RUBRAN POWER ENGINE OF TOMORROWFeatured

Written by INDRANIL BANERJIE
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Small-town and rural Indian are the New Growth Engines

THE IMAGE OF, rural and small town India as one dominated by bullock carts, thatched huts and dung fires is in need of a makeover. The dust remains but the smoke is clearing and soaring aspirations of this population segment is proving to be as transformative as that of the country’s metropolitan inhabitants.

Savvy corporates and businesses are increasingly targeting consumers in smalltown and rural India where growth in demand has shown the most dramatic increase in recent years.

India’s two-wheeler industry is a case in point. 2017 will see this sector’s fastest growth in years, and the most dramatic sales increases are expected in rural and small town India. It is the same for the consumer durables and the Fast Moving Consumer Goods (FMCG) sector.

Hyundai, the second largest carmaker in India by volume, reported a huge jump in its rural sales from 14.5% in 2011 to 23.2% in 2016. Car maker Nissan too sees a great opportunity for its smaller vehicles such as the Datsun redi-GO in tier III and rural markets.

A study by AC Nielsen suggested that the rural FMCG market is anticipated to expand at rate of 17.41 per cent to US$ 100 billion during 2009–25. Already, the study showed, the rural FMCG market accounts for 40 per cent of the overall FMCG market in India in revenue terms.

Leading retailers such as Dabur generate over 40-45 per cent of their domestic revenue from rural sales while Hindustan Lever’s rural revenue accounts for 45 per cent of its overall sales. Other companies earn 30- 35 per cent of their revenues from rural areas.

This could be attributed to rising purchasing power, higher disposable income and rising aspirations. Clearly there is big money in the Rurban sector and lots of disposable income. The potential is huge given that rural India has 850 million consumers almost all of whom pay no tax and pay very little for housing.

The extent of potential demand in the Rurban market was illustrated by the now famous Aurangabad sales event where a group of the town’s businessmen, executives and professionals bought 150 Mercedes Benz cars on a single day in October 2010.

THE RURBAN CHALLENGE

As if the urban and rural dichotomy wasn’t enough to stress our leadership, the emergence of a third grey category of the large Rurban village now compounds the problem. Half our population lives neither in cities nor in villages but in Rurban centres where between 9,000 and 10,000 people live. These are significant numbers and lots of people living together. The village is no longer the idyllic little republic it was, with about 40 households where people lived in absolute harmony amidst a neat division of labour. It is now a competitive marketplace, a hub of activity and a cluster big enough to make irritating demands on governance and punish laggard elected representatives every five years..

The demographic change we now see is quite fascinating. The total number of villages in the country has remained more or less constant, we now have 6,45,000 villages compared to 6,40,000 in 2001. However, the number of uninhabited villages has gone up significantly, from 45,000 in 2001 to at least 65,000 now. Also, there are 82,000 villages that have less than 200 people and those are fast becoming ghost villages with more and more people migrating away to larger villages. According to the latest census, more than half of our population lives in about 1,00,000 villages which have a population of between 2,000 and 10,000 people. The number of villages with less than 1,000 people has drastically decreased

The fact is that all our cities have grown slower than imagined. Surprisingly the cities that grew by more than 100% over the ten year period between 2001 and 2011 are Kozhikode, Kannur, Kollam, Thrissur, Trivandrum and Mallapuram, all in Kerala. The only other cities that grew appreciably are Surat and Virar. Across the country, urban growth is not as fast as imagined. India remains a predominantly rural nation. Only 31% of the population of India lives in urban areas

What does this mean to the country and to its economy? Firstly, it means that there is some strong disincentive for people to migrate to large cities. The fastest migration we saw was in the seventies and since then the rate of migration has been declining. Our large cities have become difficult to live in, they do not have jobs anymore for the unskilled and even for the semi-skilled, they are far too expensive and unfriendly. This means that our rate of urbanisation is well below what Europe saw in the nineteenth century and Latin America in the twentieth century. We are going to see more people live in rural areas than any other middle-income country in the world.

A typical rural village is also a place with relatively lowincome inequality. Because almost everyone is poor no one is “poor”. However, in Rurban areas, there will be significant income inequality and there is the very real likelihood of a new category or Rurban poor that will live in Rurban slums. Through the Jat and Gujjar agitations, we have already seen a glimpse of what will happen if that income inequality rises. Combine that with poor access to social services and a weak law and order structure and we can have a potentially disastrous situation on our hands.

The rural consumer has more money in his hands also thanks to various government schemes including the National Rural Employment Guarantee Act, Mahatma Gandhi Rural Employment Scheme, agri-credit programmes and so on.

The real income of this sector too has been rising. A report by McKinsey Global Institute has forecast that the annual real income per household in rural India will rise to 3.6 per cent by 2025, from 2.8 per cent in the last 20 years. This is a huge leap by any standards

What is interesting is that consumption patterns in rural areas are increasingly beginning to resemble that of urban areas.The fastest change, analysts say, is being witnessed in rural and semi-urban areas close to metro and large cities. One study by People’s Research on Indian Consumer Economy (PRICE) observed that the “characteristics of these households would be predominantly rural but with a generous dollop of urban sensibilities. Given their proximity to the large metros or boom towns, these households are fast catching up on 21 developmental indicators from Census 2011—including demographic, basic amenities, financial inclusion and consumer durable ownership.”

An Accenture Research report says “businesses in India are optimistic about growth of the country's rural consumer markets, which is expected to be faster than urban consumer markets. The report highlights the better networking among rural consumers and their tendency to proactively seek information via multitude sources to be better informed while making purchase decisions. Importantly, the wider reach of media and telecommunication services has provided information to India’s rural consumers and is influencing their purchase decisions.[Masters of Rural Markets: From Touchpoints to Trustpoints - Winning over India’s Aspiring Rural Consumers].”

The report also points out that the “monthly per capita spending among rural consumers has increased 17 per cent between FY10 and FY12, higher than the 12 per cent rise among urban consumers

Disposable incomes have gone up and fuelled aspirations, thus, resulting in a change in buying preferences. Spending on non-food items rose from 40 per cent of the total spend in FY2005 to more than 50 per cent in FY12.”

Three additional factors that have greatly aided this transformation is the increased electrification of rural and small town India, the massive jump in ease and availability of mobile communications, and the impact of television on aspirations

Matters will only accelerate now that that the Government of India has resolved to electrify all un-electrified villages in the country, build 223,000 kilometres of rural roads in one year alone and encourage local industries and businesses. All this is helping e-commerce players like Flipkart, Snapdeal, Infibeam and Amazon to penetrate Rurban markets

Businesses that can tune into Rurban needs can earn a fortune in these changing times. The first to catch on were twowheeler makers who realised that the poor condition of Rurban roads required small, rugged vehicles and not cars. The choice of transport in Rurban India has proved to be the two-wheeler. Trends reported by SIAM indicate that two-wheeler sales have grown at 7.5% in 2014-15 over the previous year and a whopping 26.5% during the 2010-11 to 2014-15 period.

Companies clearly need to develop products and services that address the specific needs of Rurban consumers as well as address regional differences in needs, tastes and aspirations.

Rurban consumers are no longer the semi-literate stereotypes of yesteryears satisfied by crumbs offered by manufacturers. Today’s Rurban consumer is quality conscious, willing to pay extra for branded products and are aware of product quality.

As Internet penetration increases and the younger generation and women play an increasing role in purchase decisions the Rurban market will further evolve. The dust may take many more years to settle but much before that Rurban India would have been radically transformed.

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