Growing business confidence in rural opportunities

Growing business confidence in rural opportunities

India’s rural markets present opportunities that companies seeking to become high-performance businesses cannot afford to ignore. But the size and scale of those markets (three-fourths of the country’s approximately 1.1 billion people live in villages) have been offset by concerns about the profitability of these markets and the durability of rural demand.Now, though, there is abundant evidence to indicate that businesses are seeing more promise in India’s hinterland. There are several strong regional and macroeconomic reasons for greater confidence. And, there is a growing body of statistics to demonstrate that rural markets, fuelled in part by rising purchasing power, hold real prospects for profitable growth across a wide range of industry sectors.       

Five reasons for greater business confidence in rural India                                           (a) Rural spending is now less dependent on farm income, which now constitutes less than 50 percent of the total rural income. Income remittances from migrant rural populations and increases in non-farm activities such as trading and agro-processing are boosting non-farm income. 

(b) The increase in procurement prices (the minimum price that farmers earn on produce sold to the government) is putting more money into the hands of the rural population. A series of good harvests, on the back of several good monsoons from 2005 to 2008, has accelerated rural employment in 

agricultural and allied activities. 

(c) The government has increased spending in rural areas, from US$9 billion for the financial year ending March 2007 to an anticipated US$16 billion for the financial year ending March 2010.3

(d) Improved access to finance and institutional credit has brought greater cash inflows to rural households. Institutional credit to the agriculture and allied sectors increased from INR 695.6 billion (US$14.5 billion) in 2002-03 to INR 2.6 trillion (US$55 billion) in 2008-09.

(e) Policy measures such as the 

US$13.9-billion waiver of agricultural loans and the National Rural Employment Guarantee Scheme (NREGS), which guarantees 100 days of employment to one member of every rural household, have helped to reduce rural under-employment and raised wages. The official minimum average per-day wage paid under NREGS has increased from INR 65 (US$1.4) in 2006-07 to INR 84 (US$1.8) in 2008-09.

Figure: Government budgeted expenditure on rural development

Rural Market: New Space to Fill

The increase in rural purchasing power is reflected in many ways. Rural incomes have been growing at more than 7 percent over the past few years, helping to account for almost 40 

percent of India’s total consumption of goods and services. Non-food expenditures are growing at an 8.2 percent annual compound rate. Rural 

households are purchasing a wide range of products-cars,flat-screen televisions, microwaves—that until recently would have been beyond 

their reach. Some industrial sectors have seen surprising growth coming from rural consumers. Fifty percent of revenues from the fast moving 

consumer goods (FMCG) sector now come from rural sales.

In the case of the telecom sector, subscriber base in the semi-urban and rural markets (Circle C geographies) has grown at a phenomenal 98 percent over the last five years in comparison 

to other circles representing metros and urban markets .