Indian Rural Market: A Brief Profile

Learning objectives of this chapter: To understand demographic profile of rural India Be aware of different poverty alleviation and developmental programmes of government in the rural areas Analyze the rural consumption and spending patterns Draw an interrelationship between agriculture, rural income and consumption patterns Understand the electricity infrastructure availability across rural India Comprehend the nature and characteristic of rural market

Rural India: A Brief Profile 75% of India’s and 12.2% of world’s population lives in 6, 38,365 villages of India spread over 32 lakh square km. 90% of rural population is concentrated in the villages with population less than 2000. Comprises of 13.5 crore households, constituting 72% of total households in India with 48 crore adult individuals. Rural is not homogeneous across the country. Variations in exposure to urban centers and extent of development in a region have resulted in tremendous heterogeneity. The consumer’s willingness to accept innovation varies significantly from one rural market segment to another.

Rural Income Distribution: Rural India is generating more than half of national income. 41% of Indian middle class homes and 58% of disposable income exist in rural India. Income contribution of 55.6% to the national income by rural population of 74.6 crore is higher than urban India’s with 25.4 crore people contributing 44.6%.

Rural Income Distribution: Per capita income turns out to be significantly lower in rural areas because of the large population base. Study by NCAER revealed that annual household income for rural areas in 2002 was Rs.56,630 as compared to Rs.1, 02,963 in urban areas. Rural accounts for 92 lakh middle-income households, having annual income in range of Rs.30,001 to Rs.1,25,000 and urban like consumption. If there are 1.0 crore high and upper-middle income households in urban India then there are 76 lakh in rural India.

Income in Rural and Urban Areas: A Comparative Analysis As per NCAER, in 2002 per capita annual income in rural areas was Rs.9, 481 whereas in urban areas it was Rs.19, 407 and the national average was Rs.12, 128. Rural income’s Compounded Annual Growth Rate (CAGR) between 1970-71 and 1993-94 was 10.95% compared to 10.74% in urban areas. (ETIG 2002-03) Rural and urban incomes were more evenly distributed in 1994-95 compared to 1975-76, but all India inequality has marginally increased. The share of rural income in 1975-76 was 66.8%. According to the MIMAP survey of 1975-76, the urban household earned an income on an average 1.82 times the rural households, while the MIMAP survey in 1996 indicated the gap has widened and increased to 2.1 times. (Pradhan, 2000)

Income in Rural and Urban Areas: A Comparative Analysis The Gini Index, which is a standard measure of income distribution among individuals or households in a country, shows that inequality had risen from 30 in 1991 to 38 in 1997, owing to the wide disparity in economic growth and distribution between rural and urban India. Only 3.8% of the rural households, with 2.8% of rural population reported an income of more than Rs.1200 per capita per month while 28.5% of households with 24% of population reported similar income in the urban areas. Per capita income in rural India is only about half of urban India’s, the status of disposable income is a roughly the same with the rural consumer paying virtually nothing for health, education, housing and food.

Income Distribution in Rural Areas: Rural is not as poor as it is widely perceived to be. If there are large number of poor people in villages than good number of rich are also present. Between 1982 and 1999 per capita village incomes increased by 70%, population increased by 47% and the share of non-farm income in total village income rose to almost 50%. In 1971, 82% of men in the 25 to 44 age group in rural areas reported their primary activity was either farming or agricultural labour, this figure dropped to 73% in 1982 and to 53% in 1999.

Income Distribution in Rural Areas: Between 1971 and 1982 the proportion of prime working age men earning income outside the agricultural sector rose from 10% to 16%, by 1999 this figure had more than doubled to 36%. As this ratio increases, the cyclical and unpredictable nature of Indian agriculture may have lesser impact on rural incomes and consumption than before. Comparison of findings of MIMAP survey in 1994-95 with similar survey conducted by NCAER in 1975-76 revealed a significant decrease in share of income from farm sector from 37.8% to 20.5%, increase in share of income from salaries from 22.7% to 33.6% and other incomes from 7.2% to 12.4% during the two decades (1975-76 to 1994-95).

Magnitude of Poverty in Rural India 32.5 crore people lived below poverty line (BPL) in India, which is around one third of the population. Incidence of poverty in rural areas at 39.4% is much higher than 28.4% in urban areas. About 80% of poor lived in rural areas in 1995, but that does not mean rural is only poor. More than 60% of rural population is above poverty line and in actual terms it comes out to be large number.

Magnitude of Poverty in Rural India Percentage of BPL families declined from 46% to 27%. But, actual numbers remain almost same. Figure of population BPL varies significantly from one state to another. Orissa having 48% population below poverty line is different from Punjab where it is just 6% (Planning Commission, Govt. of India). Therefore, far ranging generalities cannot be developed on the basis of nationwide figure and regional variations need to be taken into account while developing any strategies for rural market.

Poverty Alleviation Programmes and Rural Development: Land reforms Gram Sadak Yojna Providing Urban Amenities in Rural Areas (PURA) National Rural Employment Guarantee Act Integrated Rural Development Programme (IRDP) Jawahar Rozgar Yojna: largest rural poverty alleviation programme through public works. It was launched in 1989 by merging National Rural Employment Programme (NREP) and Rural Landless Guarantee Programme (RLEGP).

Rural Consumption: As per Francis Kanoi Marketing Planning Services, rural market for FMCG was Rs.65,000 crore, for durables Rs.5,000 crores, for tractors and Agri-inputs Rs.45,000 crore and for two and four wheelers Rs.8000 crore a total of Rs.1,23,000 crores. Not competing in rural market removes a company from about half of necessity products market 1/3 of emerging products and a 15% of lifestyle products in value terms. Per capita expenditure on education of the urban households was 4.5 times that of rural, twice on health, five times more on rent. Rural households hardly change their house or go for vacation. They save only fraction of money and spend the rest. And when there is growth in income, the money goes straight into consumption. Thus, the actual disposable income in a rural household comes nearly to be the same of urban ones.

Rural Consumption: There was three-fold increase in consumption of packaged goods in rural areas (1984-89) and percentage of rural market in all Indian market increased from 28 to 37%. Rural FMCG market was worth Rs.44,000 crore in 1998 amounting to over half of total Indian market and grew at an annual average rate of over 12% between 1993-98. The share of expenditure on food item is going down in rural areas. In 1993-94, food accounted for 65% of average rural per capita natural expenditure. By 1999-2000, it had come down to 62%. It is not because of any fall in the real expenditure on food. In fact there has been a sharp rise in the per capita real spending on non-food items.

Rural Consumption: Rural household spends Rs.3, 203 per year for FMCGs that is Rs.267, per month and this figure excludes cereals, pulses, vegetables and milk. This amount could vary between Rs.365 and Rs.175 depending in the socio-economic status of the household (IRS 1999). This seems to be a small number but in the context of huge market size of rural India it leads to huge numbers. Rural telephone density has gone up by 300% in the last 10 years; every 1000 plus population is connected by STD. During 1981 - 2001 number of pucca houses doubled from 22% to 41% and kuccha houses halved (41% to 23%).

Literacy in Rural India: Rural literacy has improved from 36% to 59%, but a long way to go. There is increasing trend of public school education even in rural areas, especially in progressive and developed states like Punjab. There are more literate people in rural India (16.5 crore) then in urban India (16 crore) but, head of household reported no formal education in 51% of rural households and same was only in 16% of urban households, while the all India level is 41%. The share of income of these 41% of households was only 27.9%. More than 55% of head of households reported at least secondary education in urban areas whereas figure was 15% in rural areas. In about 26% households, head was a graduate or a technical degree/diploma holder in urban areas, had 38.5% of income, while 2.3% of such households have 4% of income in rural areas.

Electricity Availability in Rural India: 56% of the households in the country had an electricity connection in 2005. The majority of households not having electricity are in the rural India. There is a great deal of variation amongst states. About 90% of houses in Punjab and Goa are electrified, in Jharkhand it is 25%, whereas in Bihar, at the bottom it is 10.3%. In states like Haryana, Jammu & Kashmir, Gujarat, Karnataka, Tamil Nadu, Maharashtra, Kerala and Madhya Pradesh more than 70% households are electrified. Overall electricity connections, duration of power availability, and power fluctuation in rural parts, needs to be considered while designing the products for the rural market.

Development Indicators in Rural India: India was ranked 138th as per Human Development Report (HDR) 1997. India’s infant mortality rate of 75 per thousand live births is one of the highest in the world. Access to potable water, health care, sanitation and shelter are a far cry, particularly in the rural sector. Kerala has highest HDI, 80% higher than national average, although its per capita income is less then 17states. India is at 103rd rank in 123 countries in Gender Disparity Index (GDI) with a value of 0.41. But, Kerala’s GDI value of 0.597 is at par with Mauritius, which is 80th in the world and UP’s GDI value of 0.31 match the tail end countries.

Characteristics of Rural Market Large and Scattered market Heterogeneous market Significant %age of Income from agriculture Lack of Infrastructure Facilities

Summary: Points to Ponder Rural is a highly heterogeneous and widely scattered. Rural is not as poor as it is perceived to be, it contributes to more than half of the national income. Rural market consumes about half of necessity products, 1/3 of emerging products 15% of lifestyle products in value terms. Rural demand will always be more volatile than urban one. Rural economy is gradually getting less dependent on agriculture and there is increasing share of non-farm income. Rural literacy level has improved from 36% to 59%, but has a long way to go. But, there are more literate people in rural India then in urban India.