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- Consumption is rising in rural India in spite of old problems

As a management trainee in Hindustan Lever in 1957, I was sent to work as a salesman in rural Maharashtra. I had lived my life till then in Bombay and Delhi and had never been to a village or a small town. I had passed them when travelling by rail or road but never lived in any or walked village streets. It was a change. Decently surfaced roads were non-existent, even in small towns, not to speak of villages. Transport was at best a horse-drawn carriage. A roadside tea-stall might serve snacks, and sometimes chapatis and vegetables. There were practically no shops and those that were there were stocked with cheap and poorly wrapped soaps and small articles of daily consumption. If, in the interest of health, one wanted to buy packaged food — bread, biscuits, chocolates, candy and so on, one could find only knockoffs or low-quality goods. There were practically no well-known brands. A car or a motorcycle was a rare sight and immediately attracted a crowd, mostly of children, but also of older people.

After over 55 years, there is a transformation. It began when government revenues rose with economic growth and Atal Bihari Vajpayee and his successor devised rural infrastructure projects. There is now good road connectivity between almost all small towns, villages and neighbouring large towns. Motorcycles and cars are a common sight. So are television sets and mobile phones. Shops have many of the latest packaged consumer goods, more often in smaller pack sizes, but they are there. Branded soft drinks are everywhere. There are ice boxes and sometimes refrigerators. Small diesel generators are not uncommon. Everywhere one sees a few or many tractors, used both for farm work and for transporting goods and people. Most men wear trousers. There are many more women in salwar kameez and even jeans.

All is not butter and honey. In many parts of India you still see children aimlessly wandering, many boys wearing only shorts, none with footwear, not in school in the day and obviously undernourished. But there are fewer places like this than when I first started rural travel.

In the early 1990s, I had pointed out, using data from the massive sample surveys of the National Council of Applied Economic Research, the growing number and proportions of those who were consumers of manufactured goods, in both urban and rural India, but more in the former.

The latest National Sample Survey data shows that for the first time, rural consumption is growing at a more rapid rate than the urban. Between 2009-10 and 2011-12, spending by rural India was Rs 3,750 billion against Rs 2,994 billion by urban India. Preliminary NSS data for 2011-12 shows that rural consumption per person during this period grew annually at 19 per cent compared to 17 per cent in urban India.

Rural markets have become important for businesses. They were penetrated by many in past years but reaching goods to them was more expensive and the sales were small. Lorry transport was undeveloped, heavy wood-box packing was the norm and it was some years before strong cardboard boxes replaced it. With bank branches mostly in medium and small towns, rural merchants had to be paid to clear lorry documents at the nearest town bank branch. None of this is a problem now. Cardboard packing is universal, lorries stop regularly even in many villages apart from small towns, and bank documents are easily negotiated.

Hindusthan Unilever’s project, Shakti, has developed local village households to stock and sell their goods, and ways to deliver small quantities of goods to them. It has had a buoyant effect on sales. The ITC innovated the rural supermarket, selling agricultural inputs as well as consumer goods in remote rural locations. They are now becoming ubiquitous and other companies have followed suit.

There are many reasons for this rural upsurge in consumption. In rural India, there was a rise in household incomes due to greater non-farm job opportunities and government-initiated employment generation schemes. The National Sample Survey Organization shows that during 2004-05 to 2009-10, jobs in rural construction rose by 88 per cent, while the number of people employed in agriculture fell from 249 million to 229 million.

Another major change in rural consumption is the shift from necessities to discretionary and lifestyle goods not only in food but also in the purchase of mobile phones, television sets, two-wheelers, bicycles, electric fans. Half of rural households now have a mobile phone. Even economically backward states (for example, Bihar and Orissa) show that one in three rural households has a mobile phone.

In 2009-10, almost 42 per cent of rural households owned a TV set. This was against 26 per cent in 1993-94. For two-wheelers the figures rose to 14 per cent of rural households owning them as against half the number in 2004-05.

Rising rural purchasing power was also because of increased incomes through guaranteed employment under the Mahatma Gandhi national rural employment guarantee scheme. Data shows nearly 27 per cent of rural households gaining employment under the MGNREGS in 2009-10. This is in spite of all surveys showing a substantial portion of the funds being misdirected or stolen.

Urban India in the last two years has seen some decline owing to slowing industrial and services sector growth and rampant inflation. Remittances from rural migrants to families at home have been an important addition to rural purchasing power and remain so. They have benefited from job opportunities in infrastructure and construction projects. Their increased remittances to their families in rural India stimulated rural consumption.

India’s economic growth has slowed to its lowest level in nearly a decade. But many companies show healthy growth in rural India. The uncertain monsoon this year has hurt rural consumption but not significantly.

Agricultural inputs continue to do well. The volume of consumption of fertilizers in India grew at a cumulative annual rate of 7.6 per cent during 2005-06 to 2011-12. So did other inputs. There might be a backlash against genetically modified cotton but others are doing well. We can expect rural consumption to continue growing.

That does not mean that prosperity has come to all in villages and small towns. Between 300 and 400 million households, mainly in rural India, are not connected to electricity. Private toilets are still uncommon, as are public toilets. Safe drinking water is not the norm. The quality of health and education to the poor in villages and small towns (even big places) is atrocious and reflected in high infant mortality, poor English and arithmetic skills among so many children, and lack of training in livelihood enhancing skills. Governments are unable to improve the situation in spite of vast and growing expenditures — on poorly thought out projects. For example, over Rs 50,000 crore has been spent on rural electrification by connecting villages to the grid. With poor and below-cost supply no distribution enterprise will want to serve them. Supervision of health centres and schools is poor. Teachers are absent, and health centres are afflicted with lack of medicines and with bribes having to be paid for treatment.

Yet the rising consumption and its diversification certainly indicate growing prosperity. As more companies explore rural and small-town markets, infrastructure improvements are certain (bank branches, electrification, better water supply, more private schools). While deploring the Centre’s inadequacy in handling macroeconomic variables like deficit, inflation, declining investment and exports, or the falling rupee, let us take some comfort from this.

The author is former director general, National Council of Applied Economic Research