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Rural India consumption growth outpaces urban areas

August 29
03:30 2012

NEW DELHI: For the first time since economic reforms began two decades ago, consumption in rural India is growing faster than in cities fuelled by rise in household incomes due to more non-farm job opportunities, says a study.

Between 2009-10 and 2011-12, additional spending by rural India was Rs 3.75 lakh crore, significantly higher than Rs 2.9 lakh crore by urbanites, according to the study by credit ratings agency 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,” it said.

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, the study noted.

NSSO data shows that from 2004-05 to 2009-10 rural construction jobs rose by 88 per cent, while the number of people employed in agriculture fell from 24.9 crore to 22.9 crore, Crisil said.

Besides, it added, migrants from villages to urban areas, who benefited from job opportunities in infrastructure and construction projects, increased remittances to their families in rural India, boosting consumption.

The study said 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.

Similarly, 14 per cent of rural households had a two- wheeler in 2009-10, twice that in 2004-05, Crisil said.

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, it said.

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.

Wages under MGNREGS increase with retail inflation and consequently, rural wages have risen faster than inflation since 2007-08, said Crisil chief economist D K Joshi. -PTI

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