INDIA’S JOURNEY TOWARDS becoming a $35 trillion economy by 2047 requires the full participation of its vast rural landscape. While often overlooked, the rural economy is poised for significant growth, driven by long-term structural changes and a cyclical recovery in demand. Understanding the dynamics of this transformation is crucial for investors seeking to capitalise on the untapped potential of rural India.
India’s rural significance
Rural India is not only a major labour force provider for crucial sectors like manufacturing and construction but is also fuelling India’s consumption economy. The rural market, currently Rs76,400 crore, is projected to reach Rs16.34 lakh crore by 2025, representing a substantial consumption base. Inarguably, the rural economy has seen significant improvement over the last few decades because of the government’s focus on manufacturing, better access to socioeconomic facilities, etc. Several long-term structural growth drivers are now aligning to give a further boost to the rural economy. These include:
Continued shift towards manufacturing: Similar to China’s successful economic transformation, India is increasingly focusing on manufacturing, creating significant opportunities for rural areas. Additionally, the government’s schemes like Make in India and production-linked incentives are encouraging domestic manufacturing and attracting global companies to set up production bases in India, further boosting rural employment and income
Structural changes in employment: The share of non-farm jobs in rural areas is steadily increasing, indicating a shift away from traditional agriculture towards more diverse economic activities like manufacturing, construction and services
Rising income and consumption: Rural per capita income has surpassed $2,000, a threshold typically associated with increased discretionary spending. At the same time, real rural wages are turning positive, indicating a recovery in demand for labour and improving financial well-being for daily wage earners. This is evident in the declining share of food expenditure in rural households and the rising demand for consumer durables. Correspondingly, an improved quality of life is also becoming evident. Government initiatives have led to significant improvements in rural infrastructure, including road connectivity, electrification, access to tap water and literacy rates. This has enhanced living standards and created a conducive environment for economic growth
Financial inclusion and women’s participation: The expansion of financial services in rural areas through initiatives like the Jan Dhan Yojana has empowered individuals with access to banking, credit, and government subsidies, fostering economic activity. Further, the increasing participation of women in the rural workforce is contributing to higher household income and greater spending power
MSME recovery: Micro, small, and medium enterprises, which play a crucial role in rural employment, are showing signs of recovery after facing regulatory changes and external shocks like Covid-19
A broad-based theme
Rural development is a broad theme encompassing diverse sectors like automobiles, consumer goods, financial services, construction materials and agriculture. For investors, pegging to the rural theme will give exposure to multiple sectors and companies present across market capitalisations. Investing in this theme will potentially give investors an opportunity to participate in the India growth story and accrue long-term benefits. Further, despite overall market growth in recent years, certain sectors with significant rural exposure, like cement, power, and automobiles, have seen their valuations remain relatively stable or even decline in the last few months.
Utilising targeted investment strategies can unlock the vast potential of rural India and contribute to the country’s overall economic progress. However, investors must take into consideration their asset allocation strategy and invest as per their risk-return guardrails.
Thus, specialised mutual funds with a focus on the rural theme can be considered by investors looking to capitalise on the rural opportunity. One such offering is the ICICI Prudential Rural Opportunities Fund which is a new fund launched by ICICI Prudential Mutual Fund. It is an open-ended equity scheme which shall predominantly invest in sectors/companies contributing to and benefiting from rural India’s growth and development. The new fund offer is open from January 9, 2025, to January 23, 2025.
The author is founder, Cus Finserv