Download Rural India Economic Overview

1
MACRO VIEW ON RURAL INDIA
Rural India has been in the news over the past two years because of the distress consecutive
weak monsoons wrought, leading to subdued demand.That, however, masks the transformation
that has been taking place over the past decade or so. The long-term underlying trend of
growth in rural consumption demand will revive if monsoon is normal this year. Additionally,
sharper government focus, backed by budgetary allocations, will augment rural economic
activity.
The Indian economy is private consumption-driven and rural demand has been playing
an increasingly important role as villages get better roads, electricity supply and mobile
connectivity. It also has aspirational consumers with improving access to finance. That means
rural demand will remain a key theme for those looking to do business in India.
Today, rural areas account for 47% of India’s GDP and 54% of private consumption. Over the
past decade, that geography has witnessed a sharp surge in consumption demand as people
uptraded from bare necessities to discretionary purchases. According to a National Sample
Survey Organisation (NSSO) study, between fiscal years 2004-05 and 2011-12, incremental
consumption demand in rural India overtook the urban number.
RURAL INDIA
of rural economy
46.9% Share
in India’s GDP
69%
64%
Share of rural consumption
total private
54.6% in
consumption
2011
2025
Share of rural population in India’s population
435 million
Rural mobile connections
133 million
Rural bank accounts
2
WHAT IS RURAL INDIA ALL ABOUT
n
Over 800 million people in India (or 69% of the population) live in rural areas.
n
That translates into 156 million households, of which 90 million, or 56%, are agriculturelinked where the main source of income is the farm.
n
The United Nations estimates that close to 900 million people (or 64% of the population)
will continue to live in rural areas even by 2025.
AGRICULTURAL HOUSEHOLDS
n
Of the 90 million households, 53 million depend on cultivation income, 20 million on
wages earned at the farm, and the rest from allied activities and livestock herding.
n
60% of the agricultural households have a land holding of less than 1 hectare, making
farming in India unprofitable. Only 0.4% of agricultural households have more than
10 hectare of land holdings.
NON-AGRICULTURAL HOUSEHOLDS
n
The 66 million rural non-agricultural households typically engage in activities such as
trading, construction, manufacturing or salaried employment, including government jobs.
A small percentage also includes people who commute to urban areas for work.
1
nStudies
based on National Sample Survey (NSS) data suggest non-agricultural jobs now
earn more than agricultural jobs, be it labour or self-employment. There has been faster
expansion of blue-collared jobs (sales workers, production workers and service workers)
in rural areas compared with urban areas, causing its share to rise. Faster expansion of
factories and manufacturing units in rural areas has a role to play. As many as 75% of
new factories in the decade ending 2012 came up in rural India, and contributed 70% of
the new manufacturing jobs2.
RURAL INDIA
DEMOGRAPHICS (2011-12)
RURAL CONSUMPTION SHARE
HIGHER THAN OUTPUT SHARE
CHANGING COMPONENTS
OF RURAL GDP
Rural India has 156 million
households (800 million people)
% share in
output,
2011-12
% share in output,
% share in
consumption,
2011-12
66 million
non-agricultural
households
(or 42% of total
rural households)
48.2
53.1
46.9
45.4
54.6
90 million
agricultural
households
(or 58% of total
rural households)
Urban
Rural
Source: NSS
1
2
1999-00
2013, Bijapurkar Rama, ‘A Never Before World: Tracking the Evolution of Consumer India’
2012, Credit Suisse report, “The Great Indian Equalisation”
51.8
Nonagriculture
2011-12
60.8
39.2
Agriculture
3
RURAL SPENDING OUTPACING URBAN
n
n
Rural spending accounts for more than half of total consumption spending in India.
Rural spending outpaced urban consumption in the seven years up to 2011-12, the first
time it has happened in nearly 25 years, according to NSS data. This was fuelled by a
strong increase in incomes, led by rising non-farm employment opportunities and the
government’s focus on employment-generation schemes. Data from NSS show that during
2004-05 to 2011-12 rural construction jobs rose 12% per year, while the number of people
employed in agriculture fell by ~33 million.
- Between 2004-05 and 2011-12, incremental rural consumption spending at Rs 7.7
trillion was higher than urban India’s Rs 6.5 trillion
n
With rising purchasing power, there is a notable shift in rural consumption from necessities
to discretionary goods.
- Discretionary spending of a typical rural Indian household galloped past Rs 36,000 in
2011-12, from Rs 14,000 in 2004-05, growing ~14% per year – faster than the average
consumer price inflation of 7.5% in that period.
- In rural India, 48.6% of monthly expenses of an average person is on food. This has
come down from 60% a decade back, but is still higher than the 38.5% spent in urban
India.
n In rural areas, other than food, a large share of expenditure is on consumer durables,
clothing and conveyance, while urban people spend more on rent, education and consumer
services.
- Rural India accounts for 34% of the value of the fast-moving consumer goods market
- More than half of India’s stock of consumer durables such as television sets, electric
fans and two-wheelers is now in rural India
o Close to 80% of rural households now have a mobile phone each
o 50% of rural households owned a television in 2011-12, up from 26% five years
back
o 18% of rural households had a two-wheeler in 2011-12, more than twice the number
in 2004-05, although penetration still remains well below the urban households’
38%
o About 60% of rural households owned a bicycle and an electric fan in 2011-12
RURAL CONSUMPTION HAS BEEN OUTPACING URBAN CONSUMPTION
Nominal consumption growth (per year, %)
Rural
Urban
Incremental consumption expenditure in
2011-12 over 2004-05 (Rs trillion)
18.6
11.9
13.6
2009-10 over
2004-05
Source: NSS
18.3
2011-12 over
2009-10
6.5
Urban
7.7
Rural
A SHARP INCREASE IN NON-FARM EMPLOYMENT, WHICH PROMISES HIGHER WAGES,
IS PUSHING CONSUMPTION DEMAND
Rural employment (in million)
Manufacturing
Agriculture
Construction
Services
231
198
27
26
2004-05
2011-12 2004-05
34
16
2011-12 2004-05
43
2011-12 2004-05
48
2011-12
RISING INCOMES HAVE GIVEN WAY TO INCREASED DISCRETIONARY SPENDING,
AS IS SEEN FROM THE RISING SHARE OF NON-FOOD IN TOTAL SPENDING
Rural spending (% share in total)
Food
Non-food
65
65
55
55
45
45
35
1993-94 99-00 2004-05 09-10
11-12
35
Urban spending (% share in total)
1993-94 99-00 2004-05 09-10
11-12
RURAL DISCRETIONARY SPENDING ACROSS STATES HAS PICKED UP
2011-12 over 2004-05
(Per-year growth, %)
Punjab
Kerala
Haryana
Rajasthan
Gujarat
Karnataka
Maharashtra
All-India
Andhra Pradesh
Tamil Nadu
Uttar Pradesh
Madhya Pradesh
Bihar
West Bengal
Odisha
Source: NSS
Rupees in thousand
75,001
73,158
59,837
45,752
40,040
39,219
38,697
36,359
15.8
14.6
12
14.9
15.7
17.8
14.3
14.1
36,065
35,691
34,919
29,587
27,574
26,543
22,015
11
15.9
11.2
12.6
16.4
10.6
14.3
0
50,000
40,000
60,000
80,000
WITHIN NON-FOOD, CONSUMER DURABLES / ENTERTAINMENT
SAW SIGNIFICANT DEMAND BOOST
Rural household spending, 2011-12 over 2004-05
(per-year growth,%)
Food
Non-food
Rural household spending (% of total)
2004-05
2011-12
22.4 22.4
18.0
16.4 15.5
15.1 15
12
12.0
11.2
8.4
6.1
Entertainment
Consumer services
Education
Conveyance
Rent
Clothing
Consumer durables
Milk, eggs, meat
Vegetables
Pulses
Cereals
Vegetables
-7.9
Cereals
Milk, eggs, meat
Rent
Pulses
Education
Clothing
Conveyance
Consumer services
0.0
Consumer durables
Entertainment
6.0
RURAL HOUSEHOLD DISCRETIONARY SPENDING ACROSS STATES, 2011-12
Mobile handset ownership
Per thousand
rural households
Odisha
% of total rural households
Bicycle
70
West Bengal
Madhya Pradesh
TV
Electric fan
Two-wheeler
60
All-India
Maharashtra
50
Gujarat
Andhra Pradesh
40
Uttar Pradesh
Rajasthan
30
Tamil Nadu
20
Bihar
Karnataka
10
Punjab
Haryana
Kerala
0
Source: NSS
0
200
400
600
800 1000
1993-94 1999-00 2004-05 2009-10 2011-12
4
MONITORING RISK IN INDIAN AGRICULTURE
AT CRISIL
Recent years have seen repeated weather-related shocks that turned agricultural production
in India volatile. The rising frequency of weather shocks amid higher vulnerabilities has
compounded the stress at farms, slashing cultivation income and profitability. Also, despite
migrating to non-farm employment, a large proportion of the population continues to depend
on agriculture income. As such, the agriculture sector accounts for just 18% of India’s GDP,
but employs almost half its labour force. So as agriculture suffers, the biggest impact is on
rural demand. The situation turns even more precarious given poor irrigation cover and high
dependence on rainfall.
Agricultural vulnerabilities can be assessed on four counts; 1) household dependence on
agriculture as the primary source of income; 2) indebtedness of agricultural households; 3)
irrigation cover and availability of water resources; and 4) crop insurance cover. Today, 3 in 5
households depend on agricultural income, and of these 51.9% are indebted. What exposes
the sector to the vagaries of monsoon is low irrigation and crop insurance cover. At the all-India
level, irrigation covers only 46.9% of the total cropped area, exposing the rest to monsoon
shocks. Around 84% of pulses, 80% of horticulture, 72% of oil seeds, 64% of cotton and 42%
of cereals are cultivated in unirrigated conditions.
Mapping vulnerability of Indian agriculture
%
Area insured to total cropped area
19.2
Irrigation cover to total cropped area
46.9
Indebted agricultural households to
total agricultural households
Agricultural households to total
rural households
51.9
57.7
Source: NSS, Ministry of Agriculture, CRISIL Research
CRISIL’s DRIP index to monitor the impact of deficient monsoon
CRISIL combines the impact of vulnerability arising from lack of irrigation and weather shocks
into a simple index called the Deficient Rainfall Impact Parameter or DRIP. The index helps to
identify regions and crops most hurt by weaker rains. Lower the DRIP score, the better.
o
How DRIP works
The DRIP index, which is a product of the percentage rainfall deviation and unirrigated area,
captures both the magnitude of the shock (rainfall deficiency) and the vulnerability of a
region (percentage of unirrigated area). Higher the DRIP score, greater the impact of rainfall
deficiency; the impact more pronounced for unirrigated crops and regions/states.
DRIP CROPj =
f
Wi
% UNIRRIGATEDij * % RAINFALLDEFi
100
Where,
%UNIRRIGATEDij is the proportion of unirrigated area under crop j in state i
%RAINFALLDEFi is the % deviation of rainfall from normal in state i. if there is excess rainfall
rainfall deficiency is considered to be O.
Wi= share of state in overall production of crop j in a normal monsoon year.
5
GOVERNMENT STEPS TO BOOST THE RURAL
ECONOMY
Over the past few years, the Mahatma Gandhi National Rural Employment Guarantee
(MGNREG, or more popularly known as NREGA) scheme has been an important step towards
supporting employment and smoothing rural incomes. However, the current government has
gone beyond social safety schemes and focussed on overall development. The following steps
have been taken to boost rural India by the Narendra Modi government:
n
Unique Identification Number: The Aadhar (Targeted Delivery of Financial and Other
Subsidies, Benefits and Services) Bill, 2016 was passed by Parliament on March 16,
2016, as a Money Bill. It intends to provide targeted delivery of subsidies and services
to individuals residing in India by assigning them unique identity numbers -- called the
Aadhar numbers.
n
Financial inclusion: The Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Jan Suraksha
Bima Yojana are social security schemes launched with the vision of providing a bank
account and an insurance policy to each household. As of April 2016, 215.6 million bank
accounts had been opened and 94.1 million Suraksha Bima policies issued. Also launched
were payments banks for better financial inclusion through mobile technology.
n
Unified agricultural marketing e-platform: Integration of agriculture markets across India
through the e-platform is seen as an important measure to overcome the challenges posed
by the current system, such as fragmentation of a state into multiple market areas, each
administered by separate Agriculture Marketing Produce Committee (APMC), multiple
levy of mandi fees, requirement for multiple licences for trading in different APMCs, etc.
The Unified Agriculture Marketing Scheme (operational from April 14, 2016) envisages a
common e-market platform that will be deployed in 585 selected regulated wholesale
markets. This e-platform aims to connect up to 250 mandis by September 2016, and up to
585 mandis by March 2018.
n
Crop insurance scheme: The Pradhan Mantri Fasal Bima Yojana was announced in January
2016. Under this scheme, a farmer pays a nominal insurance premium and gets the highest
ever compensation on loss suffered. For effective implementation of this scheme, a sum
of Rs 55 billion has been provided in the Budget for 2016-17. In addition, a Unified Package
Insurance Scheme has been approved for implementation on a pilot basis in 45 districts to
cover other assets/activities such as machinery, life, accident, house, student safety and
crops of farmers.
n
Rural road construction: The Pradhan Mantri Gram Sadak Yojana (PMGSY) II was launched
to consolidate the existing rural roads network. It aims to cover upgradation of select rural
roads to make the network vibrant. In 2015-16, 463,317 km of rural roads were constructed
under PMGSY, resulting in an addition of 30,500 km of rural road length and connecting
around 6,500 habitations. This works out to 91 km of PMGSY roads being constructed
every day during the year, compared with 67 km/ day in 2012-13 and 2013-14.
Skills training: The government launched the Skill India Mission aimed at converging and
monitoring skill development schemes across the country and providing subsidised loans
to students for vocational training. In addition, The Deen Dayal Upadhyay Grameen Kaushal
(DDU-GKY) programme funds training projects benchmarked to global standards, with an
emphasis on placement, retention, career progression and foreign placement. DDU-GKY
funds a variety of skill training programmes covering more than 250 trades across sectors
such as retail, hospitality , health, construction, automotive, leather, electrical, plumbing,
andOffices
gems & jewellery. The only mandate is that training should be demand-based and
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lead to placement of at least 75% of the trainees. Another programme, called Aajeevika,
Ahmedabad
a National Rural Livelihood Mission initiative catering
to the occupational aspirations
Hyderabad
Unit
706,rural
7th Floor,
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3rd Floor
ofNo.
poor
youth and for diversifying incomes Uma
of the
poor, was
started in 2011. It gives
Venus
Atlantis,
Prahladnagar,
Plot No. 9to&10,
Nagarjuna
Hillsskills and enter
young
people
from poor communities the opportunity
upgrade
their
Satellite, Ahmedabad - 380015
Near Punjagutta Cross Road
growing
sectors
of
the
economy.
Training
and
placement
schemes
are
run in partnership
India
Hyderabad - 500 082, India
with
public,
private,
non-government
and
community
organisations.
The
Phone : +91 79 4024 4500
Phone: +91 40 2335 8103/05 target is to skill
and
place
50
lakh
youth
in
the
formal
sector
by
2017.
The40government
Fax : +91 79 4024 4520
Fax: +91
2335 7507 has also initiated a
process to establish two new agricultural universities in Andhra Pradesh and Rajasthan
Bengaluru
and two horticultural universities in TelanganaKolkata
and Haryana. Two schemes for digital
Sunrise
Chambers,
W -literacy
101, 1st floor,
Convergence
Building
for rural
India
to cover 60 million households
in the
next three years have also
22, Ulsoor Road, Bengaluru - 560042,
3rd Floor, D2/2, EPGP Block
been
announced
in
the
Union
Budget
for
2016-17.
India
n
Phone: +91 80 4244 5399
Fax: +91 80 4244 5300
Chennai
Thapar House, Mezzanine Floor,
No. 37 Montieth Road,
Egmore,
Chennai - 600 008
India
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