Rural India sees spending boom

11 September 2012

NEW DELHI: Consumers in rural India logged a more rapid increase in their expenditure than shoppers in urban areas during the last two years, new figures show.

According to a report released by CRISIL, the research group,  spending levels among consumers in the Indian countryside rose by $67.4bn between March 2009 and March 2012.

This could be compared with the expansion of $53.8bn posted by residents of India's cities, the first time they have lagged behind less developed markets since liberalising economic reforms began in 1991.

While value sales have always been higher in rural regions as they house more customers, India's cities previously saw faster growth in incomes and purchase levels, and therefore narrowed the gap.

Roopa Kudva, the managing director of CRISIL, argued new forms of employment outside the farming sector had helped drive up salaries in many parts of the countryside, redressing the balance.

Overall, the number of people working in agriculture fell from 249m to 229m in the 2004–10 financial years, whereas employment in rural construction climbed by 88%.

Moreover, while urban migration continues to swell India's cities, the amount of money sent back to villages has also increased, supporting the acceleration in consumption.

Within this, there has been a discernable "shift from necessities to discretionary goods". Roughly half of rural households thus now own a mobile phone, including a third of homes in poor states like Bihar and Orissa.

Similarly, approximately 42% of rural residences contained a TV set in 2009–10, measured against 26% only five years earlier. Motorcycle ownership also doubled to 14% in this period.

"For India, a young population, rising income and low penetration of many consumer durables means that rural consumption has the potential to remain an important source of demand," the study suggested.

"For sustaining the rural boom, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas."

Data sourced from Moneycontrol, Financial Times, CRISIL; additional content by Warc staff