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Time for India Inc to go rural

The budget fails to bring in fresh thoughts on how efficient spending of funds can be achieved. Had this been part of the budget, it could’ve been one of the most significant budgets, comparable to the one delivered by the PM in 1991, writes Kishore Biyani.

india Updated: Jul 07, 2009 00:07 IST

The Finance minister has given a clear signal that the focus is on where most of India lives — small towns and villages.

And to fuel growth, he is going to spend more than Rs 1,000,000 crore in the forthcoming year, which includes a 37 per cent jump or an additional $65 billion. Most of this is going to go into the government’s flagship schemes like the National Rural Employment Guarantee Scheme and Bharat Nirman, which in effect puts more money in the hands of rural consumers.

It would be naive for India Inc to not take the hint and move forward.

By increasing government outlay by such large amounts, the finance minister is creating new markets. It is for us now to get out of our comfort zones and start catering to places where the majority of Indians live. Rather than limiting ourselves to the metros, we have to look at ways by which we can evolve new distribution strategies, offer value-added products and drive consumption in rural India.

Domestic demand and consumption has been the key driver for economic growth in India. Till now, most of the domestic consumption demand was based out of the big cities with the top eight cities accounting for almost 40 per cent of total demand. Household savings in India is among the highest in the world and statistics suggest the poor are forced to save a much higher share of their income than the rich.

With this budget and its huge spending on rural India, the finance minister has set for himself ambitious targets of halving poverty by 2014, adding 12 million jobs a year and bringing 50 per cent women under self-help groups. If this holds true and if 70 per cent of India which resides in towns and villages have more money in their pockets and spend more on consuming value-added products, it has the potential to bring about a paradigm shift in the economy.

So, whether it is on televisions, toothpaste or cars, increased consumption in rural India will create new jobs required for providing these value-added products and services.

After many years, the philosophy for driving growth is bottom-up rather than depending on ‘trickle-down effect.’ We are focusing on moving with the majority rather than the affluent minority. Thus, this budget is a clear shift in terms of its ambitious vision for driving economic growth.

What it lacks to an extent is innovative thinking and a clear plan for ensuring the spending plan of the government delivers growth. It does not take into account behavioural economics on how the rural spending by the government can be productively used by rural consumers to enhance their quality of life.

With such a huge expenditure plan to manage, it will be critical for the government to ensure the spending is efficient.

(The writer is group CEO of Future Group).