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India sees a rural boom amid slump

Four years of bumper crops and government investment in rural

March 29, 2009|Rama Lakshmi | Lakshmi writes for the Washington Post.

DHORKA, INDIA — With her face wrapped in a pink veil, Suman Yadav squatted on the mud floor of her home washing clothes by hand, next to her family's gleaming new possession -- a silver-gray, $10,000 car called the Swift. They bought it on an auspicious January harvest-festival day, she said, and drove it straight to the village temple for a blessing before bringing it home.

"My husband's new auto spare-parts shop is doing well. The mustard and wheat from the farm is fetching good money, too," said Yadav, 30. "We already had a motorcycle and a tractor, but now could afford a car, too. We paid the full amount in cash. We drive everywhere now."

The global economic crisis that has slowed the growth of urban middle-class consumption in India is highlighting a new opportunity for businesses -- the vast, untapped and expanding rural market. Some analysts call it a "re-balancing" of market focus away from the big cities; others see it as the fortune at the bottom of the Indian economic pyramid.

About 72% of India's billion-plus people live in rural areas. For years, the poverty of rural India was seen as weighing down economic growth. But today, analysts say, rural India is crucial sector for marketers because it has been relatively insulated from the crippling blow of the global slowdown.

India's rural destiny still depends on good monsoon rains and robust agricultural production, but four years of bumper crops and heavy government investment in rural infrastructure have given birth to what some analysts call an emerging economy within India.

In the dusty market along a bumpy road in Yadav's village, 40 miles south of New Delhi, sales of microwave ovens, washing machines and 32-inch, flat-screen plasma televisions have risen in the past year. Branded-clothing stores Rich Look and Charlie Outlaw have opened shop, looking to attract upwardly mobile village youths.

"People have just begun getting the taste of spending money in these areas," said Ramesh Kapoor, a television salesman. "I hear of a slowdown on the TV news, but I do not see any here."

India's dizzying overall growth levels of 8% to 9%, fueled by urban consumption and a boom in the manufacturing and services sectors, may slump to less than 7% this year, economists say. But even in the slowdown, companies' sales are rising in rural and semirural India.

"Things have changed in the last one year. Today, 60% of our car sales are coming from rural and small-town India. The big farmers, small traders and shopkeepers are buying them," said P. Balendran, vice president of corporate affairs at General Motors India, which launched an aggressive rural marketing drive for its small cars in the last year.

About two-thirds of new cellphone connections are in rural areas, according to telecommunications industry figures. Passenger-car sales rose by almost 22% and motorcycle sales by 15% in the rural areas last month, compared with last year, according to the Society of Indian Automobile Manufacturers. Textile and clothing retailers that focused on small towns grew faster than those that focused on urban areas, and sales of consumer goods grew by 20% in the rural market, compared with urban growth of 17%, said Technopak, a research firm that tracks consumption patterns.

The statistics raise an intriguing question for economists: Can the growth of business in rural areas and small towns help offset drops in big cities?

"There is no impact of the credit crisis and the stock market in rural India. Most purchases are made in cash," said Raghav Gupta, president of Technopak's consulting practice. "It will not rescue us from the slowdown, but it provides us a steady cushion because it is just taking off."

A recent report, titled "Kisan Is King" ("Farmer Is King") by the financial services firm India Infoline, found that the number of rural middle-class homes has grown by 135% since 2001 and accounts for 45% of total national demand for many consumer products.

"The rural economy, consisting of 56 million households with annual incomes of $2,000 every year, represents a significant market that cannot be ignored," the firm said.

This week, Tata Motors launched the Nano, an ultra-small, ultra-cheap vehicle being billed as the "people's car," with an eye on small-town India. It will sell for about $2,200.

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