Market size is analyzed on the basis of the following eight factors: 1. Population 2. Literacy Level 3. Exclusion of Women 4. Growth Rates 5. Rural Infrastructure 6. Skewed Ownership of Goods 7. Communication and Media 8. Financial Inclusion and Credit Availability.
Factor # 1. Population:
In terms of number of people, India’s rural market is huge. The rural population of India is bigger than the total population of many countries in the world. Rural demographics show that rural and urban populations are different in terms of size, growth, sex and literacy levels in the country as well as in different states.
The Census of India 2011 figures show that a large part of India’s population still resides in rural areas (Table 2.4). The figures show that the total population of India was 1,210.2 million in 2011, of which the rural population was 833.1 million and the urban population was 377.1 million. India’s population is estimated to be 1342 million in 2017. To put these figures in perspective, consider that the population of USA is put at 324 million in 2017, which means that the rural population in India (estimated to be 872 million in 2017) is 2.69 times the population of USA.
The growth rate of population in India in 2001-11 is 17.64 percent. The growth rate of population in rural and urban areas is 12.18 percent and 31.80 percent, respectively. Bihar (23.90%) exhibited the highest decadal growth rate in rural population.
The slowing down of the overall growth rate of population is due to the sharp decline in the growth rate in rural areas, while the growth rate in urban areas remains almost the same.
There is also a wide variation in the rural population figures among states. Census 2011 shows that the three biggest states in terms of rural population are Uttar Pradesh, Bihar and West Bengal. Uttar Pradesh has the largest rural population of 155.11 million (18.62% of the country’s total rural population) followed by Bihar 92.07 million (11.1%) and West Bengal 62.21 million (7.5%). Sikkim, Mizoram and Goa have the smallest rural populations. Sikkim has a rural population of 0.45 million (0.1% of the country’s total rural population) followed by Mizoram at 0.52 million (0.1%) and Goa at 0.55 million (0.1%).
Though the proportion of rural population declined from 72.19 percent in 2001 to 68.84 percent in 2011, the figures show that more than two-thirds of people live in India’s villages and small towns. Himachal Pradesh has the largest proportion of rural population (89.96% of its total State population). The urban population increased from 27.81 percent in 2001 to 31.16 percent in 2011.
This attracts the attention of many companies and researchers who see this population as a huge market to sell their products.
However, the comparison with populations of other countries is faulty. That is because, the purchasing power of rural populations in India as compared to those in developed nations is entirely different. Much of India’s rural population is poor and lacks purchasing power. There is a great inequality of income and certain segments lack access to resources. Thus, while a rural inhabitant of USA can afford a comfortable lifestyle, many people barely subsist in rural India.
At the bottom rung, there is a sizeable population consisting of the lower castes. Census 2011 figures show that there are 201.4 million people belonging to scheduled castes (Dalits) and 104 million to scheduled tribes (tribals or adivasis). This means that about 300 million of the total 833 million rural people, that is, about 36 percent, live on the fringes. Indian society in rural areas is still feudal and untouchability is still common.
Writing about Dalits, Kumar (2014) Notes:
They were denied all the human rights and were forced to perform the filthiest occupations. They were supposed to serve the other classes of Hindu Social Order. In this sense Dalits were excluded in every walk of life… an ex-untouchable is deprived in all spheres, the social, economic, political, educational and religious spheres.
It only follows that some 36 percent of the huge rural population that we see as constituting the rural market are excluded from it deliberately by rural society. But this is not all.
Those living below the poverty line and marginally above it also lack resources for market participation. If we exclude the poor and those barely above the poverty line in rural areas, we will have to reduce the figure of rural population still further. That is to say, the size of the rural market is considerably reduced and is not as large as it looks in census figures.
Another factor that the population figures hide is that large parts of the country are suffering from extremism. Companies will be foolhardy to send their products or salesmen in such areas. According to The India Post (2009), “Naxalism today holds sway in vast swathes of 10 states in the country, involving about 180 districts.”
Estimates of the underserved population in rural areas, therefore, have to be reduced to a great extent, because a large part of the rural population simply cannot be serviced. Companies, thus, have to reduce the number of people in rural areas that they can serve. Their calculations have to be reduced by the BPL population, the Dalits and some tribals and the areas affected by extremism. We then find that the rural market opportunity is considerably reduced.
We estimate that the number of rural consumers that companies can realistically serve is about 300 million or less than half of what is shown in census figures. In this context, many of the rural marketing textbooks and reports, including those of highly respected multinational consultancies such as Deloitte, McKinsey and Accenture, are quite off the mark. It is hardly a wonder that many companies, relying on census figures, have ventured into rural areas only to face disappointment.
Factor # 2. Literacy Levels:
Literacy levels have a direct positive impact on brand awareness; educated people understand and respond to marketing messages. The higher the education levels, the greater are the impact on lifestyles. India’s literacy has been growing steadily and stands at 69 percent as per Census 2011 (Table 2.5).
Increase in rural literacy rate provides an opportunity for companies to market their products. Rural marketing efforts are stymied if people are illiterate. Despite the increase in literacy level in rural areas, which has jumped from 58.7 percent to 68.9 percent over the decade, India still has the largest illiterate population of adults, 287 million, or 37 percent of the total population of such people across the world, according to UNESCO’s Education for All (EFA) Global Monitoring report.
Due to increase in literacy levels and expansion of media, product awareness is higher and companies can better communicate with their rural customers. The efforts of the government, combined with those of private organizations and NGOs, have resulted in better education and higher literacy rate in rural areas.
However, there is a wide gender disparity in the literacy rate in India – effective literacy rates—that is, the total percentage of the population of an area aged seven years or above who can read and write with understanding—in 2011 were 82.14 percent for men and 65.46 percent for women. The literacy rate for urban women was 79.1 percent and for rural women it was 57.9 percent, showing a very large difference between rural and urban areas. Though the census gives a positive indication that growth in female literacy rates (11.8%) was substantially faster than in male literacy rates (6.9%) in 2001-11, societal attitudes towards female literacy remain to be cracked.
Factor # 3. Exclusion of Women:
Another feature of rural market is the exclusion of women. While India is seen to be modernizing at a fast rate, statistics do not support this belief. The Gender Inequality Index (GIL), calculated by the United Nations Development Programme (UNDP), has actually worsened over the years. According to UNDP figures, India now ranks 127 among 147 countries on the Gil in 2013, better only than Afghanistan in South Asia.
According to the Wall Street Journal (2012), the majority of the female workforce in India is unskilled and has only basic education. They often work in very poorly paid jobs with no security or benefits, and in many cases below the minimum daily wage. An illiterate woman working in an occupation that does not require skills has an average earning of Rs. 85 a day; an illiterate man doing such a job averages Rs. 177 a day.
The paper further reports that women who have progressed beyond high school level make up only about 6.5 percent of Indian women of working age, between the ages of 15 and 59 years. It quotes NSSO data – as of 2010, India had an estimated 112 million female workers. These figures included all workers doing a job for at least 30 days in the year.
Sex ratio, representing the number of females per 1000 male population, is another indication of the market. In India, the number of females has lagged behind the number of males and has reached somewhat alarming proportions. The child sex ratio in India has dropped to 914 females against 1,000 males—the lowest since Independence—in the provisional 2011 Census report. This shows a continuing preference for boys in society and the fact that females are not valued in India.
Female mortality rates are high and the share of the girl child in education is low. The 2001 Census showed a sex ratio of 946 in rural areas and only 900 in urban areas (Table 2.6). There has been improvement in the decade 2001-11 and the figures are 947 for rural and 926 for urban areas in 2011. However, there has been a considerable decline in the sex ratio in 0-6 age group, showing that the sex ratio will continue to be skewed in years to come. It also shows society’s cultural attitudes towards females that advertisers must follow.
The sex ratio tells companies about the kind of products to sell and how to target them. There are restrictions on what girls might wear and how they should behave. Singh and Bhandari (2012) point out that in the case of married women, access to money is limited as it is controlled by males, particularly in non-metropolitan households. As in other traditional societies, women are required to conform to their roles of raising children and looking after the house. Even ads showing modern women do not succeed in rural areas. The combined effect is that many women are excluded from the rural market. Empowerment of women will greatly enhance the power of rural markets.
Factor # 4. Growth Rates:
The growth rate of population in India in 2001-11 was 17.64 percent, according to Census 2011 (Table 2.7). The population growth rate in rural areas during the period was 12.18 percent, while in urban areas it was 31.80 percent. This shows that though India is rapidly urbanizing, rural areas still have a large underserved population. The slowing down of the overall growth rate of population is due to the sharp decline in the growth rate in rural areas, while the growth rate in urban areas remains almost the same.
Factor # 5. Rural Infrastructure:
Historically, infrastructure building in rural areas has been hampered not so much by the lack of intent or finances as by issues in programme design, implementation, governance and maintenance. A combination of bad policy and corruption has kept rural infrastructure in a sorry state. This is the reason why poverty continues to exist in rural India. The Annual Report 2013-14 of the Ministry of Rural Development says that using measures of human development, such as education, health and standard of living indicators, it is evident that poverty is widespread in rural India.
Despite thousands of crores of rupees that have been funneled into the rural sector by the government and other agencies, infrastructure in all areas remain pathetic, as seen from the following indicators:
i. India is among those countries in the world which have high child malnutrition. India ranks 55 among 76 emerging economies in the Global Hunger Index (GHI) 2014 and trails behind countries such as Thailand, China, Ghana, Iraq, Sri Lanka and Nepal.
ii. Though India has achieved nearly universal enrolment in lower primary education, school attendance gaps persist among socio-economic groups. For every 100 children who enroll in Class I, about 30 drop out before reaching Class V and more than 40 before reaching Class VIII.
iii. Poor hygienic conditions cause high child mortality rate. The under-5 mortality rate in rural India was 56 per 1,000 live births in 2012, which remains very high.
iv. Rural poverty has a regional concentration in states such as Jharkhand, Bihar, Assam, Odisha, Chhattisgarh, Madhya Pradesh and Uttar Pradesh, where the proportion of the poor far exceeds their share of population. People in these states are becoming successively poorer – in 1993-94, nearly 50 percent of India’s rural poor lived in these states. This figure rose to 63 percent in 2009-10 and 65 percent in 2011-12.
v. With the current pace of development, India will find it difficult to achieve the crucial UN Millennium Development Goals (MDG) related to reduction in poverty, hunger and infant mortality. The poverty ratio is currently 26.7 percent.
vi. Suicide rates among Indian farmers were 47 percent higher than they were for the rest of the population in 2011. In some of the states, worst hit by the agrarian crisis, they were over 100 percent higher.
Factor # 6. Highly Skewed Ownership of Goods:
One contradiction in rural India is that while some reports talk of increased prosperity, connectivity and spending power translated in buying of luxury goods, there is also persistent poverty. The situation is so desperate that farmer suicides have multiplied over the years across India. Clearly, the development in villages is highly skewed, so also is the ownership of goods.
Sridhar and Singh (2011) report the data from a series of village surveys conducted by the Foundation for Agrarian Studies (FAS), as part of the continuing Project on Agrarian Relations in India (PARI) that began in 2005. The data on ownership of assets across social groups show the stratified nature of the demand for these goods in rural markets. In short, the data show the utter futility of making statements about an aggregative notion of ‘rural demand’ without taking into account the differences across social groups.
The data is based on a survey in 14 villages in six states, conducted in the period 2005-09. The states included in the survey were Andhra Pradesh, Uttar Pradesh, Maharashtra, Rajasthan, Madhya Pradesh and Karnataka. The survey covered 3,139 households.
The data reveal that the ownership of TV dominates other durables and services, with households owning a television about 50 percent in most villages. But there is low penetration of TV in villages where access to electricity is limited. However, in Dalit villages, the ownership of TV is much lower.
Ownership of radio and two-in-one and cassette recorders is generally lower than that of TV, suggesting that the TV is the primary mode of entertainment and access to information. Only three households—of the more than 3,000 surveyed over the years—possessed a computer. All three were in one village—Ananthavaram—in south costal Andhra Pradesh.
In villages where almost all the residents are Scheduled Tribes, there is a sharp contrast with other surveyed villages. Data from two villages where almost all the residents are Scheduled Tribes (Dungariya in Rajasthan and Badhar in Madhya Pradesh), show a deep societal division among the surveyed villages. The fact that not a single household in either village has an electricity connection appeared to disqualify them from accessing any service or owning any of the assets.
The differences are stark. Ownership of TV in villages surveyed shows that only 7-12 percent of Dalit households owned one, while 86 percent and 72 percent, respectively, of Other Caste households did so.
The results of the surveys, thus, show the extremely skewed nature of the ownership of assets across social groups. They are a clear indication that general economic ‘prosperity’ is not good enough to even out extreme inequalities. They also provide a sober antidote to the euphoria that prevails in the media about the extent of access to basic goods and services in rural India.
Factor # 7. Communication and Media:
Most villages exist in ‘media dark’ or ‘media grey’ environments, that is, they either lack access to media exposure altogether or have a very limited access to media. Penetration of TV is about 50 percent in most villages, while radio penetration is just about 12-14 percent. However, with mobile phones with a receiver option becoming common, rural areas can now be covered by radio stations wherever such services are available.
Newspapers reach rural areas depending on their proximity to cities. They are served by ‘dak’ editions of large newspapers, and some local papers do exist as well. However, it is ironic that ‘national’ newspapers ignore rural areas, where a majority of the population lives. Rural issues are conspicuous by their absence in the national press. Limited by both reach and content, such newspapers are hardly appropriate vehicles for rural marketing.
Rural areas are generally ‘invisible’ to the national press which lacks resources and willingness to cover two- thirds of India’s population living in villages. Only one large newspaper had the position of ‘rural affairs editor’, which has been discontinued since. A look at large newspapers and national TV reveals that they are obsessed with politics and urban issues and have failed to penetrate rural markets and to highlight rural issues in the national media.
The limited reach of the mass media imposes limitations on communications to rural consumers. Companies are at a loss as to where and how to advertise to reach the rural population. In recent years, many newspapers have started editions from smaller towns, increasing coverage to rural areas. However, only a few of them have respectable circulations and advertising revenue.
Factor # 8. Financial Inclusion and Credit Availability:
The lack of financial inclusion is another aspect of rural markets. This means that millions of people do not have access to banking services.
Yunus (2007) describes how it impacts the poor:
“None of us like the idea of apartheid. We object when we hear about such a system in any form, anywhere…. But our financial institutions have created a worldwide system of apartheid without anyone being horrified by it. If you don’t have collateral, you are not credit-worthy. To the banks, you are not acceptable on our side of the world. “
Rural marketing cannot succeed without dealing with this non-stop horror story, with exclusion, which prevents savings and subsequently spending on goods. Financial inclusion is essential to bring millions of people out of poverty and participate as consumers. Financial inclusion is defined as the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income group.
Yunus explains, “If the poor are to get the chance to lift themselves out of poverty, it’s up to us to remove the institutional barriers we’ve created around them. We must remove the absurd rules and laws we have made that treat the poor as nonentities.”
In India, the term financial inclusion was recognized only in 2005, when RBI, in its annual policy statement urged banks to review their existing practices to align them with the objective of financial inclusion. Since then, the country has made many efforts for financial inclusion of rural population. Several initiatives have been announced from time to time.
State-owned banks have been imposed priority sector lending requirements, regional rural banks have been established, the National Bank for Agriculture and Rural Development (NABARD) and cooperative banks also operate in the area. The RBI has taken several steps to reach rural markets. It has encouraged expansion of rural bank branches, resulting in increase in branch network from around 8,000 in 1969 to 86,425 rural branches as on 31 March 2016 (The Times of India 2016).
Some of the steps taken by RBI are described below:
i. Opening of No-Frills Accounts:
Rural populations can be served if they have basic banking no-frills accounts with nil or very low minimum balance with affordable bank charges and fees.
ii. Know-Your-Customer (KYC) Norms:
People in rural areas often lack documents required to open bank accounts. KYC requirements for opening bank accounts were relaxed for small accounts in August 2005. The Aadhaar number issued by Unique Identification Authority of India (UIDAI) has helped in this direction.
iii. Business Correspondents (BCs):
Realizing that bank branches in rural areas are not economically viable, RBI permitted banks to engage business facilitators (BFs) and BCs as intermediaries for providing financial and banking services. The BC model allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing the last-mile problem. With effect from September 2010, for-profit companies have also been allowed to be engaged as BCs.
iv. Use of Information Technology:
Banks are using information and communications technology (ICT) to provide doorstep banking services through the BC model. Through ICT, accounts can be operated by even illiterate customers by using biometrics.
v. Electronic Banking Transactions (EBT):
Electronic transactions reduce the dependence on cash. By leveraging ICT-based banking through BCs, social benefits and those provided by the government can be electronically transferred to the bank account of the beneficiary, thus reducing dependence on cash and lowering transaction costs. Electronic payments and micro-payments also introduce safety and security for rural population.
vi. General Credit Card (GCC):
Banks have been asked to introduce a GCC at their rural and semi-urban branches, to provide hassle-free credit to banks’ customers based on the assessment of cash flow without insistence on security, purpose or end use of the credit. This is in the nature of revolving credit, entitling the holder to withdraw up to the limit sanctioned.
vii. Simplified Branch Authorization:
In 2009, domestic scheduled commercial banks were permitted to freely open branches in Tier-3 to Tier-6 centres with a population of less than 50,000 under general permission. In the states of North East India, including Sikkim, domestic scheduled commercial banks can now open branches in rural, semi-urban and urban centres without taking permission from RBI in each case. Banks have been mandated to allocate at least 25 percent of the total number of new branches during a year to unbanked rural centres. Banking services need not necessarily be extended through a physical branch, but could be provided through any of the various forms of ICT-based models.
Few of these efforts, however, have been successful. Despite these initiatives, a significant proportion of rural households still remain outside the formal banking system. It is estimated that about 40 percent of Indians lack access even to the simplest kind of formal financial services. The government’s push for cashless transactions following the demonization in 2016 may well change that.
Rural initiatives have not been able to overcome the lack of reach, higher cost of transactions and time taken in providing those services. Products designed by the banks are not tailored to suit the needs of low-income families. The existing business models do not pass the test of scalability, convenience, reliability, flexibility and continuity. About 500,000 villages are yet to be provided with banking services. With better banking and payment systems, companies will find it easier to transact with rural consumers.
Financial inclusion is essential to remove the financial separation of rural consumers. Without bringing people into the mainstream, companies tapping rural markets will always face severe hurdles of doing business there.