Rural Indians outpace urbanites in spending growth

For the first time since economic reforms began two decades ago, consumption in rural India is

growing faster than in urban India. Given the large size of India’s rural population, the value of goods

and services consumed has always been greater in rural India, but urban India had narrowed the

differential during most of the last decade by growing at a faster pace. Between 2009-10 and 2011-

12, additional spending by rural India was Rs.3,750 billion, significantly higher than Rs.2,994 billion

by urbanites. For sustaining the rural boom, it is critical to substitute short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas.

Growth in rural 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 per cent, 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 goods. About

one in every two rural households now has a mobile phone. Even in India’s poorest states such as

Bihar and Orissa, one in three rural households has a mobile phone. Nearly 42 per cent of rural

households owned a television in 2009-10, up from 26 per cent five years earlier. Similarly, 14 per

cent of rural households had a two-wheeler in 2009-10, twice that in 2004-05. For India, a young

population, rising income and low penetration of many consumer durables means that rural

consumption has the potential to remain an important source of demand.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) fuelled job

creation on an unprecedented scale and provided an opportunity to rural households to supplement

their traditional farm income. Nearly 27 per cent of rural households availed employment under

MGNREGS in 2009-10. Wages under MGNREGS increase with retail inflation: consequently, rural

wages have risen faster than inflation since 2007-08.

Source: CRISIL