AS ONE OF the fastest growing large economies of the world, India is set to become the third largest in terms of GDP ($5.4 trillion) by 2027.
In this journey, one part of the country that is likely to play an important role is the rural region. Rural India houses 64 per cent of country’s population (92 crore), contributes 46 per cent of the overall GDP, and accounts for 50 per cent of the nation’s consumption, according to a 2023 World Bank report.
As a rural-centric activity, agriculture accounts for 18.2 per cent of India’s GDP as of FY24. But rural India is much more than just agriculture. By 2025, the rural market for FMCG products is set to be Rs16.3 trillion and the consumer durables industry (Rs76,000 crore) would make up to 20 per cent of its sales from rural regions.
The benefits the government’s thrust on manufacturing is set to flow to rural India.
Increasing per capita income, higher literacy, greater participation of women in the workforce, rising mobile penetration and complete electrification of villages, etc, would strengthen rural India’s economic potential, and present newer investment opportunities.
Changing rural landscape
The efforts of the government over the years have resulted in a marked improvement in the quality of life in rural India.
With the Pradhan Mantri Gram Sadak Yojana, the share of rural habitations has risen from 58 per cent in FY09 to as much as 99 per cent in FY24 (YTD). Thus agri markets become accessible for farmers and increases demand for fertilisers, irrigation facilities and farm equipment. Connectivity allows the rural population to integrate with their urban counterparts.
From 70 per cent of the villages being electrified in 2003-04, 100 per cent of the villages have power by April 2018, resulting in greater demand for consumer durables, higher productivity of local vendors and increased use of electrical machinery.
Access to clean water via the Jal Jeevan Mission is provided to 152.2 million rural households as of October 2024, a near five-fold increase over August 2019 levels. This has resulted in better sanitation, lower spending on medical conditions, more opportunities for small and medium enterprises to set up operations and also increased potential for commencing food processing and water filtration projects.
Rural India’s literacy has more than doubled over the past three decades or so to 73.5 per cent, as of 2023. This has ensured better employability, reduced poverty, promoted financial as well as digital inclusion, improved communication skills and enabled usage of e-commerce platforms.
In rural India, there are nearly 534 million wireless subscribers and 90 per cent of the households have a bank account.
Structural changes and current triggers
Moving away from agricultural employment: Over 40 per cent of rural employment comes from manufacturing, trade and hotels, construction, transport and other services, nearly doubling in the last 30 years.
Rising per capita income: Rural India has a per capita income of $2,058 as of 2024, which is up 5.7 times from 2004-05, thus setting the stage for consumption to take off.
Share of discretionary spending rises: Monthly per capita expenditure for rural India shows that spending on the food category has fallen from nearly 60 per cent in 1999-00 to 46 per cent as of 2022-23. The share of discretionary spending has risen to 53.6 per cent over this period.
Women participation increasing: A larger proportion of women (nearing 40 per cent) are part of the workforce in rural India, higher than in urban regions.
Other triggers: Recovery in rural wages post-Covid, Rs3.1 trillion rural spending by states, elections in 10 states over the next two years, and a 66 per cent YoY rise in rural development allocation to Rs2.5 trillion in 2024-25 are positives.
Rural India thus presents a broader investment case with rising consumption, and multiple sectors may be beneficiaries. Automobiles, capital goods, chemical goods, consumer durables, telecommunications, financial services, agri processing, FMCG, tour operations and construction are some examples.
Investors looking to capitalise on the growth potential of rural India can consider the ICICI Prudential Rural Opportunities Fund, a new offering from ICICI Prudential Mutual Fund. The new fund offer (NFO) is open from January 9, 2025, to January 23, 2025. This open-ended equity scheme is designed to primarily invest in sectors that drive and benefit from the growth and development of rural India.
The author is director, Dhanasree Wealth Financial Services Pvt Ltd.