Rural India, The Likely Saviour, Again

There has always been a halo and a certain amount of mystique about rural India and the unlimited opportunities it offers. Towards the latter half of the previous decade, rural India had dominated boardroom presentations as its growth was consistently 1.5 times urban India’s growth. However, over the last few quarters, rural India started slowing down on account of the agrarian crisis, insufficient monsoons and rising unemployment. 

Interestingly, going forward, rural India is likely to make a stunning comeback over the next few quarters and lead the demand resurgence for the Indian economy post-Corona. This article looks at the likely drivers for this demand resurgence along with implications for companies across sectors. 

Agriculture is expected to see a record performance this year and contribute to higher disposable incomes in the hands of farmers 

Agriculture is likely to see a 3 - 5% growth this year while the overall economy is expected to contract in the range of 4 - 7%. This growth is likely to happen due to the record Rabi crop harvested (8% higher production) and an upcoming monsoon season that is supposed to be better than normal (estimated to be 104% of the long term average). A good monsoon will greatly aid the upcoming kharif crop leading to higher production, realisations for farmers and greater disposable incomes. 

Massive reverse migration of labourers from urban to rural India will assist in crop harvesting and drive local consumption 

The popular news media is flooded with articles on millions of migrants heading back to their villages in distressing and appalling ways. As they are likely to stay in their villages over the next few months, they will assist in economical crop harvesting as they work in the local fields and prevent the rate of labour doubling during the harvesting season. In addition, as they start earning again with their newly found jobs, they are likely to become the epicentre of local consumption. 

Numerous interventions by the Government of India is likely to catalyse prompt rural recovery

The government’s massive stimulus package released last month focussed on liquidity measures, interest rate cuts and easy financing for Small and Medium Scale organisations. In addition, there was focus on MNREGA, Pradhan Mantri Garib Kalyan Yojana, selective cash transfers and a moratorium on loans. These initiatives are likely to strongly assist a rural recovery. 

Going forward, there is a high likelihood of a second stimulus package in the upcoming months with a focus on direct benefit transfer in rural areas. 

All of the above interventions are likely to propel an earlier than expected rural recovery. 

After all, Corona is largely an urban disease, which rural India will just live with

Urban India, specifically the top 5 cities (Delhi, Mumbai, Ahmedabad, Chennai and Pune), have accounted for more than 50% of the Corona cases till now. There is an increasing sense of fear that reverse migration of the migrant workforce to rural India will set off an alarming number of cases there. However, this scenario is unlikely to materialise. 

With rural public health infrastructure in shambles, adequate testing, awareness and social distancing is difficult to implement. Life will largely go on as usual with Corona being another type of disease people live with and the human body will fight it out like it fights out other forms of viral fevers. Moreover, in rural India, if people skip work for a week, it often leads to definite poverty and likely death. Quarantining at home is rarely an option. 

Unlike urban India, rural India’s economy is unlikely to come to a complete standstill

Implications for companies include altering their Go to Market approach and customising their product portfolio 

Over the years, rural has accounted for a signification portion of the business (35 - 40% for FMCG companies and 40-45% in case of commercial vehicles). With the likely demand resurgence, industries like agri-based products (e.g. seeds, fertilisers and pesticides), farm equipment (e.g. tractors), FMCG (especially essentials) and a portion of consumer durables are likely to benefit significantly. 

To tap into rural, key drivers include driving deep penetration leveraging both a company’s existing direct network and a channel partner-driven indirect distribution network. Alongside a deep network, a customised product portfolio with an emphasis on entry-level SKUs and smaller pack sizes will be of utmost importance. Finally, to increase tertiary reach, companies will be looking to accelerate digitally centred marketplaces to connect the rural consumer to the company. 

In conclusion, we are in the midst of a once in a century economic crisis. As the Indian economy looks forward to making a comeback to restore normalcy, it is likely to be led by rural India. 

The Indian kisaan, is all set to carry the burden and save the Indian economy. Again!