Accessibility links

Rural Consumption Boosts Indian Economy

  • Anjana Pasricha

Indian salesman tunes televisions at an electronics shop as government official on screen pledges to boost spending for rural infrastructure, 2006 (file photo).

Indian salesman tunes televisions at an electronics shop as government official on screen pledges to boost spending for rural infrastructure, 2006 (file photo).

New Delhi -- As growing wealth fuels spending in thousands of villages across India, rural communities are emerging as new commercial frontiers, raising hopes that the nation's vast countryside will become an engine of future economic growth.

For Arun Sharma, a school teacher in Rohua village in Bihar state, which lags behind other Indian states in terms of development, the recent transformation has been remarkable. When he was a young boy, he says, most people lived in small huts; there were no vehicles or roads in his village -- not even a motorcycle.

"[Today] there is a motorbike in front of every door," he says, explaining that many villagers, like him, also have amenities such as televisions, water tanks and mobile phones.

"Many people even have tractors," he says, all because of growing farm incomes and access to credit on easy terms.

Stable despite national slowdown

Although India’s national economy is faltering, the country’s vast rural areas show no evidence of slowing down. In the last two years, rising prices of agricultural produce have put more money in the hands of many farmers, and even farm laborers are earning higher wages.

New Delhi officials have cancelled many loans taken by farmers, and a wave of government subsidies for energy, fertilizers and food -- all targeted at boosting rural incomes -- has brought more prosperity to the hinterland.

As a result, India’s 660,000 villages, home to two thirds of the country’s 1.2 billion inhabitants, are emerging on the radar of companies selling everything from cars and jeans to soaps and shampoos.

Shankar Prasad, a dealer for consumer goods in Muzaffarpur district, where Rohua village is located, meets with his sales team to stress the need to target rural customers and tap the growing potential.

“We are selling tractors, motorcycles, then TVs, fridges, washing machines, all these things, and we find that the income of the villagers has tremendously increased," he says. "In [the] case of motorcycles, we find that 50 percent of our buyers are from villages.”

Nothing illustrates the rural transformation more dramatically than 2010-2012 sales figures at India’s largest car company, Maruti. Until 2009, a mere three percent of the company’s cars were sold in rural areas, and now every fourth car is bought by a villager.

According to Mayank Pareek, Maruti's national head of sales in New Delhi, from east to west dirt tracks have been replaced by roads, bringing villages closer to bigger towns.

“About five years back, 50 percent [of villages] were not even connected by roads," he says. "Of late, because of lot of investment going on in the rural infrastructure, these places are getting joined with the mainstream economy, and when they are connected to main economy they need to travel and that leads to a boost in demand."

"What we have done so far is just tip of iceberg," he adds. "In fact, you would be surprised that three percent of our cars go to villages with less than 100 households.”

Poverty persists

Despite the consumption boom, rural areas still remain underdeveloped. Many lack basic infrastructure such as schools and health care, or amenities such as sanitation and clean water.

And many people remain poor.

But change is happening, making some Indian leaders confident that villagers hold the key to the country’s future.

India Finance Minister Pranab Mukherjee, who has faced many questions about India’s sputtering growth, recently told parliament that he wants to focus on farm-sector development so that India’s rural areas emerge as engines of growth.

“When I talk of the domestic-demand-driven growth strategy, I have agriculture in my mind," he says. "Our growth should come from the domestic demands and generate the domestic demands, and for that we are stepping up substantial amounts of money in the rural infrastructure, in the rural sectors [and] in the social sectors.”

That is music to the ears of people like Avdesh Chowdhury, whose grocery store in Tarora village in Muzaffarpur district is often crowded with customers. About ten years ago, he says, his village did not have a shop.

"Television has brought about a huge change and now people want to buy everything they see on TV," he says.

However, economists warn that the wave of subsidies generating rural prosperity may also deepen India’s economic woes in coming years as its fiscal deficit increases.

But others say the vast rural market could energize an economy whose growth potential is beginning to be questioned.
XS
SM
MD
LG