Demand from rural India is becoming increasingly attractive for manufacturers of fast moving consumer goods (FMCG), automobile and organized retail businesses despite the severe downturn in the global economy and its spillover effects on India's growth story, according to a study paper of the Associated Chambers of Commerce and Industry of India (Assocham).
In a report titled 'The Rise of Rural India' the industry chamber said companies in the FMCG sector are upbeat about their prospects in rural India as it contributes substantially to their bottomlines. Majority of FMCG firms such as DCM, ITC have been recording higher growth rates and sales of their products in rural areas compared to urban markets, the report said.
Assocham estimates the size of FMCG industry in India at Rs.200, 000 crore. Out of this, domestic consumption accounts for Rs.17, 189 crore. FMCG sector in rural areas is expected to grow by 40 per cent compared to 25 per cent in urban areas. Rising rural incomes, healthy agricultural growth, boost in demand, rising consumerism across India, better penetration of FMCG products in the rural market are contributing to high growth and rapid expansion of the FMCG industry in rural India.
As far as the auto sector is concerned, the rural market has been largely restricted to tractors and two-wheelers. The two-wheeler penetration in villages is only 10% compared to 25% in urban areas. High investment involved, poor conditions of rural roads, lack of finance facility, lack of service network have limited the scope of passenger cars in rural areas, it was said.
Of late, auto firms have also begun tapping the countryside, the report said and cited the example of Maruti Suzuki, which generates about 10 percent of its sales from rural sales, amounting to 32000 cars.
Maruti has already launched its marketing campaign for rural India Ghar Ghar Mein Maruti (Maruti in every Household). On the other hand, Hero Honda, the two-wheeler market leader, is planning to cover 1 lakh out of the six-lakh villages by end of this financial year under a campaign called Har Gaon, Har Aangan (Every Village, every Household). Mahindra and Mahindra has plans to foray into the two-wheeler market in the hinterland with an initial investment of Rs.110 crore.
According to Hyundai, almost 50 per cent of the 220 million households in rural India are potential car-buyers due to the agricultural subsidies extended by the government and also on account of an increase in productivity of agri-based products.
Another potential area, the Assocham said, is the highly unexplored rural retail market - currently estimated at $112 billion, or around 40 per cent of the $280-billion retail market and growing at around 10 percent of the size of the Indian GDP.
Rural India provides a highly unexplored market for the expansion of retail activity. The penetration of the organized retail specifically is very low, as approximately only ten thousand out of six lakh villages in India have access to organized retail services.
In view of the large investments made by the government in rural infrastructure, pushing income and demand level, the prospects for organized retail are seen bright for rural India. With the empowerment of rural people with education, employment, higher purchasing power, better media exposure and better connectivity with outside world, they provide a massive unexplored pool of consumers, the report said.
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