The Indian growth story is now spreading itself to India's hinterlands. Rural India, which accounts for more than 70 per cent of the country’s one billion population (according to the Census of India 2001), is not just witnessing an increase in its income but also in consumption and production.

The Union Budget for 2009-10 hiked the allocation for the National Rural Employment Guarantee Act (NREGA) to US$ 8.03 billion, giving a boost to the rural economy. This is in addition to the ambitious Bharat Nirman Programme with an outlay of US$ 34.84 billion for improving rural infrastructure.

According to a study on the impact of the slowdown on rural markets commissioned by RMAI and conducted by MART, the rural economy has not been impacted by the global economic slowdown, according to a study by the Rural Marketing Association of India (RMAI).

The study found that the rural and small town economy which accounts for 60 per cent of India’s income has remained insulated from the economic slowdown. Moreover, rural incomes are on the rise driven largely due to continuous growth in agriculture for four consecutive years.

Moreover, the rural consumer market, which grew 25 per cent in 2008 when demand in urban areas slowed due to the global recession, is expected to reach US$ 425 billion in 2010-11 with 720-790 million customers, according to a white paper prepared by CII-Technopak. That will be double the 2004-05 market size of US$ 220 billion.

According to the study, while the durables market shrunk in urban India, the rural market is seeing a 15 per cent growth rate. Fast moving consumer goods (FMCG) sales are up 23 per cent and telecom is growing at 13 per cent.

FMCG

According to figures released by market researcher AC Nielsen, demand for personal care products grew faster in rural areas than urban areas during the period April-September 2009.

Several FMCG companies such as Godrej Consumer Products, Dabur, Marico and Hindustan Unilever (HUL) have increased their hiring in rural India and small towns in order to establish a local connect and increase visibility.

GlaxoSmithkline Consumer Healthcare (GSK) and Nestle and are now launching products specifically for rural markets. Anand Ramanathan, an analyst from KPMG, said, “Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately.”

Retail

The rural retail market is currently estimated at US$ 112 billion, or around 40 per cent of the US$ 280 billion Indian retail market, according to a study paper, ‘The Rise of Rural India’, by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Major domestic retailers like AV Birla, ITC, Godrej, Reliance and many others have already set up farm linkages. Hariyali Kisan Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV), Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance Fresh, Project Shakti (Hindustan Unilever) and Naya Yug Bazaar are established rural retail hubs.

Pharmaceuticals /Healthcare

According to a report by McKinsey, the rural and tier-II pharmaceuticals market will account for almost half of the growth till 2015. The tier-II market will grow to 44 per cent by 2015, amounting to US$ 8.8 billion.

The health ministry is setting up a mechanism to screen people in rural areas for lifestyle diseases such as diabetes. Union Health Minister Ghulam Nabi Azad said that in the case of diabetes, the government was working out a strategy to diagnose those in the age group 30-40 years in rural areas, for diseases.

The multinational drug company, Sanofi-Aventis, has launched ‘Prayas’, a marketing initiative to market generics in rural areas and small towns. Through this initiative, the company looks to share medical knowledge with a body of practitioners and specialists in rural areas through workshops.