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Resource centre on India's rural distress
 
 

Social goods lead to public good -Ashok Varma
-The Hindu Business Line

Higher social sector spending by the government boosts income and consumption, and spurs growth

India’s economic growth is now much more closely linked to the state of the rural economy than it ever was. Sustaining a 7.5-per cent growth in GDP would be contingent on higher growth in rural household consumption.

Rural expenditure grew 5.7 per cent annually during 2005-15 — against 5 per cent annual growth in the preceding decade, as the government increased social sector spending during the last 10 years.

However, the average rural monthly per capita expenditure (MPCE) at 1,430 is still about half the average urban MPCE of 2,630.

A higher social sector spend by the government is the key to India’s sustained high economic growth, as it would cut rural populace’s social expenditure burden, leaving them with more disposable income to buy consumer goods, clothes and vehicles.

Rural incomes

The government’s employment scheme, for instance, had significant contribution in raising disposable income among rural households. The National Rural Employment Guarantee Act (NREGA) generated 230.46 crore ‘person days’ of employment in 2012-13. Two years later, in 2014-15, this fell to 166.36 crore person days of employment, as the government cut social sector allocation.

The average NREGA wage being at 152 per day, a similar employment level in 2014-15, as that in 2012-13, would result in additional rural income generation of more than 9,700 crore, calculated for the gap of 64.1 core person days.

The number of households that completed 100 days of employment under the NREGA in 2012-13 was at 50 lakhs. This fell by half in 2014-15 to 25 lakhs households. It shows the enormity of the impact that increased focus on one scheme alone can have.

Further, other social sector spend by the government through various schemes for health, education, rural housing, rural electrification, agriculture and financial inclusion would reduce rural households’ expenditure burden on social goods and services.

Consumer expenditure

This, in turn, would lead to increased spending on apparel and footwear, FMCG, consumer services and consumer durables. The spending pattern in rural areas too would depend on households’ income category (lower, middle and higher).

According to India Brand Equity Foundation, the rural FMCG market has been growing at around 13 per cent per year over the past five years. It is expected to reach $100 billion in next 10 years, from $19 billion in 2014-15.

Such growth is possible only with sustained growth in rural economy and households’ disposable income.

In the last few years, rural households have shown a trend of increasing spending on apparel and footwear, which were hitherto more of semi-urban and urban characteristics.

This segment is expected to see decent growth in coming years in rural markets, specifically in ready-to-stitch and ready-to-wear wear clothes, t-shirts, denims, sandals, etc.

The rural consumer durable market is roughly 35 per cent of the overall $10-billion market as of 2014-15. This segment is expected to see higher volume growth in rural areas as the urban markets are getting saturated, and the next cycle of growth there would come from replacements and upgrades.

In rural markets, the demand is expected to rise for items such as refrigerators, two-wheelers and other consumer electronic goods.

The recent media interactions and public speeches of the Prime Minister and the finance minister indicate a policy shift towards looking at increased spending on social schemes and targeted subsidies for the needy.

Such measures will spur rural economy and can have a positive impact on sectors such as consumer goods, apparel and footwear, consumer durables and services.

The writer is partner, social sector at PwC India