Friday, April 27, 2012

Changing image of rural India

Let us start with a question. What is your image of rural India? Does it make you think of thatched roof houses and dirt roads? Does it draw images of farmers ever offering prayers to the rain god? If your answer is yes, then maybe you haven't visited rural India for a long time. Those who have will agree that rural India of today has gone through a massive transformation.

A study conducted by Credit Suisse throws some very interesting insights. Unlike traditional perceptions, rural India is no more solely dependent on agriculture. For instance, back in 1978, 81% rural males depended on agriculture as their main source of income. Fast forward to 2009-10, the proportion has dropped substantially to about 55%. The study suggests similar trends even in female rural employment.  

There are some solid facts that validate the changing trend. A decade ago, agriculture accounted for nearly 50% of the rural economy. Now, it has dropped to just about one-fourth. On the other hand, the share of manufacturing and services in the rural GDP (Gross Domestic Product) has ascended at a rapid pace. Between 1999 and 2009, manufacturing GDP in rural India has grown at 18% CAGR (compound annual growth rate). The same now contributes to about 55% of India's total manufacturing GDP. Increasingly, Indian villages are acquiring the characteristics of towns.

What does all of this mean to investors? This changing trend opens a sea of opportunities for rural consumption. A lot of urban consumption categories such as construction materials, two-wheelers, media, personal products, healthcare, etc. are set to make greater inroads into these high potential rural markets. Companies that manage to take advantage of this opportunity will find themselves on a strong growth trajectory. Even more, they will create significant wealth for their shareholders.

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