In Media

A More Efficient Bharat

By: Rama Bijapurkar | Business World | April 17, 2017
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Rural India has already powered India’s domestic consumption growth for over a decade now and accounts for over half of Indian household spends.

Rural India has already powered India’s domestic consumption growth for over a decade now and accounts for over half of Indian household spends. In many states rural growth has far surpassed urban growth and the difference between urban and rural spending has been narrowing steadily. So why all the sudden excitement and buzz these last two years, about tier-2 and tier-3 towns’ consumption zooming, and about Bharat powering India’s growth? Probably because this story is being told from the supply side and the average supplier, who is not HUL or Airtel or Pepsi, has finally ventured into seriously addressing these towns and has been pleasantly surprised at the response from them (and more response begets more marketing effort and a virtuous cycle of growth is born!)

Another reason for the belated excitement of the so-called Bharat consumption story is probably because of the insidious way in which India changes. India morphs at a pace which is barely noticeable even if you are paying attention; and then one day, many years later, this painfully slow but steady change reaches some tipping point, and we scramble to align our mental models, which have been stuck in the past. Non-metro towns and a section of rural India that the think tank ICE 360 calls ‘developed rural’, have been direct beneficiaries of the sharp increase in quantity, even quality, of roads built these last ten years, and both real and psychological distances between big and small towns, villages and urban centres have crashed. Expanded trucking and courier services, increased air services (though that is the next revolution waiting to happen), and the banking touch points and cheap cell phone (and Internet) connectivity revolution have made working in the so-called “Bharat” increasingly efficient and costs and quality of living remained far better than those in crowded, bursting-at-the-seams metros.

Companies set up more regional offices, jobs started coming, small new businesses were born, private colleges and hospitals mushroomed, taking advantage of demand aggregation, made possible by better connected catchment areas; and more of the upper income, the so-called “middle class” stayed put. Malls came, high streets got a partial makeover, cable and DTH reached over a 100 channels everywhere at very low prices, expanding mindsets and broadening aspirations, a little bit at a time. The consumption growth story of non-metros has obviously been very marked these past five years and is accelerating, thanks to this confluence of change.

So will these growths peter out once the catch up has happened? The answer to this lies in understanding how India’s income is distributed across India and so-called Bharat. Data from proprietary pan India household surveys of think tank and fact tank on India’s consumer economy, ICE 360, shows that there are broadly two Indias now — a 100 million chunk of India’s 281 million households called “under developed rural”, which has a far lower share of income than its share of population. In the case of the rest of India’s 181 million households, different parts of it (in terms of village/town tier) have as much income share as they have population share.

That is good news indeed and shows a significant change in income distribution from our historic mental models of metros being where the money lies. Perhaps, this is an affirmation of the chaotic unplanned way in which India grows — perhaps, ‘market demand driven’ and ‘entrepreneurial’, are better and fairer characterisations of it.

The data in the table explains the tier-2 and tier-3 town consumption phenomenon very clearly. India’s tier-2 and tier-3 towns have an almost equivalent share of India’s household income and of the richest 20 per cent households with discontinuously high purchasing power (popularly and incorrectly called the middle class) as do metros. What’s more, it needs going to very few additional locations to access them.

Looking beyond to the even smaller towns and the many shades of rural India, it is easy to see that the cumulative income they hold is pretty high as compared to metros, even though they are scattered (4,000 urban small towns and 150 rural districts have two and a half times the income of eight metros and twice the number of high-income households).

In sum, rich people are scattered all over India and the big town-small town and urban-rural divides that many still hold to be true are pretty blurred. ICE 360 data also shows that with the new income configurations, there are mass markets of scale developing at last.

Add to this the digital revolution and the sharing economy which has crashed costs of reaching and serving scattered Indian households: The consumer has been ready with her income and her desires for a while.

The supply side now has no reason to not catch up. It is time to stop being breathlessly surprised by tier-2 and tier-3 towns flexing their consumption muscle. That train, as did the rural train, has left the station a long while ago!