Rural spending outpaces urban consumption

Mumbai: Rural spending outpaced urban consumption in the two years up to 2011-12, the first time in nearly 25 years, according to a study by Crisil Research. This, according to Crisil, was fuelled by a strong increase in incomes, led by rising non-farm employment opportunities and the government’s focus on rural employment generation schemes.

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. To sustain this phenomenon, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas, said the study.

Crisil said given the size of India’s rural population, the value of goods and services consumed has always been greater in rural India, but urban India had narrowed the differential during most of the last decade by growing at a faster pace. Between 2009-10 and 2011-12, additional spending by rural India was Rs 3,75,000 crore, significantly higher than Rs 2,99,400 crore by urbanites.

Between 2009-10 and 2011-12, rural consumption per person grew annually at 19 per cent — two percentage points higher than its urban counterpart, according to preliminary data released for 2011-12 by the National Sample Survey Organisation.

With rising purchasing power and disposable income, the study said that notable phenomenon that is increasingly discernible in rural consumption is a shift from necessities to discretionary goods. “About one in every two rural households now has a mobile phone. Even in India’s poorest states such as Bihar and Orissa, one in three rural households has a mobile phone,” said the study. Nearly 42 per cent of rural households owned a television in 2009-10, up from 26 per cent five years earlier.

There are also interesting state-wise differences in the ownership of durables in rural India, depending on the differences in purchasing power and cultural preferences. While in rural Bihar, only 6 per cent own a two-four-wheeler, one in two households in rural Punjab has a two-/four-wheeler — a ratio even higher than that in urban Maharashtra and Karnataka.

The boost to rural consumption in recent years was underpinned by an across-the-board rise in household incomes due to increase in non-farm job opportunities and government initiated employment generation schemes. NSSO data shows that during 2004-05 to 2009-10 rural construction jobs rose by 88 per cent and the number of people employed in agriculture fell from 249 million to 229 million.

The study further said the untapped rural potential remains huge. “Over 60 per cent of India’s population in 2026 will continue to reside in rural areas. A large portion of this population will have opportunities to move up the consumption ladder as rural areas of relatively poor states such as Bihar and Uttar Pradesh catch up with today’s income and consumption pattern in relatively affluent states. The pace and depth of rural renaissance, however, will depend on policy initiatives to overcome the challenges faced by rural India,” the study said.