was seen for the first time that the rural market has outpaced urban India in certain key product categories. The FMCG sector in rural areas is projected to grow by 40 per cent against the 25 per cent growth in urban areas.

Companies like ITC, Godrej Agrovet, and DCM Shriram, who have a strong rural presence, are likely to eclipse the growth of their urban counterparts like Reliance Fresh and the Food Bazaar chain.

Some FMCGs products like toothpaste, hair oil and shampoo have done better in rural and semi-urban centres. Coca-Cola is aggressively pushing its new bottled water brand Bonaqua in these areas. Godrej and Nestle India too have reported better sales in such areas.


According to a study, conducted in Sep 2007, by the Confederation of Indian Industry (CII) on the Indian rural retail sector, opportunities in rural retail were estimated to be over US$ 34 billion in 2007. This figure is expected to touch US$ 43 billion in 2010 and go up to US$ 58 billion by 2015. The rural markets in 2008 have grown at 25 per cent compared to the 7-10 per cent growth rate of the urban consumer retail market.

The retail sector offers opportunities for exploration and investment in rural areas.

  • ITC launched India's first rural mall, 'Chaupal Sagar', which offers products ranging from FMCG to electronics appliance to automobiles. ITC has 23 stores across India.
  • The 'Hariyali Bazaar' by the DCM Sriram Group had initially started off by providing farm-related inputs and services and now plans to introduce the complete shopping basket soon. It has 180 stores across India. The centres are also IT-enabled and provide farmers critical data like inputs and access to weather forecasts, market prices and other technical knowledge.
  • Tata Chemicals with Tata Kisan Sansar has set up agri-stores to provide products and services.
  • Indian Oil Corporation (IOC) is planning to invest US$ 189.103 million in rural areas during the financial year 2009.
  • Reliance, Spencer's and Subhiksha are also expanding in rural areas.


According to a report, 'Insurance in Next 2 Years', by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), in May 2008, the insurance sector size was estimated at US$ 12.8 billion, and it is likely to see an unprecedented growth of 200 per cent, touching US$ 51.2 billion by 2009-10. Rural India may offer a business opportunity worth US$ 23 billion for the insurance companies if the segment can be wooed with innovative saving schemes at affordable premiums.

Presently, only eight to ten per cent of rural Indian households are covered by life insurance. The remaining ninety per cent offer a huge potential for insurance companies. India's untapped rural market holds tremendous growth opportunities for life insurance companies with business worth US$ 231.67 million for insurance firms.

According to international consultancy firm Celent, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million.

  • MetLife India Insurance Company Ltd is planning to launch 'MetSuvidha', an affordable endowment life insurance plan, aimed at tapping the rural market through Viswas, a rural retail chain of agricultural inputs.
  • Life Insurance Corporation of India (LIC) has set a target of selling four million policies in rural areas in the current financial year.

Another opportunity lies in offering low-interest personal loans to the rural population, at the rate of six to seven per cent compared to 10 – 12 per cent in the urban areas, for renovating or modernising their houses and at the time of marriages of family members or relatives.


The Indian pharmaceuticals market is regarded as one of the fastest growing in the world. In 2006-07, this market was valued at over US$ 7 billion with the rural segment having a remarkable share of this market. Driven by factors such as rising rural incomes and a strong distribution network, India's rural pharmaceuticals market is also experiencing strong growth. Industry estimates say that while small towns contribute 20 per cent to the country's pharmaceuticals market, rural areas account for 21 per cent. In 2006-07, the rural Indian market was estimated at around US$ 1.4 billion, having grown at about 40 per cent in 2006-07 against 21 per cent in the previous year.

  • Most of the pharmaceuticals companies use local post-offices as their distribution platform. Some companies are conducting health-care workshops in the rural areas by tapping the local doctors.
  • Nicholas Piramal has focused on general practitioners to cater to rural markets to increase its penetration with a field-force of 800 people.


A Gartner forecast revealed that Indian cellular services revenue will grow at a CAGR (compound annual growth rate) of 18.4 per cent to touch US$ 25.6 billion by 2011, with most of the growth coming from rural markets.

With the next 100 million mobile subscribers expected to come from non-urban areas, many Indian mobile service providers are targeting the rural market with aggressive tariffs and low-cost handsets.

  • Nokia has announced that it is taking up several initiatives in the areas of microfinance, distribution and value-added services specifically for farmers, as part of its strategy to address India's rural market.
  • BSNL plans a US$ 125.383 million spend on its rural telecom infrastructure in West Bengal, over the next one year.
  • Spice Telecom will be launching local market rates for commodities across Karnataka to connect with rural customers. Spice has localized contents available in Punjabi and Kannada.
  • Airtel has tied up with IFFCO to reach farmers directly. Farmers will receive free voice messages twice daily on farming techniques, weather forecasts, dairy farming, rural health initiatives, fertilizer availability, loan information and market rates. Additionally, farmers can also call a dedicated helpline, manned by experts from various fields, to get answers to their queries.
  • Airtel's new initiative will offer mobile handsets bundled with Airtel mobile connection ranging from US$ 30.711 to US$ 36.843.
  • Reliance Communication has also targeted the rural segment in a big way with its low tariff initiative like the Grameen Programme for rural subscribers.

IT services

Indian villages are finally getting to benefit from the IT revolution in India.

E-Panchayats are slowly taking over rural India and an 'E-medicine' scheme for rural areas has been launched by the Gujarat government's health department in May 2008. A study by internet research firm JuxtConsult reveals that one out of every seven regular internet users is from the rural belt and surprisingly, the rural net users are younger than their urban counterparts.

Moreover, BPOs are slowly growing roots in rural areas.

  • Comat Technologies (P) Ltd, a Bangalore-based global business solutions organisation has 800 rural business centres in Karnataka and 290 centres in Haryana. It will soon open centres in Sikkim, Tripura, Uttarkhand and Uttar Pradesh.
  • SerWizSol, a Tata enterprise, has a 250-seater BPO at Ethakota in rural Andhra Pradesh, and one in rural Gujarat in Mithapur which is a 100-seater.
  • SREI Sahaj e-Village Ltd will set up 25,000 IT kiosks to be known as common service centers (CSC) across West Bengal, Bihar, Orissa, Assam, Uttar Pradesh and Tamil Nadu, by 2010.


The Indian automotive industry currently has a turnover of US$ 34 billion. However, the automobile market remains untapped in rural India which has a strong purchasing power. Nearly 50 per cent of the Indian rural market, which includes 220 million households, is potential car buyers. Two-wheeler penetration in rural belts is still very low with less than 10 per cent households owning a two-wheeler. Sensing a huge opportunity many automobile companies are trying to woo the rural consumer.

  • Hyundai Motors India has introduced a new marketing initiative – 'Ghar Ghar Ki Pehchaan'-- to tap the India rural car market. The company has rolled out special schemes for government employees in rural areas and members of gram panchayats on the purchase of Santro.
  • After establishing a strong foothold in urban and semi-urban markets, Maruti Suzuki has launched a pan-India campaign - 'Mera Sapna Meri Maruti' - to tap the rural market.
  • Hero Honda has devised a major expansion strategy for the rural markets and is planning to strengthen retail financing to support the initiative, which could lead to setting up of its own finance arm.
  • M&M, Bajaj Auto and TVS Motor have also launched special marketing schemes for rural markets.

Consumer durables

A survey carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI), indicated that the consumer durable goods sector is all set to witness 12 per cent growth in 2008. The rural market is growing faster than the urban markets, although the penetration level in rural area is much lower. The rural Indian market, which accounts for nearly 70 per cent of the total number of households, witnessed a 25 per cent annual growth while the urban consumer durables market reflected an annual rate of 7 to 10 per cent.

Many leading companies are now increasing their presence in rural India.

  • LG has set up 45 area offices and 59 rural and remote-area offices.
  • Samsung rolled out its 'Dream Home' road show which was to visit 48 small towns in 100 days in an effort to increase brand awareness of its products.

The road ahead

The rural revolution is fuelled by rising purchasing power, changing consumer habits, increased access to information and communication technology, better infrastructure and increased government programmes to boost the rural economy.

The recent study by Associated Chambers of Commerce and Industry of India (ASSOCHAM), disclosed that around 200 million out of 700 million rural population in India are engaged in agricultural and non-agricultural activities, and have a decent per capita income. A large section of the rural population is choosing dairy, food processing and packaging as professions, beyond traditional farming. Furthermore, large retail players like Reliance, Spencer's and Subhiksha are procuring farm commodities in bulk directly from farmers, giving them better money for their produce. The rural population is now looking at better options beyond post offices and commercial banks for higher returns on their surplus earnings.

However, Rural India lacks a good distribution system. Rural Indian purchasing habits exhibit an "earn today, spend today" mentality. Most rural homes have restricted storage space and no refrigeration so villagers tend to only buy their immediate requirements.

To succeed, corporations need to understand the psyche of the rural family along with the rural distribution network. For example, Hindustan Lever used a strategy of volume driven growth in rural markets, which was hugely successful.