Feb 3, 2009

Corporates look for rural gold

Business honchos are descending on the rural markets, expecting to make a killing from whatever is left in the pockets of India's poor, led by an NCAER forecast of robust sales growth here.

All eyes are now shifting to the rural areas. Trucks carrying consumer goods are being directed to the nearest village. Rural India is now up for grabs.

It is no longer only hair oils, toothpastes, shampoos, soft drinks and potato chips that you will find stacked on the dusty shelf in a village shop. Corporate India now believes that the loan waiver, the National Rural Employment Guarantee Programme (NREGA) and successive bumper harvests have brought enough cash surplus in the hands of the rural community. It is therefore time to encash the newly found richness in the rural areas.

Is rural India really becoming prosperous? Or is Corporate India’s greed that is driving them to the hinterland? Before we look at the ground realities, let us first see how the markets are shifting gear. The mobile phone has already made an aggressive foray. Sale of computers is being pushed through the government-sponsored e-governance programmes. Cars, two-wheelers, and consumer durables are eyeing the smaller markets. Coca Cola, Pepsi and Dabur India have relaunched specific marketing programmes. The wedding industry is already camping in the smaller towns. And the Futures Market too is excited.

According to news reports, Samsung, Nokia, Sansui, Philips, Maruti, Mahindra & Mahindra, LG, Tata Motors, Hyundai, Tata Sky, Hero Honda, Air Tel, Vodofone, BSNL, ICICI and Nestle are some of the corporate giants eyeing the rural markets. There are innumerable other smaller companies who have now ramped up their marketing operations in the tier II and tier III towns.

No, there isn’t an economic revolution happening in rural India. It is only that the business honchos are descending on the rural markets, expecting to make a killing from whatever is left in the pockets of India’s poor. Leading the corporate march into the rural areas is the industry think-tank, the National Council for Applied Economic Research (NCAER). It believes that the rural middle class is steadily growing, and the corporate can expect a sales turnover of 60 per cent from rural India.

Not only the domestic majors, global giants too are looking at India’s rural sector as a potential kill. American agribusiness giants -- Monsanto, Cargill, Wal-Mart and ADM -- among the world’s top multinationals have already found a foothold in the rural retail segment through the Indo-US Knowledge Initiative on Agriculture Research, Development and Marketing (KIA) agreement. These multinationals have already made it clear that they are not interesting in collaborating on agricultural research but keen to sell their products.

Meanwhile, not satisfied with the marketing opportunities under the agreement, two American senators have demanded a detailed study of the potential that Indian agriculture markets contain. Their plea is to open up the Indian farm sector to American agricultural products. At present, only 5 per cent of American produce finds its way to Indian farms. Well, the eagles are descending, and from all directions. The village mouse may find it hard to find a suitable cover to escape the attack.

The reason is obvious. So far, it is the sale of alcohol -- both domestic brands and the locally produced – that has been the biggest destroyer of rural homes. Much of the farm income is known to have found its way to the liquor shops. No wonder, cereal consumption has further declined in rural areas, even though families are spending more on it. According to the latest report of the National Sample Survey Organisation (NSSO), monthly expenditure on cereals has gone up from Rs 101 to Rs 115, and yet per capita cereal consumption has climbed down from 13.4 kg per person per month in 1993-94 to 11.7 kg in 2006-07.

This report also comes at a time when the National Commission on Enterprise in Unorganised Sector very clearly and loudly states that 77 per cent of India’s population (and bulk of it inhabits the rural areas for sure) equivalent to 836 million people spend not more than Rs 20 a day. I am sure with Rs 20 a day expenditure, you cannot expect 836 million people to buy even two square meals a day. To these hungry millions, selling a growth dream through a consumer durable is certainly something that cannot be easily digested.

I stall can’t fathom what the ICICI chairman H V Kamath had said sometimes back: “There is a lot of money to be made from the rural areas.” If this is true, I see no reason why India should rank a dismal 66 out of 88 countries on the 2008 Global Hunger Index. As many as 12 of the 18 states measured, and that includes ‘vibrant’ Gujarat, technology-savvy Karnataka, suicide prone Maharashtra and the rice bowl of Tamil Nadu, are listed in the category of ‘alarming’.

In fact, India stands much lower than Sub-Saharan Africa in the Hunger Index. Even Punjab, the food granary of India, is worse off than Gabon and Vietnam.

The villages of India have traditionally been victim of what is called reverse terms of trade. All these years, more money has actually been taken out from these villages than what has been invested. Some studies have shown that from a rural landscape of the size of 1000 acres, agricultural-input companies and that includes fertiliser, pesticides, and seeds, on an average pump out anything between Rs 30 crore and Rs 70-crore every year, depending upon where these areas are located.

If only this money had stayed back in the villages, the face of India’s village would have been in any case looked bright and vibrant. You wouldn’t require the skills of organised money-lenders, through the micro-finance route, to exploit the poor and gullible. Although 50 million poor households are being given micro-finance, the poor are actually being forced to fork out returns at an exorbitant interest of an average of 20 to 24 per cent. In urban centres, you would be up in arms if you were made to pay such a high interest rate. But than, you need to know that the poor are being ‘empowered’.

If the poorest of the poor women in a self-help group wants to buy a goat, which she needs for earning a livelihood, she has to pay an average interest of 24 per cent. I am sure, for a TV, fridge or a two-wheeler she will now get interest-free loans. After all, economists will tell us that the more she buys consumer durables, the more the GDP will grow. Even if they have to go to bed hungry instead, these are small sacrifices that need to be made for the sake of country’s growth. Who said, selling dreams is only a Bollywood’s prerogative? #

http://www.indiatogether.org/2009/jan/dsh-ruralgold.htm

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