India's Rural Economy Remains Resilient Amid Pandemic

The rural economy in India remained resilient throughout the pandemic. In fact, in many cases, it has taken the pandemic to demonstrate its potential, and now Indian industry leaders are admitting that rural markets saved the economy from performing even more poorly than it did last year. While offices and other metro-based businesses shut down, farmers carried on working, and crop yields were good.

But some firms have suspected the potential of the hinterland for a while. In July, Maruti Suzuki, India’s auto giant, revealed that its rural strategy has successfully pushed rural sales up to 41% of the manufacturer’s total revenue, from 10% in 2009. Maruti developed its rural strategy in response to the 2008 global financial crisis when the hinterland was one of India's least affected regions. But, although rural customers hold similar aspirations to their urban equivalents, they demand more attention, according to Maruti’s senior executive director of marketing & sales, Shashank Srivastava. So targeting rural markets meant numerous engagement initiatives and training 12,500 executives on the local culture and traditions.

Reliance on rural markets

Another sector that has relied on rural markets for a while is the fast-moving consumer goods segment (FMCG). Figures for the rural market share of sales in the sector vary from 35% to 39%, depending on the source. Either way, rural market growth has exceeded that of metro areas, aided during the pandemic by good crop yields, spending by returning migrants from the cities, and government cash infusion schemes. So, while FMCG sales didn’t increase significantly in urban India, they rose 14% percent in rural markets. As the nation considers the possibility of a third wave, retail market leader Hindustan Unilever says it got alternate logistic models prepared to see it through the impact of a third wave on rural markets.

Proctor and Gamble’s Rural Growth Fund

But the company behind household brands such as Tide washing powder and Head and Shoulders shampoo, Proctor and Gamble (P&G), is being more transparent about its plans. It is allocating approximately $70 million to partner with small businesses on rural go-to-market solutions, including technology-enabled sales tools, extended distribution, and last-mile delivery solutions.

The Rural Growth Fund is part of P&G India’s “vGROW” program started four years ago, and it has taken P&G's total commitment to grow the program. vGROW is the first-of-its-kind platform to identify and collaborate with providers of industry-leading solutions. Through it, P&G engages with over 2,000 Indian suppliers ranging from individuals to startups and large corporations across a wide range of industries and services. Rural markets make up 35% of the firm's revenue, but Madhusudan Gopalan, CEO of Proctor &Gamble Indian Subcontinent, says accelerating growth in the rural market is a "strategic priority." He says P&G will also be helping rural kiranas with technology and training on retail best practices such as inventory control and store management.

Statistics on India’s rural markets

India's rural population totaled approximately 878 million people and accounted for 65% of the country’s population in 2020. It is the largest rural population of any country, and it is projected to remain so, with more than half of the total population expected to remain rurally based through 2040.

While it is true that 15% of India’s rural population still lives in poverty, the average rural Indian household is not poor. In 2020, the average rural household comprised 4.7 persons, earned an annual disposable income of $5,468, and spent an average of $4,406.

Infrastructure development and improved technology mean that rural consumers are increasingly active digitally, with 75% owning smartphones. They are confident, educated, and connected and aspire to better, healthier, and happier lifestyles. Increasingly, they will use their rising purchasing power on sophisticated, quality products and services. For example, 85% of respondents to the 2021 Euromonitor International’s Voice of the Consumer: Lifestyle Survey said they had interacted with brands online. And 68% say they consider the environment in their everyday living and try to impact it positively. In addition, 40% of rural consumers intend to spend more on education, technology, and health and wellness in 2022.

Leveraging technology and digital connectivity is essential for companies wishing to benefit from this rural shift in demand. As rural consumers remain very community-centric, they can be reached through community advocates and strong environmental and social values.