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Bharat To Rescue?

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In his address to shareholders at the company's AGM last week, Harish Manwani, chairman of Hindustan Unilever (HUL), called rural India ‘an emerging powerhouse'. "By 2025, the Indian rural market is expected to grow more than 10-fold to become a $100 billion opportunity for retail spending," Manwani said.

The statement comes at a time when rural growth, particularly for the fast moving consumer goods (FMCG) category, where HUL dominates, is slowing down. According to estimates by information measurement firm Nielsen, in the past year (July 2011-June 2012) the value of rural FMCG sales has grown at a slower 15.3 per cent compared to 16.8 per cent in 2010-11.

Volume growth was even slower at 0.8 per cent, compared to 6.5 per cent in the previous year. This, at a time when volumes in urban areas (they make up nearly two-thirds of the FMCG market) have been growing at 3.1 per cent.

Compare this with 2011, when the FMCG market in middle India (1-10 lakh population towns) grew at 18.7 per cent in value terms over 2010, compared to 13.9 per cent for the metros over a similar period. Even the smallest of Indian towns (population less than 1 lakh) outgrew the metros, clocking a 15.5 per cent growth in value terms during the same period. Analysts say that even the double-digit value growth in rural India has been partly driven by inflation as volume growth has slowed down.

Manwani's disclaimer in his speech makes a larger point on the situation. Speaking about the rural opportunity he said, "This is India's biggest opportunity as well as India's biggest responsibility. It can either drive India to become the biggest economic powerhouse or derail our growth story."

(This story was published in Businessworld Issue Dated 06-08-2012)