Page 271 - DMGT509_RURAL MARKETING

Rural Marketing

Notes “Several factors have led to an increase in rural purchasing power,” says Pankaj Gupta, practice
head, consumer & retail, Tata Strategic Management Group. “The increase in procurement prices
[the government sets the minimum support price — MSP — for many farm products] has
contributed to a rise in rural demand. A series of good harvests on the back of several good
monsoons boosted rural employment in agricultural and allied activities. Government schemes
like NREGS [National Rural Employment Guarantee Scheme, which guarantees 100 days of
employment to one member of every rural household] reduced rural underemployment and
raised wages. Also, farmers benefited from loan waivers [introduced in the last Union Budget].
The increase in rural purchasing power is reflected in rural growth across a number of categories.
For example, in the financial year 2009 [April-March], FMCG [fast moving consumer goods]
rural volume growth is estimated to be 5% to 12% higher than urban growth across a number of
categories.”

14.11 A Short-Lived Renaissance?

Some academics agree with these upbeat views of a rural resurgence. “Policy measures like the
waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have really put cheer
into the rural economy,” says Devi Singh, director of the Indian institute of Management Lucknow
(IIML). “The Bharat Nirman program with an outlay of US$34.84 billion for improving rural
infrastructure is another step that has helped the rural economy. To some extent, the growth of
organized retail can also be held responsible for the rural economy’s growth, as this has ensured
that farmers get a better price for agricultural produce. The MSP set by the government has been
rising further, fuelling rural growth by putting more money into the hands of the rural
population.”

Singh adds a caveat, however. “While the statement that the Indian economy has been saved
from the slowdown due to rural growth is true to a certain extent, this is not the only factor,” he
says. “India’s growth has been fuelled more by domestic demand than exports. Also Indian
spending and saving habits differ from other parts of the world. Indians by their very nature
always save for their future and this holds them in good stead during times of crisis. The Indian
buyer is more finance conscious than his global peer. The Indian banking system, due to the
so-called non-reforms, is actually more resilient and the level of delinquencies is far lower than
in other parts of the world.”

Some observers are skeptical about the durability of rural demand. “There is a worrying
groundswell of optimism that rural consumers will come to the rescue of an Indian economy
which is in the midst of a sharp slowdown. This optimism may be misplaced,” suggest consumer
behavior expert Rama Bijapurkar and Rajesh Shukla, a senior fellow at the National Council for
Applied Economic Research. Writing in business daily Mint, they continue: “Hearing phrases
such as ‘rural renaissance’ or ‘rural India to the rescue’ makes us nervous. Such talk bears
overtones of the ‘Great Indian Middle Class’ story of the 1990s, where we declared victory at
least a decade before we should have.” Their question: How sustainable, stable and volatility-
free is the growth in income and consumption?
Bijapurkar and Shukla note that “periodically, India has seen a consumption spurt because of a
one-time burst of a combination of events. This recent spurt seems no different. Over the past
four years, the monsoon has been good; the support prices for crops have grown at 10% to 15%
CAGR [compounded annual growth rate] in 2005-2008 compared with 2.5% to 4% in 2002-2005.
In addition to a healthy flow of farm credit, there has been a one-time loan write-off of US$13.9
billion as well as a sizeable cash outlay from the NREGS. This doesn’t show intrinsic growth in
rural India: This growth is, instead, owing to a combination of acts of God and acts of government.
What we must never do is make the same mistake with rural India that Western multinationals
make with India as a whole — assume that it will evolve the same way with a 10-year lag.

266 LOVELY PROFESSIONAL UNIVERSITY