Brands are headed rural, hoping to encash the social security schemes on offer, says Kota Neelima
IT’S AN optimism that needs careful examination to understand. The fast moving consumer goods (FMCG) sector, the fourth largest sector in the Indian economy, is counting heavily on the purchasing power of the rural Indian to help it grow at a projected 40 percent in the future. This is despite the fact that rural indebtedness remains ominously unchanged. Even with financial inclusion plans, only 27 percent of farmers have access to formal credit and the rest rely on private moneylenders. And the fact that along with unviable farm economics, factors like monsoon delay or crop failure make the life of a rural Indian too risky to think of expenditure instead of saving.
From where do these large FMCG companies derive their optimism?
One of the reasons is the fact that the Conditional Cash Transfer scheme (CCT) is gathering support as a replacement for myriad welfare schemes. Along with the rural employment guarantee scheme, loan waivers and increase in prices at which agricultural products are bought, the CCT could solve the FMCG’s problem of unpredictability of agricultural income and the associated fall in market demand.
The mainstay of the rural thrust of FMCG companies is based on the hope that there are ‘disposable incomes’ lying untapped in the hinterland: if the rural population spends some of this, it will certainly boost demand in the current recession. With urban consumption in decline or stagnating because of the economic slowdown, FMCG companies have been hit hard. The idea is to give a ‘choice’ to the rural customer to shift to branded products, from traditional, unbranded merchandise from the non-organised sector. “The growth is in rural,” says India’s top marketing head, Rama Bijapurkar.
Rural India constitutes over 60 percent of the country’s total consumer base. It’s estimated that rural markets hold 55 percent of total LIC policies, 50 percent of the market for televisions, fans, bicycles and wristwatches — and a massive 70 percent of the market for toilet soap consumption.
As part of the new wave of interest, the auto industry, which usually markets tractors and two-wheelers in villages, is now pushing cars for rural roads. It helps that the roads for such vehicles exist because of government infrastructure development. Another government scheme, the National Rural Employment Guarantee Scheme (NREGS), has helped in creating rural employment. And the Rs 65,000 crore debt waiver announced last year helped 3.6 million farmers and made them eligible to fund the next crop. The Centre continued to provide short-term crop loans at 7 percent interest upto Rs 3 lakh. An upturn in agriculture was seen in the UPA’s interim budget of 2009-10, where the annual growth rate of agriculture was posted at 3.7 percent.
Added to this was the election-inspired increase in minimum support prices (MSP) in 2008-09. Announced in the season ahead of the general election, the MSP for paddy (Rs 550 per quintal in 2003-04) rose to Rs 900; for wheat, the MSP, which was Rs 630 per quintal, rose to Rs 1,080. It also led to massive procurement of foodgrains this year.
Factors like this, according to analysts, have created ‘disposable incomes’ which the rural consumers should be, ideally, keen on spending on consumer goods. The Economic Survey 2007-08 says rural India spends, on average, 55 percent on food and 45 percent on non-food items like clothing, consumer durables, education and health. And its spend on urban costs of living such as electricity, commuting, fuel and rent is negligible.
That level of spending on regular consumables is good news for FMCG manufacturers. Add to that the fact that, unlike their urban counterparts, rural citizens’ incomes are relatively better preserved from market fluctuations and real estate shocks. For corporates, the rural hinterland had earlier meant high investment because of poor infrastructure, absence of storage services, no electricity, water or finance facilities. In times of recession, the problems appear surmountable.
It’s expected that catching the villages’ fancy should be far easier than that of the info-fatigued urban buyer. The rural market already accounts for 50 percent of FMCG products like pressure cookers, tea, branded salt and tooth powder. Companies expect to increase marketshare and to add products to the rural portfolio.
According to ASSOCHAM, which announced early this year that the FMCG sector is pegged to grow at 40 percent in the rural market, “rising rural incomes, healthy agricultural growth, boost in demand, rising consumerism and better penetration of FMCG products,’’ are the reasons for this projection. Agrees Deepak Jolly, a director with Coca-Cola India: “The rural thrust in India today is huge. In many ways, I would say it is the main driver for the markets.”
To catch the fancy of the villager is easier than that of the infofatigued urban buyer
Among the few things that the FMCG companies are seeking from this budget is that the taxes and duties that have been reduced by the government to promote the sector should not be revoked.
If only they could have the same impact on the monsoon: any weakening or failure there will considerably affect the purchasing power of villagers and volumes of FMCG products. It’s in this context that the gathering support for the conditional cash transfers (CCT) scheme should be seen — it proposes that the government deposit an amount in the account of beneficiaries identified according to poverty criteria. The amount is deposited in the name of the woman member of the household and accessed only if children go to school or attend the health centre.
Farmers are spending more than ever to cultivate; villagers are spending more than ever to buy food. The government hopes to bring the National Food Security Bill that provides monthly 25kg to BPL families at Rs 3 per kg. It would be interesting to watch if the ‘disposable income’ left after such subsidies will be used for consumption. FMCG companies certainly hope that’s the case.