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Resource centre on India's rural distress
 
 

Rural folks driving own economy with self-sustaining models -Rupali Mukherjee
-The Times of India


MUMBAI: Indian villages are powering their own economy, but contrary to conventional belief , it's not government largesses which are the drivers, but their own self-sustaining models. Growth at the bottom of the pyramid is at unprecedented level, and the transformation is stark.

The factors driving this transformation are dramatic improvements in rural roads, electrification, cell phones and water supply which are raising wages and increasing job opportunities for thousands living in villages. This, in turn, is fuelling demand for consumer goods, and for those companies which have a strong rural push.

Case studies from field-trips and research undertaken by Credit Suisse show that the growth in productivity is becoming sustainable as jobs in manufacturing drive services jobs in transportation and trade, enabled by mobile phones and roads.

Research over the last couple of years by independent sources has confirmed that use of cell phones benefited a diverse set of people-from fishermen to sari weavers. Most of the studies focused on price discovery in agriculture or on skilled artisans improving customer service or price realizations . D K Joshi, chief economist at Crisil, says, "Overall, there has been a definite improvement in the rural economy . Villages have become self sustaining, providing a big push in manufacturing jobs. Roads are increasing demand for vehicles, while cell phones trigger more goods and services . However, a lot more is required ; the success stories need to be replicated in many areas."

Access to roads is helping landless people raise poultry (chicken) within limited floor space and sell their produce in nearby towns. In fact, poultry farming created 3.8 million jobs between 2005 and 2010: the 950 million person days of work thus created every year is the same as that by the government's NREGA in the same period . Road access significantly improves land prices, labour mobility, wages and alternative employment avenues, the study says. For example, production of mannequins has moved from Ulhasnagar outside Mumbai to villages in Rajasthan, while other examples like pottery (Orissa), saris (West Bengal ), furniture (Himachal Pradesh ), are all potential jobs difficult to carry out in remote villages previously, but are now made easy by road connectivity.

The Credit Suisse study found a strong correlation between per-capita output and road networks (represented by vehicle penetration) both within and across states. Since about 80% of the country's rural households own less than two acres of land, they are therefore wage dependent.

Analysts point out that this wage growth is largely productivity-driven (and therefore sustainable to a large extent), providing a floor to India's cratering economic growth, and even in the absence of major infrastructure projects taking off, there are substantial changes in basic infrastructure that are taking place in areas other than big cities.

Over the last five years, rural wages have increased at an unprecedented 20% CAGR, with land prices appreciating sharply as well. Both have ended up putting more money in the hands of people, and generating purchasing power, experts say. Fast-moving consumer goods companies are enthused with the strong rural demand as it augments their sales. In some cases like Emami with products, offered in 30 lakh rural outlets, including Navratna Oil, Fair and Handsome cream, Zandu Balm, BoroPlus cream, has nearly 50% of sales in some categories coming from rural markets.

Another company, ITC has been able to tap the rural segment through its e-choupal network . Says an ITC executive: "The divide between urban and rural markets has narrowed down and hence we have expanded our basket of offerings in rural India. Given the vast reach , ITC has devised mobility solutions for monitoring progress and instant information dissemination" .