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RMAI study shows a bright future for rural markets

By afaqs! news bureau , afaqs!, Mumbai | In Marketing | February 17, 2009
The aim of the study was to understand how the economic slowdown has affected the rural markets and which categories have witnessed a drop

The Rural Marketing Association of India (RMAI), in association with MART, had conducted a study to understand the impact of "Economic Slowdown on Rural Markets in India". The purpose of the study was to gain insights into the rural sentiment and understand whether the slowdown has impacted them in any way.

Pradeep Kashyap, chief executive officer, MART and vice-president, RMAI presented the findings of the research. The objectives of the study were to assess the impact of the economic slowdown on the macroeconomic scenario in rural India, rural income and economic opportunities, rural household sharing and on major sectors such as agriculture, telecom and FMCG.

The & #BANNER1 & # national study was conducted in all the four zones - north, east, west and south. One state from each region was chosen and then, one district was selected from each chosen state. From each district, two villages and a small town were selected for the study, which was conducted between July and December, 2008.

The study showed that in villages and towns, self-employment is preferred over salaried jobs, with 53 per cent of the rural population being self-employed, as compared to 36 per cent of the urban population.

In addition, among the salaried individuals in the rural population, 11 per cent hold government jobs, such as clerks and teachers, and hence, have a minimal risk of losing their jobs, while 37 per cent work in private firms.

About 66 per cent of the rural population makes a living out of agriculture and the economic meltdown has no negative impact on this sector. Eight percent of the rural population is involved in trade and manufacturing. Since the economic slowdown has a negative impact on the import and export sector, both trade and manufacturing has seen a marginal drop in numbers.

Construction, which accounts for 7 per cent of rural employment, saw a rise, because wages and employment have increased in the sector.

The study revealed that more than 60 per cent of India's income comes from the rural segment and small towns. In rural areas, 46 per cent of a household's income is spent on food, while 10 per cent is spent on ceremonies and leisure travel. Spending on health accounts for 9 per cent of the total household earnings; while 8 per cent of the income is spent on transportation.

Weddings and celebrations account for 58 per cent of non-routine expenditure. Wedding celebrations are seen as status symbols in rural India and despite the recession, the study states that there is a marked increase in durables purchases. The same trend was noticed during festivals such as Diwali.

Villages and small towns seem to be getting ahead of urban cities where expenditure on consumer durables is concerned. While there is a drop in the prices for durables, there is a marked increase in upgrades, for example, upgrading from a regular television to an LCD screen, or purchasing branded products instead of locally manufactured products. A growth of 15 to 20 per cent is expected in this sector during 2008- 2009, which will largely come from rural markets.

The telecom sector is also witnessing a growth spurt from the villages and small towns. The total telecom subscriber base for India grew from 70.83 million in the first quarter of 2008 to 90.98 million in the second quarter. Rural India contributed to a 71 per cent rise in this sector, while the remaining 29 per cent growth came from urban India. This segment is currently growing by 8-10 per cent every month.

Rural India has a different outlook towards financial services and savings, as compared to their urban counterparts. Most rural people prefer to invest their money in low-risk options, such as post office savings and fixed deposits. Hence, they have no wealth erosion, because they do not invest in high-risk, volatile options such as stocks.

Also, there is an increased demand for consumption loans in rural India. There are 72 million Kisan Credit Cards (KCC) users in rural India, which is almost equal to the number of credit cards users in urban India. The moneylender's dominance continues in rural India, because loans can be taken for ceremonies and emergencies.

In 2008, FMCG growth from urban markets was 22 per cent, while a significant 57 per cent came from rural markets. Semi-urban markets contributed the remaining 21 per cent growth. The research found that the consumer is upgrading from loose to packaged products even in the rural markets.

Thus, the overall impact in most of the categories has been positive. The economic slowdown does not seem to have caused declines in consumption for any sector in rural markets. For example, agriculture witnessed a 2.6 per cent growth, while telecom experienced a 28 per cent growth. There was a 20 per cent growth in FMCG, while the apparel and financial services sectors remained constant.