>RURAL BUSINESSES: Growth Drivers & Key Challenges

Rural India accounts for nearly 70% (approximately 720 mn) of the total population and plays a critical role in the country's economic development. Apart from being a large consumer market, the availability of cheap labour and low-cost land are key drivers for businesses to penetrate rural areas. In addition, the government's focus on inclusive growth (National Common Minimum Programme), and massive infrastructure development programmes is expected to bridge the rural-urban divide. What was once a fully agrarian market is now evolving into a major consumption market—the Monthly Per Capita Expenditure (MPCE) in rural areas is 1 estimated at INR695, nearly half of urban India's MPCE .


Growth Drivers


• Rising per capita income in rural India:
Almost of half of the rural GDP comprises agriculture relative to less than 20% of national output for overall India. Factors such as higher food prices, increase in agriculture income and a shift from farm to non-farm based employment are expanding the average income levels for rural India (growing at 12% per 2 annum) . Thus, companies, across sectors such as financial services, FMCG, telecom and others, aim to tap the rural market in India.


• Empowerment of rural India through various employment generation schemes:
The NREG Act 2005, which guarantees every rural household up to 100 days of wage employment in a year, has been highly successful in ensuring improved quality of life and enhanced income for rural households. As per estimates, on an average, daily wages have increased INR20–30 per person due to this scheme. This translates into INR 342bn (approximately USD 7.5bn) per annum of additional wages. Other schemes for employment include Sampoorna Grameen Rozgar Yojna, National Food for Work Programme and Swarna Jayanti Gram Swarozgar Yojna.


• Infrastructure development programmes:
The government has initiated a series of rural infrastructure development programmes under the Bharat Nirman project. Under this project, the government would undertake infrastructure building in the areas of irrigation, rural housing, rural water supply, rural electrification and rural telecommunication connectivity. Other prgrammes such as the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) and Pradan Mantri Gram Sadak Yogana (PMGSY) have provided a significant boost to rural India.


• Increasing farm credit a boost to rural India:
Through the government's focussed initiative of improving farm credit, rural India is benefiting from access to finance for various agriculture needs. The credit off take from the farm sector increased to USD 59bn in 2008–09 from USD 56bn the previous year. On an average, about 48.6% of total households in India have access to finance through a mix of informal and institutional arrangements. Although households with large land availability tend to receive institutional sources of funds, those with small land (less than one hectare) are mostly dependent on informal sources of funds.


Key challenges


• Weak socio-economic status:
Though India has been successful in reducing poverty levels; the country's population below the poverty line is more than 300 mn (or around 25% of the total population). Rural India accounts for 73% of the poor population in the country. Furthermore, rural areas lack proper healthcare facilities and socioeconomic parameters are weak with relatively high infant mortality rate, poor nutrition levels and low literacy rates.


• Rural development is mostly undertaken through government funds; as a result the execution of several projects under development is delayed. Consequently, significant resources allocated for rural development are under utilised and also lead to cost overruns.


To read the full report: RURAL BUSINESSES
RISH TRADER