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Rural Markets: Driving Growth for FMCG Sector

The increasing non-farm activities which have doubled compared to farm income in rural India and the government’s push on creating rural infrastructure have increased the consumption power.

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The increasing non-farm activities which have doubled compared to farm income in rural India and the government’s push on creating rural infrastructure have increased the consumption power. Hence, rural India has become major growth driver for the FMCG companies

 

The increasing non-farm activities which have doubled compared to farm income in rural India and the government’s push on creating rural infrastructure have increased the consumption power in the rural areas significantly.

According to Dr. Alakh N Sharma at Institute for Human Development, New Delhi, even though, agriculture sector employs 60 percent of rural population, it accounts for only 35 percent of income generation there. The rest of the income is being generated from non farm activities such as rural infrastructure development, social sector programmes, service sector and small self-employed businesses.

The rise in non farm income has decreased the dependency of rural economy on monsoon and agriculture as well as it has increased the consumption power in among people in the hinterlands. Providing the daily needs, the Fast Moving Consumer Goods (FMCG) sector is the biggest beneficiary of the the rising rural economy.

Hence, the FMCG market in rural India is anticipated to expand at a compound annual growth rate (CAGR) of 17.41percent to USS 100 billion during 2009-25. Rural markets account for 40 percent of the overall FMCG market in India in revenue terms. According to a joint report released by industry body ASSOCHAM and MRSS India recently, among the leading retailers, Dabur generates over 40-45 percent of its domestic revenue from rural markets. The rural sales of Hindustan Unilever account for 45 percent of its overall sales in India while for Emami Ltd, rural India contributes to 40-45 percent of its total revenue. However, other companies earn 30-35 percent of their revenue from rural markets.

“The penetration of FMCG products in the rural areas are not so deep so the opportunities are enormous there. For this, we are conducting awareness programmes in the rural hinterlands,” says, Sandeep Jadojia, President, ASSOCHAM.

According to the rural market analysis, there has been a constant rise in rural FMCG market. However, a prominent growth is predicted by 2025. The FMCG market is largely divided in the three segments; personal care (50 percent), healthcare (30 percent) and food (20 percent).

Policy Push

The Government of India has planned various initiatives to provide and improve the infrastructure in the rural areas. In order to provide internet connectivity for rural people as well as to enable delivery of services such as health and education in the far-flung remote areas, the Centre is looking to install Wi-Fi hotspots at more than 1,000 gram panchayats across the country, under Digital Village project. As per the Union Budget 2017-18, the Government has set target to achieve 100 percent village electrification by May 1, 2018. The successful implementation of rural roads scheme - Pradhan Mantri Gram Sadak Yojana (PMGSY) - has brought paradigm shift in providing all weather rural connectivity, even in the remote areas. These initiatives can have multiplier effects in increasing movements of goods, services and thereby improve earning potential in the India’s villages subsequently improving consumption. 

Way Forward

The rural consumers are also expected to embrace online purchase over time and drive consumption digitally as per the trend with urban areas. The India’s hinterlands are witnessing increasing penetration of computers and smartphones as they are already well covered by basic telecommunication services. The rural marketers are taking advantage of these developments and online portals are being viewed as the key to enter and establish themselves in the rural markets. These new developments have made penetration in rural markets cost-effective for marketers.

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