By Anshia Dutta
India is the second-most populous country in the world after China, and it accounts for one-fifth of the worlds population. According to the revised World Population Prospects, the population of the country stood at 1,324,171,354 in 2017. According to the World Bank collection of development indicators, the rural population accounted for 66.86 percent of Indias total population in 2016.
Rural consumption spending
Food accounts for more than half of the total consumption expenditure by the rural population. Last year, the Indian villages had incurred an expenditure of $150 billion on food, which included mainly fresh items and dairy products, and branded packaged food constituted 10 percent of the total spending. Although the rural population makes up the majority of Indias workforce, the consumption growth in the rural sector failed to keep pace with the fast-growing rates that the Indian economy witnessed from 2007 to 2012. It is now being said that increased spending on mobile telephony, education, and healthcare is likely to overtake the additional expenditure on food in rural India. It is also being speculated that collectively $65 billion more could be spent on connectivity and the welfare of people per year.
Findings of the Goldman Sachs report
According to a report by Goldman Sachs, connectivity and well-being (healthcare and education) may get priority over staples in terms of incremental spending by 2022 in the Indian villages. The report suggests that rural consumers could spend an additional $30 billion, each on connectivity and welfare of the masses. However, companies focused on rural India do not expect a contraction in the expenditure incurred on food by the rural sector as of now. Sunil Duggal, the Chief Executive Officer of Dabur opined, Rural markets continue to be stressed for now, but we do expect consumption to be fuelled, aided by forecasts of a normal monsoon and the government impetus. However, we don’t expect consumers to cut back on staples and daily consumption needs to spend on things like mobile talk time.
The report on consumption patterns added that rural spending will double to 8.5 percent per annum over the course of next five years following two years of healthy summer rains and the governments increased stress on improving the incomes of the rural people. Higher vehicle costs, fuel costs, and expenses towards using mobile communication services is going to increase the mobility and connectivity expenditure in the countryside from $19 billion to $49 billion by the end of 2022. The American multinational investment bank and financial services company also said, With over half of household spending in the countryside going on food, we expect packaged food and beverages to grow faster than other large staples categories like personal care and home care. We see the outperformance to be driven by an improvement in food packaging technology, better transport infrastructure and a focus on cost reduction by consumer companies.
Drawing a comparison between the opportunities available in the hinterland and the urban areas, the report mentioned that despite the working population in the rural areas being twice as that of the urban sector, the collective income pool of the villages is only 38 percent of the non-rural regions. Consequently, the urban areas have more opportunities relative to the countryside. Secondly, it is easier and less expensive to serve the urban population, where consumption is concentrated in a few large cities as compared to the rural population that is scattered in over 640,000 census villages. Thirdly, the number of players in the rural market has increased on account of improvements in the supply chain, thereby increasing rural competition. In order to survive in the market, retailers are offering products below the maximum retail prices which have led to a subtle shift in the pricing power, away from the traditional consumer brands to the consumers. RS Sodhi, Managing Director of Gujarat Cooperative Milk Marketing Federation (GCMMF) said, Rural consumption is directly dependent on rural incomes, and with the government talking about multiple sops for rural markets, we expect consumption to grow in the mid to long-term.
Measures implemented by the government
The government has undertaken several steps to enhance the incomes of the rural population. Firstly, the government increased the minimum support price (MSP) for crops to 1.5 times the cost of production. Secondly, measures were taken to liberalise the norms governing agricultural exports. Next, the institutional credit to the people working in the agricultural sector was increased. In addition to this, the government doubled the allocation for food processing and health protection coverage of ?5 lakh for 100 million poor and vulnerable families.