Rural Indians outpace urbanites in spending growth: Crisil study

| | Updated on: Aug 29, 2012

For the first time since economic reforms began two decades ago, consumption in rural India is seen growing faster than in urban India and has widened the growth differential.

Between 2009-10 and 2011-12, additional spending by rural India was Rs 3,75,000 crore, significantly higher than Rs 29,9400 crore by urbanites. The change has been aided by shift in rural income and employment scenario. 

NSSO data shows that during 2004-05 to 2009-10, rural construction jobs rose 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.

According to Roopa Kudva, MD & CEO, Crisil, “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.”

The value of goods and services consumed has always been greater in rural India, but urban India has narrowed the differential during most of the last decade by growing at a faster pace.

For sustaining the rural boom, substitution of short-term income boosters such as government-sponsored employment guarantee schemes with durable job opportunities in rural areas has played a critical role.

Migration to discretionary

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.

There has also been a notable shift in rural consumption; 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 themselves of employment under MGNREGS in 2009-10. Wages under MGNREGS increase with retail inflation: consequently, rural wages have risen faster than inflation since 2007-08.

Although social sector schemes have had a positive impact, the pressure on public finances will make it difficult to significantly hike such spending in future, a Crisil study said.

Published on March 12, 2018

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