As consumption among semi-urban and rural customers increases, Sanjesh Thakur, Partner, Deloitte India says that the road to economic recovery will have to pass through the rural hinterlands and has to be consumption driven to be impactful, inclusive and sustainable. The enormous consumption potential of 1.3 billion strong population supported by favourable demographics, rising income level, digitally informed customers, has been the true driving force behind this growth. Indian economy is consumption driven. Nearly, 60% of India’s GDP is driven by domestic private consumption, as compared to 40% in China. Interestingly, the rural population which constitutes around 65% of populace has been the key force driving consumption. In last couple of years, growth rate of rural consumption has been 1.5 to 2 times that of urban consumption and contributed around 1/3^rd of total value. As per estimates of World Economic Forum, rural per capita consumption will grow to 4.3 times by 2030, compared to 3.5 times in urban India. Every customer centric company, from cell phone to FMCG has customised their strategy to cater to the demand of semi-urban and rural customers.  (Source: World Economic Forum (WEF)) India has been one of the fastest growing economy in the world and despite slowing GDP, still presents enormous potential due to consumption needs arising out of 1.3 billion favourable demography that aspires for a prosperous life. Domestic consumption, which powers 60% of the GDP today, is expected to grow into a $6 trillion opportunity by 2030. (Source:WEF). In FY18, the consumption growth in rural India stood at 9.7% while the urban consumption grew 8.6%. All leading FMCG, electronics, cell phones and automobiles brands have an outreach to the rural hinterlands of India. As per estimates, rural FMCG market would grow to $220 billion by 2025 from just $23.6 billion in FY18. (Source: ET).  One of the top FMCG companies in India, generates over 45% of its domestic revenue through the sale of packaged consumer goods in rural India. In 2018, one of the leading consumer tech mobile manufacturers opened record 500 stores in rural India in a single day. Consumer product companies have launched value added pack size in line with the requirement of this market. Most of the companies have dedicated rural strategy and marketing functions to cater to this market. Rural Indian households are now spending more on branded goods like durables, health and personal care, food & beverages. Enabled by digital information, democratization, consumption habits of the rural consumer are mimicking their urban counterparts. Key underling themes, driving and impacting the consumption landscape are:

• Rapid Urbanization: By 2030, 40% of Indians will reside in urban areas. The top nine metros and 31 boom towns will be significantly richer than other cities. However, there will also be >5,000 small urban towns (50,000-100,000 persons each) and >50,000 developed rural towns (5,000-10,000 persons each) that already have very similar income profiles (Source: WEF)
• Non-urban consumption: While India’s top 40 cities will form a $1.5 trillion opportunity by 2030, thousands of small urban towns will also drive an equally large spend in aggregate. Additionally, rural areas would present $1.2 trillion of spend opportunity. (Source: WEF) 

• Information Democratization: Massive increase in internet penetration enabled by economic data plans will lead to more than a billion internet users in India by 2030. Access to information will mitigate the digital divide and will fuel the aspiration and desire for consumption. 

• Rising affluence: By 2030, India is estimated to have about 140 million middle-income and 21 million high-income households. Rising disposable income would be the key factor driving spending. (Source: WEF)

The economic deceleration witnessed from last four to five consecutive quarters have led to scepticism about the Indian growth story. Does the economic fundamental still remains strong? Will there be a revival of rural demand? Should companies continue to invest in rural markets? What shall be the fiscal & other policy initiatives to spur the slackening demand in order to reboot the economic engine, are some of the key questions, baffling the corporate chieftains and policymakers, alike. The momentarily slowing down of the economy may have led to a pessimistic view, however long term outlook remains fairly bullish. It’s important to understand that some of the factors adding to this slowdown are undesirable by-product of the tough policy initiatives taken by the Government, such as IBC, demonetization, GST, corporate tax reduction, etc. Unfortunately, the intended benefits will only materialise and accrue in the long term but will be more profound. Add to this, the international trade wars and protectionist attitude adopted by various nations have only ended up compounding the problem further. As India’s economy navigates through the uncertain times, it calls for certainty in policy reforms and focussed execution. While, pro-investment measures such as improving ease of doing business, reduced tax rates on new capital investment, lowering of interest rates, easy credit dissemination, etc., will yield benefits in the medium to long run, consumption cycle can only be accelerated by putting more money in the hand of consumers. For that reducing tax rates, generating mass employment and providing better price for farm produce shall be the prime focus area. As we continue to remain the nation of vast middle class and agrarian dependent populations, it’s imperative that we take transformational steps to enable and empower this segment. Increased infrastructure spending, quick project execution and cost competitive manufacturing set-up focused on exports can generate mass employment. While, better supply chain and rural infrastructure that can enable farm to fork linking shall lead to better price in the hand of farmers and reduce his wastage. The road to economic recovery will have to pass through the rural hinterlands and has to be consumption driven to be impactful, inclusive and sustainable. Sooner the policymakers realise this, better it will be for everyone.