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Inaugurating Grameen Bharat Mahotsav 2025 at Bharat Mandapam in New Delhi today, Prime Minister Narendra Modi said that the more prosperous our villages become, the greater will be their role in realizing the resolve of a developed India. It seems India is making some progress in that direction. As far as consumption is concerned, the rural-urban gap in India is narrowing.
Small towns, a large number of which are part of semi-rural areas, are increasing their share in the sale of discretionary products. As rural consumer demand is outpacing urban, consumer goods companies are now more worried about urban areas. ET Year-end Special Reads Stocks to buy in 2025: 66 ideas from top brokerages for your new year portfolio What does 2025 hold for India's IT services sector? 2025 may be the year of EVs in India, dominated by SUV launches Packaged consumer goods maker Dabur India has said in a quarterly business update that rural volume growth continued to outpace that of urban in the December ’24 quarter.
The maker of Vatika shampoo and Real juices said this will be the fourth consecutive quarter when rural markets have grown faster than cities across the FMCG sector. In the July-September quarter, demand in India’s hinterland continued to outpace that of cities, growing twice as fast as urban markets, driven by food staples and recovery of mid-sized companies, NielsenIQ said in its quarterly FMCG update in November. While urban demand was up 2.
8%, demand in rural India grew 6%, against 5.2% in the April-June quarter. Overall, riding on rural demand, India’s fast moving consumer goods grew 5.
7% by value and 4.1% by volume in the quarter. Price-led growth stood at 1.
5 per cent. Revival of rural demand cannot though offset the shortfall in urban mass spending. For FMCG bellwether Hindustan Unilever, smaller towns and villages make up only a third of its sales.
However, with narrowing of the rural-urban consumption gap, as recent data shows, these companies may find rural sector emerging as a bolster in course of time. There are ample signs of evolution of rural consumption as it moves away from basic necessities. The shift away from daily essentials and grocery products with price tags of Rs 5 and in many cases Rs 10, often called popular or magic price points, is an indication of consumers upgrading their shopping basket or opting for larger packs that offer them more grammage for every rupee spent.
In several categories including noodles, chocolates, detergents, toothpaste, soaps and dishwash, contribution especially of Rs 5 packs has fallen over the past four years while it has stagnated in biscuits, according to recent data by Kantar. The time may not be far when consumption pattern in rural and semi-rural areas will start mimicking urban consumption pattern to a significant extent. Direct benefit schemes, expanding infrastructure and financial inclusion are some of he drivers of rising rural demand.
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The access to markets has improved. They want to be entrepreneurs. We need to get that animal spirits into rural India.
" How urban-rural consumption gap is narrowing Consumption inequality among rural and urban residents in India declined further in 2023-24 and non-food items continued to dominate average monthly expenses across the country, as per results of the latest Household Consumption Expenditure Survey (HCES) published a few days ago. The average estimated Monthly Per Capita Consumption Expenditure (MPCE) in rural India rose 9.2% to Rs 4,122 in 2023-24 from the previous year.
In urban areas, the metric climbed 8.3% to Rs 6,996. The metrics do not reflect monetary values of items received free of cost by eligible beneficiary households through various social welfare programmes.
"The increase is largely due to government support towards rural areas post Covid. Freebies and subsidies supported the growth in per capita expenditure, in a year when the Southwest monsoon had disappointed (in 2023)," said Yuvika Singhal, economist, QuantEco Research. The urban-rural gap in MPCE has declined to 69.
7% in 2023-24 from 71.2% in 2022-23, and 83.9% in 2011-12.
"This confirms sustained momentum of consumption growth in rural areas," the Ministry of Statistics and Programme Implementation (MoSPI) said in a statement accompanying the report. Among the non-food items, the major contributors in rural areas in 2023-24 were conveyance (7.6%), medical (6.
8%), and clothing, bedding & footwear (6.6%). In urban areas, the top contributors were conveyance (8.
5%), miscellaneous goods, entertainment (6.9%), and durable goods (6.9%).
Poverty is vanishing faster in villages than in cities Behind improving rural consumption is also the fast declining rate of poverty. Poverty in rural areas declined to less than 5% for the first time and outpaced the reduction in urban areas, driven by higher consumption growth among the bottom 0-5% decile, supported by government initiatives, according to a recent analysis by SBI Research. Rural poverty fell to 4.
86% in 2023-24 from 7.2% in 2022-23 and 25.7% in 2011-12.
In contrast, urban poverty fell to 4.09% in 2023-24 from 4.6% in the previous year and 13.
7% in 2011-12, the report said on Friday. Overall, the poverty rate in India now stands in the range of 4-4.5%, with “almost minimal existence of extreme poverty”, it added.
However, the report mentioned that these numbers could undergo revisions once the 2021 census is completed and updated rural urban population data is available. Urban-rural consumption gap has also narrowed. The gap declined to 69.
7% in 2023-24 from 71.2% in the year before. It was 83.
9% in 2011-12. Government initiatives such as direct benefit transfer (DBT), investments in rural infrastructure and boosting farmer’s income contributed to this trend, SBI Research said. (You can now subscribe to our Economic Times WhatsApp channel ).
