For long, it was the almost solitary exception of a certain Hiware Bazar, the extraordinary village of 1,350 in Ahmednagar district of Maharashtra, which has some 60-odd rupee millionaires.
The success flattered to deceive the wide world about the real nature of the Indian hinterland’s growth story, or the absence of it. The picture has since had a marked shift — not marked enough to constitute a nationwide trend, but still notable enough for the rapid changes in consumption patterns in the countryside.
Make no mistake about it. The number of those with deep pockets in the hinterland is on the rise, even when the phenomenon may be limited in terms of reach and extent to primarily seven states: Tamil Nadu, Karnataka, Maharashtra, Gujarat, Kerala, Andhra Pradesh and Punjab. The pockets of conspicuous affluence that are mushrooming in these key states have helped change the big picture in a significant manner.
However, a caveat is necessary to comprehend the dimension of the shift. It is not the call of financial inclusion of the government that is leading lenders and corporates into the Indian hinterland, but the sheer opportunity to make profits. For long told by increasing sales of shampoo sachets and low-end motorcycles, the great Indian rural story is having a paradigm shift. Bankers, especially the private ones, who always look for the big ones, are now joining the scramble to capture the rising ranks of the rural rich.
Five years ago, Kotak Mahindra Bank, which was more of a broker-lender than a traditional banker, showed agricultural lending as part of its retail portfolio. At that time, it constituted 15 percent of the total Rs 16,200 crore retail portfolio. According to figures available now, agriculture forms part of Kotak’s commercial banking group, and constitutes 40 percent of the Rs 21,452 crore of such assets.
That one example speaks volumes of the growing importance the non-descript and clichéd countryside now plays in the lives of men driving around in fancy imported cars.
Renowned for taking the cream of the clientele, Kotak has found a new target — the rural rich. As can be empirically established, the confluence of affluence in rural India and saturating business as far as the urban rich are concerned, is forcing several banks to fan out to less-privileged rural India. The banks have an additional incentive: they have the chance to convert the increased savings that lie in physical assets, such as gold, into deposits. Rural India has famously distrusted formalised banking (the savings-in-themattress phenomenon), but the scenario is changing.
Wealth in the countryside is growing, which has made the proposition of being in rural India interesting for lenders, bankers and corporates. Financially more remunerative farming and the real estate boom in parts of the country over the past 15 years have put many farmers in the league of at least rupee millionaires, making them an attractive proposition for bankers.
A case in point are the strides made by HDFC Bank, which started moving into the rural market only five years ago, but now has almost 55 percent of its more than 3,500 branches in rural and semi-urban areas. In 2013, it opened a majority of its 520-odd new branches in the preceding year in rural and semi-urban pockets.
Although the Reserve Bank of India (RBI) mandates banks to open a quarter of their branches in villages with less than 10,000 population, reports indicate that Kotak Mahindra plans to do more as the cost of setting them up is just a fraction of what it takes in an urban area or city.
Banks are fast realising that rural branches are not necessarily loss-making and unviable. They are making special efforts to keep them slim and efficient, which will translate into greater profits for them. A banker with HDFC explained that most of the rural branches are profitmaking, especially if the need to keep the costs low is kept in mind. The banks offer almost everything from a plain savings account to loans for businesses — they also provide ready wealth management advice. No longer is it the monopoly of a State Bank of India to woo rural targets with comparatively deeper pockets.
As an expansion strategy, many lenders lean on the village sarpanch who, according to most, is probably the best pr person or salesman the banks could have. With his network, the sarpanch could also act as a credit information bureau by suggesting who are trustworthy and who are not. It is no longer rare for rural bankers to carry a micro atm with them, which can do multiple transactions at a time, including cash withdrawal, deposit, fund transfer and balance enquiry.
This scene is being played out practically every single day in the interiors. Many sincerely believe that rural India, with 68 percent of the country’s population, is evolving rapidly and changing character with growing incomes, rising literacy and aspirations. It has the potential to be a sustainable growth engine of the Indian economy.
Multinational companies are using the growing network of mobile phones and Internet to offer products and services to the rural
Two years ago, credit-rating agency Crisil had attributed the growth in consumption in rural India to non-farm job opportunities and State-initiated employment generation schemes. The study noted a shift in spending patterns in rural areas with consumers moving beyond necessities such as toothpaste and soaps to so-called discretionary products such as television sets and mobile phones. One in every two rural households in the regions studied had a mobile phone and even in the country’s poorest states such as Bihar and Odisha, one in every three households had a mobile phone.
Some 42 percent of rural households owned a television, according to the study, up from 26 percent in 2009.
Consumers in rural areas are using products that once sold largely in urban areas: skin and personal care products are showing substantial growth, according to a recent study by ASSOCHAM. Even when it comes to consumer packaged goods, semi-urban and small towns are leading growth in terms of value.
The RBI has reported that consumer prices in rural India rose 8.7 percent in 2012-13, while rural wages jumped by some 18 percent. The extra cash in the hands of the rural population has fuelled demands for several such products that were considered to be almost the exclusive domain of urban areas and metros. However, the question that remains largely unanswered is whether real wages in the rural areas are also increasing, given the nature of the limited employment provided by State-run schemes such as MGNREGA. The majority of the government- run schemes are short-term income boosters and the need to replace them by sustainable job schemes is largely paid mere lip service. The upbeat rural story will come under stress if sustained inflation continues.
Figures reveal that growth in sales of scooters and motoRBIkes slowed by 5 points or more last year to end just a point or so below 10 percent. That is the alternative rural story that could quite easily overtake the upbeat one if inflation and other variables remain high, warn experts.
The changes have been bewildering indeed. Even the smallest village store today offers customers the choice of a dozen soap brands, toothpastes, shampoos and the like — striking outward manifestations of a fast-changing consumer marketplace.
Probably, nothing illustrates the transformation of the marketplace better than the oft-cited success story of one of India’s largest consumer products maker, Hindustan Unilever Ltd (HUL). According to a study, two years after India embarked on its ambitious reforms journey in 1991, the country’s largest consumer goods company had revenues of around $400,000. By 2013, HUL was not just reflecting the new reality of the Indian marketplace — that of a globally integrated economy — in its name alone. Its revenues had also grown more than 11-fold to more than $4.6 billion.
Several conscious decisions helped the HUL advance. Its ability to spot the changes in the marketplace and adapt to them has been an abiding factor, claim its managers. For instance, HUL was one of the early entrants into the rural marketplace, where rising growth, better technologies and supportive government policies in a few states were combining to transform the traditional rural economy. Now, with half of India’s estimated consumption market for packaged consumer goods and durables, that rural bet has paid off. HUL retained its numero uno status in the consumer goods segment until the cigarette manufacturer ITC successfully rode the reform wave to transform itself into a food, consumer products, packaging, hospitality and information technology conglomerate.
Even the smallest village store today offers customers the choice of a dozen soap brands, toothpastes, shampoos and the like
In the durables space, the transformation has been equally dramatic. The incredible growth in mobile telephony has transformed India, making it the world’s second biggest marketplace with more than 800 million connections.
Rising prosperity in select states is indeed luring India’s big business to the hinterland, prompting heavyweights such as Tatas, Birlas and Godrej to devise fresh strategies to enlarge their farm portfolios. Without exception, all these companies believe that the farm sector provides them with big growth opportunities as rural consumption outpaces urban demand.
A recent survey by Crisil revealed that for the first time in 20 years, additional spending by rural India at Rs 37.5 crore was significantly higher that that of urban dwellers at Rs 29.94 crore.
“Underpinning this growth in rural consumption is a strong rise in rural incomes due to rising non-farm employment and the government’s rural focus through employment generation schemes,” the report said.
There is a trend towards specialisation and value addition. Consider this. Rallis has compiled a digitised database of more than 700,000 Rallis Kisan Kutumb farmers whom it contacts regularly using mobile phones, Internet, newsletters or through its field staff to offer products and services. This data gives them the kind of raw market intelligence necessary to create new offerings. Farmers in some regions are given a toll-free number to discuss their issues with an agricultural expert. They aspire soon to reach out to 1 million farmers, and capture a larger share of their wallet.
Mahindra & Mahindra has built the world’s largest tractor business by volume. It achieved this a couple of years ago.
The steady and consistent performance of automaker Maruti Suzuki provides another dimension to the upbeat story. Its rural sales grew 16 percent in 2013-14. At 336,463 units, this segment comprises 32 percent of the car market leader’s total sales spread over 93,500 villages, up from 44,374 villages where the company sold its cars in 2012-13.
According to company honchos, Maruti sees its non-metro push as the drive to the future. Maruti chairman RC Bhargava says that the future growth of the automobile industry will be driven more and more by non-metro cities and rural areas.
The rural focus comes on the back of Maruti’s strategy of hitting sales of 3 million units in the longer term. Analysts say Maruti has managed to “crack” the rural market thanks to its focus on fuel efficiency and network expansion. Maruti, which has 3,000 rural service outlets, is planning to expand that network by 200 this year. It is also planning to double its 1,000-strong mobile service vans across rural markets.
Maruti’s rural thrust commenced tepidly in the slowdown of 2008, but really came good in 2013 when the car market saw its worst slowdown in a decade. While the rest of the market ground to a negative growth curve, Maruti saw its smaller and rural markets — with populations of less than 10,000 people — growing around 14-15 percent. Until 2007-08, only 4 percent of Maruti’s total sales came from rural markets. In six years, that share has multiplied to 32 percent.
“The rise in commerce in rural India is a symptom of how villages in the vicinity of urban ateas are also changing,” wrote sociologist Dipankar Gupta while analysing the 2011 Census.
The point is further elaborated by Jawaharlal Nehru University’s research associate Dilip Mohanty who has closely studied the spurt in the number of rural rich in selected pockets. “According to the Telecom Regulatory Authority of India, there are 352 million mobile connections in rural areas,” he says. “Nearly every big village in relatively developed states is aping urban areas, both in terms of choice of non-food consumer goods and spending. In fact, there is a definite trend of rural spending on consumer goods fast outpacing urban demand.
Last year, disclosures about how more than 100 village headmen in Bihar siphoned off MGNREGA funds to line their pockets and became millionaires overnight had caused a huge furore. There are new acquisitive categories that are taking advantage of cheap institutional credit, if they can afford it.
{Cover Story of Tehelka, Vol. 11, Issue 35, 30 August, New Delhi}
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