The Rural Push: Hinterland’s Promise

As the India Economic Summit 2009 gets underway in the capital, the big question in the minds of senior government officials as well as corporate bosses is: what will be the next big driver for India’s growth story?

This year, the Prime Minister’s Economic Advisory Council forecasts a GDP growth rate of 6.5 per cent, making India one of the fastest growing economies in the world. Though nobody expects a return to the 9 per cent-plus growth rate by the next year, the government is hoping that by fiscal 2011-12, India would have gone back to that rate, or somewhere close.
But what will help achieve these growth rates? Will it be the same drivers that pushed India into the super growth orbit in the immediate past? Or will we see a completely new set of drivers?

There is a growing feeling in certain circles of the government that the big trigger in the next couple of years will be the growth of the rural economy and a rapid increase in rural consumption. After the government announced the stimulus packages late last year, cabinet secretary K.M. Chandrasekhar pointed out that it was the rural economy that had prevented India from joining the global economic freefall. “In the past few years, the position of our rural economy has considerably improved,” he had said, adding that “India has a strong rural market that will act as a bulwark against the external forces”.

Some people outside the government hold similar views. Pradeep Kashyap, CEO of market research firm MART, says that they have done studies that show that it was demand from rural India that kept the growth rate ticking. For instance, their study shows that cement demand for rural housing did not show a dip because rural houses are for self-occupation compared with demand for housing in urban centres that was speculative.

The problem is that while there is plenty of anecdotal evidence that rural consumption and rural income is growing rapidly — and that it went up even while the urban consumption slowed during the meltdown — there are no statistics that the government has collected to gauge the true potential of the rural promise.

Sure, the number of urban households — 60 million — is less than half of the rural households (150 million) in the country. And despite growing urbanisation, it is generally accepted that even by 2025, over 60 per cent of the country’s population will still reside in rural India.

But beyond that, there are scant statistics that capture the true measure and the patterns of rural consumption in real time. Most of the data being used by the government is four to five years old, and they are unlikely to reflect the current real conditions on the ground.

The Big Promise
And yet, despite the lack of data, company after company has stories of how galloping rural demand is counter-balancing slowing urban consumption. From telecom majors to financial services providers to car, bike and tractor manufacturers, almost everyone has a story to tell.

Maruti Suzuki turned to the rural market seriously in 2008-09 when the slowdown drained demand from the big cities. It created a team for spurring sales for cars in rural areas. It got its dealers to set up points of contact in villages and tiny towns and covered 84 per cent of the 3,800-odd tehsils in India. Its rural offerings are centered around micro and compact cars — Maruti 800, Omni, Alto and Wagon-R. The percentage of rural sales in the company’s total sales trebled in 2008-09 to 9 per cent from the 2007-08 level. In the first half of the current fiscal year, rural markets’ contribution has reached 16 per cent.

Mayank Pareek, executive officer (marketing and sales) of Maruti, says, “What we have found so far is just the proverbial tip of the iceberg. There are about 600,000 villages and very small towns in India and most of these are getting a road for the first time. With roads the need for travel will rise in these places.” He says, “Earlier the rural consumer bought Maruti vehicles by travelling to the cities, but now we are selling the vehicles to that consumer (in the villages).”