Rural India making its presence felt: IDFC

Data show rural monthly per capital consumption expenditure grew at rapid 5.5%-a-year between 2009-10 and 2011-12

Signalling that the rural economy is set to witness stupendous growth, an IDFC report on Thursday said villages are witnessing expansion in purchasing power. To tap this opportunity, companies are marketing products specially designed to cater to the needs of rural areas, the report added.

“With its growing purchasing power, the rural market is no longer a residual retail market,” said IDFC in the report titled India Rural Development Report 2012-13. It stated that growing consumption demand in rural areas is reflected in the recent National Sample Surveys (NSS). “The recent data show rural monthly per capital consumption expenditure (MPCE) grew at a rapid 5.5 per cent a year between 2009-10 and 2011-12,” the report noted.

IDFC said that although the average rural MPCE was half of that in urban areas, the growth in rural income and expenditure could be witnessed from the sharp decline in rural poverty. According to the latest estimates based on the NSS 2011-12, poverty in rural areas dropped sharply to less than 26 per cent in 2011-12 from 34 per cent in 2009-10.

However, it raised concerns on the small land holdings by farmers in villages. The report said although small farms have proven to be more efficient than larger ones, holdings are often too small to generate sufficient income for family support. “Crucially, small farmers suffer serious disadvantages in marketing and distribution,” said the financial company.

The report highlighted that by 2010-11, almost 67 per cent of landholdings were marginal (less than one hectare to 2.5 hectare) from 51 per cent in 1970-71. Hence, there is a need for new collective farming arrangements in villages. It suggested steps such as evolving collective or producer organisations and sought private sector support in building supply chains and infrastructure for small farmers.

The report also pointed out there is a shift in the rural setup from subsistence farming to commercial farming. “The area under cultivation of vegetables, fruits, spices and flowers has grown significantly over the past decades, as that of non-traditional crops like soybean,” the report noted.

The growing importance of commodity exchanges, future trading and growing organised retail has narrowed the rural-urban divide. “Urban-rural relationships are multi-dimensional and evolving,” said the report.

However, that comes with a risk because along with cash crops such as cotton, staples like wheat are also traded. “As these markets expand to reach previously untouched areas, a significant portion of the rural population is exposed to high volatile commodity price movements,” said the report. Commercial farming, which requires better infrastructure setup, leads to higher borrowing funds as well.

To reduce the risk, it recommended the need for new farm models as the major portion of India’s sown area is either dryland or rain-fed. “New models of commercial farming better suited to such areas must be developed,” the report noted.