In a first, rural India consumes more than urban peers

New Delhi: For the first time since India’s economic reforms began two decades ago, consumption in rural India grew faster than in urban India.

According to a CRISIL research, a risk and policy advisory service, spending by rural India between 2009-10 and 2011-12 was Rs 3,750 billion, significantly higher than Rs 2,994 billion by urbanites. Citing preliminary data released for 2011-12 by the National Sample Survey Organisation (NSSO), rural consumption per person during the same time grew annually at 19 percent compared to 17 percent in urban counterparts.

This growth in consumption was fuelled by a rise in household incomes due to greater non-farm job opportunities and government initiated employment generation schemes. NSSO data shows that during 2004-05 to 2009-10 rural construction jobs rose by 88 percent, while the number of people employed in agriculture fell from 249 million to 229 million.

In addition, migrants from villages to urban areas who benefitted from job opportunities in infrastructure and construction projects increased remittances to their families in rural India, which boosted consumption.

A notable phenomenon in rural consumption is a shift from necessities to discretionary and lifestyle goods – like mobile phones, television sets and two wheelers. Almost 50 percent of rural households now has a mobile phone, with even the poorest states of Bihar and Orissa having one in three rural households that has a mobile phone.

Nearly 42 percent of rural households owned a television in 2009-10, up from 26 percent five years earlier. In 1993-94, only about six of the rural population owned a television. Similarly, 14 percent of rural households had a two-wheeler in 2009-10, twice that in 2004-05.

The rising purchasing power of the rural population has notably made this possible, bolstered by increased employment by way of some schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) through which nearly 27 percent of rural households availed employment under MGNREGS in 2009-10. “Underpinning this growth in rural consumption is a strong increase in rural incomes due to rising non-farm employment opportunities and the government’s rural focus through employment generation schemes,” says Roopa Kudva, MD & CEO, CRISIL.

However, CRISIL says that if this boom is to be sustained, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas.

While social sector schemes have had a positive impact, the pressure on public finances will make it difficult to significantly hike such spending in future and the need for the private sector’s participation in creating obs becomes all the more important.

“To keep the rural growth story intact, the private sector will have to play a larger role, so that India can productively harness the rising working age population in rural areas. Government policies will be vital in enabling the private sector to create rural jobs,” says Dharmakirti Joshi, senior director & chief economist, CRISIL. It is therefore imperative to implement the National Manufacturing Policy, with focus on skill development and productive job creation.