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Read Following article on "Why FMCG companies believe that rural markets have more potential than the urban markets?"
Going by the statistics revealed by India Brand Equity Foundation (ibef.org) last year (updated March 2017 and sourced from Nielsen), the Fast Moving Consumer Goods market in the semi-urban and rural India is estimated to cross the $ 100 billion mark by 2025. It was earlier anticipated that the rural FMCG market would expand at a compound annual growth rate (CAGR) of 17.41%, reaching the $ 100 billion figure from 2009 to 2025. The FMCG market of rural India constitutes 40% of the entire market for these consumer goods in India (in terms of revenue).
The consumption rate growth in the rural India has been constantly outpacing the consumption in urban areas of the country. Rural consumption increased by 9.7% in the last financial year, much better than the 8.6% growth witnessed in the urban spending.
Why rural markets are witnessing such consumption increase and show more potential?
Some of the major causes for such spike in the rural India’s constantly increasing FMCG consumption are as follows:
Rising income levels
A major cause for increase in the consumption of FMCT goods in rural India is the increase in the agricultural income owing to good monsoon rains over the past 15 years. Even though India received insufficient rainfall in financial years 2015 and 2016, things haven’t been very bad before and after that. The Massachusetts Institute of Technology carried out a study in this regard and found that the Indian monsoons have strengthened over the past one and a half decade.
Good monsoons automatically translate into better agricultural output, which in turn means better income for the villagers and farmers. Additionally, as majority of the rural income is disposable nature, the willingness and ability to consume is much more in these areas.
Talking to The Economic Times newspaper, Vivek Gambhir the managing director of Godrej consumer products said, “Consumer demand has been steadily improving over the last few months. We believe that as GDP growth gets better, it should lead to even stronger growth for FMCG in 2018. In particular, we expect a stronger bounce back in rural, while seeing continued improvement in urban demand as well.”
The Indian government has made specific plans for bolstering development in the rural areas, enabling villagers and farmers to earn higher incomes. Mr Arun Jaitley, the Finance Minister of India had announced many government schemes last year, including the liberalization of agricultural exports, 150% spike in the MSP (minimum support price) for crops and extra allocation for food processing.
All such initiatives are expected to further increase the rural per capita disposable income. In addition, stabilization of the GST implementation, health insurance programs for the rural poor population and major spending on the rural infrastructure are all expected to positively impact the rural consumption.
The betterment of connectivity and the rapid advancements made in technology over the past one decade has majorly increased business volumes in the small towns and rural geographies. India is being digitized at a very rapid rate and all such markets are benefiting from the fruits of such development.
People in rural areas are more brand-conscious today and get all the updated information through smart phones and television these days. As these people are more aware of the world-class products they can buy, they’re much better informed about the choices they need to make, compared to couple of decades ago.
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