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As the urban buyer slackens in her shopping spree, a lot is riding on the rural consumer. The prospect of a bumper summer crop after good rains this year has raised hopes that rural consumption will be strong amid sluggish urban demand. The consumer goods companies, equity investors and policymakers are now betting on rural spending to push sales in the Indian economy.
How much of the rural consumer story is hype? A close look at data since 2004-05 shows there have been important changes in the structure of rural demand. One such change is the growing importance of discretionary spending. In 2011-2012, the average rural household spent more on stuff other than food. The share of spending on durable goods (such as furniture and electronic devices) and entertainment has nearly doubled over the past seven years. Rural spending on clothes, footwear, consumer services (such as telephone and repairing charges) and conveyance has also seen a spurt.
The actual share of these items in rural household budgets is still small, but the sheer size of the Indian rural population means that even small increases in the shares of some discretionary items can translate into large opportunities for consumer companies that have a presence in the villages. After all, 830 million Indians still live in villages. And while the average person in urban India remains far wealthier than the average person in rural India, the incremental consumption spend in rural India has already surpassed that of urban India in the past few years.
Consumer goods companies have been investing to strengthen their rural distribution networks, as a recent report by Credit Suisse points out. It may not be a surprise to see firms in other sectors aiming to expand their rural reach over the next few years.