The Rural Consumer Myth - II - 26th March, 2009

We should envision villages smartly and not assume that they are at a lower evolutionary stage.”

By Rama Bijapurkar & Rajeev Shukla

The recent media attention paid to the rural economy would make it seem as if the rural consumer is a different Indian altogether. But this is not such an open-and-shut case.

In the first of our two-part article on Wednesday, we had concluded that the rural economy isn’t as isolated from the urban downturn or from the vicissitudes of agriculture as most would imagine. Here we address the issue of the nature of the rural consumer, etching out a mental model.

Many of us are not sure how much water of progress has flowed under the rural bridge. Some are beginning to wonder if there is indeed a rural-urban market divide. A corollary to this is the growing belief that our domestic market has at last reached a scale; this belief has prompted companies to focus on domestic markets, as Bharti Telecom has demonstrated of late. On a less business-related note, some political analysts are warning that political parties that do not understand the new rural mindset, and deploy stale strategies, are in for unpleasant surprises come this general election.

The mental models etched in many minds are that of a rural India still stuck in the dark ages. Anecdotal evidence shows very visible signs of marked modernity and progress, consumer durable and non-durable product sales to rural areas show steady increases, yet census data corroborates the “stuck in the dark ages” description of rural India. Only 25% of rural households have access to tap water (compared with 70% in urban India); 45% have no electricity in urban households; while 52% have semi-pucca houses (compared with 80% in urban areas having pucca houses).

The truth obviously lies somewhere in between. This is why we need to build new mental models about rural India today, taking into account the following points.

First, rural India isn’t a single homogenous block; it is heterogeneous. In fact, the label Rural India is a catch-all phrase to describe many disparate parts in many stages of development, driven by many different forces. The rural parts of Uttarakhand, Gujarat and Bihar are all different in character.

Second, rural India is made up of all kind of occupations. The rural consumer could be a bank clerk commuting to the nearest town or an agricultural labourer in a thatched-roof hut.

Third, with road connectivity so widespread, the notion that rural Indians are stuck in the hinterland, and unexposed to the developments around them, simply isn’t true anymore. Children and women commute farther for their schools and for their shopping, respectively.

Fourth, rural Indians have small and compact families, just like urban India. According to the National Council of Applied Economic Research (NCAER) data, the average rural family has 5.08 persons; the average urban family, 4.81 persons.

Fifth, while rural India is exposed to all new things urban, it still has a low level of traditional education, making rural Indians different kind of consumers. 26% of rural India’s chief wage earners (CWEs) are illiterate compared with 8% in urban India. 7% of rural CWEs are graduates compared with 29% in urban India.

Finally, there’s the issue of income. Rural India has an average per capita income that is half that or urban India. Extrapolating from income data from NCAER, we know that 21.7% of the rural population is below the poverty line; for urban populations, the incidence of poverty is 20.8%, not much lower.

It is just that this translates into there times as many poor households in rural India, a whopping 160 million people at least. The rural numbers are large and rural India harbours as many rich households as urban India. Graphic 1 shows the relative differences in income between different quintiles of urban and rural India.

The richest quintile of urban India and the poorest of rural India are the outliers. The rest are fairly comparable, showing that scale is possible by skilfully combining urban and rural consumers, especially in good road connected geographies and progressive states. What kind of income growths can we see in rural India? See Graphic 2 for some projections.

The past four years of good gross domestic product (GDP) growth have sharply increased middle-income households and high-income households in rural India while decreasing lower-income households. Future GDP growth, even moderate, will double the high and upper-middle income groups. So, rural consumption is well on its way and we must never forget that even a small shift upwards of this large population will make a lot of waves.

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. The rural Indian market and consumer calls for sophisticated new marketing strategies and paradigms, not a transplant of old ideas.

Rama Bijapurkar is an independent management consultant. Rajeev Shukla is a senior fellow at the National Council of Applied Economic Research. This is the second instalment of a two-part article on the rural economy. Comments are welcome at This email address is being protected from spambots. You need JavaScript enabled to view it.