Rural - India Oct 10 EDELWEISS

Rural India: Transcending Boundaries
Preface
In the past two decades, if ever India was close to achieving inclusive growth for rural
masses, it is now. The gradual transformation of one of the central pillars of growth is
underway. In this ever changing environment, it is important to assess how rural masses are
coping with the transformation on all fronts, be it income or consumption patterns or the
socio-economic changes. To get deeper insights into these issues, we commissioned a study
across five states, 15 districts, 200 villages, and 1,989 rural households. A team of three
analysts from Edelweiss travelled more than 7,000 kms across the length and breadth of the
country to bring you the flavour.
In our survey, we were assisted by the largest rural consultancy firm MART, based out of
Delhi, involved with many IMF and ADB sponsored projects. With MART’s assistance, we
designed the survey structure, indentified states, districts and villages to get a truly
representative sample. In some cases, their representatives also accompanied us as
language became a barrier.
While the idea of the study was to generally understand transformation in the countryside,
we set a few specific objectives for ourselves:
a) How sustainable is the rise in rural incomes?

b) What are the factors driving it?
c) How these changing income patterns are impacting consumption, savings habit and
socio-economic outlook of rural households?
d) What is government’s role in this transformation?
e) Is rural India changing from sole dependence on government subsidies to rising private
initiative on account of improving rural infrastructure?
f) What this transformation offers to businesses and investors?
In addition, we also interviewed FMCG and auto dealers/distributors and EPC contractors
across different states that have substantial exposure to rural demand. Our attempt was to
keep this survey free from a selection bias and independent of our stock view.
The survey indicates that trends traditionally associated with rural India—
overdependence on the farm sector, high incidence of disguised unemployment,
fragmented land-holdings, unproductive farming, low income levels and suppressed
consumption—are reversing gradually. Rural incomes have increased 50% in the past
five years with an expanding middle class which is aspiring to mimic urban consumption
patterns. Households’ attitude to education has undergone a change, which is now considered
a serious investment. The intensification of government efforts through schemes such as
MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and Bharat Nirman
has been a key reason behind inclusive economic growth.
In this survey report, we bring you deeper insights into the nature, drivers, pace and
sustainability of this transformation and what it means for businesses and investors.
Wish you a happy festive season!
Vikas Khemani
Head, Institutional Equities
Edelweiss Securities Limited 1

Edel: Pulse
Contents
Rise of Rural Middle Class: Redefining Boundaries ................................................... 5
Income trends: Rising incomes, expanding middle-class ............................................ 7
Occupational shifts: Rural folk no longer farmers only.............................................. 13
Drivers of the shift: Government schemes playing a significant role........................... 14
Rural income perception: Satisfied and optimistic.................................................... 19
Insights from industry interactions ........................................................................ 20
Consumption: Aspiring For An Urban Lifestyle ....................................................... 22
Rural market: Big and growing ............................................................................. 24
Discretionary spending: Gaining wallet share steadily .............................................. 24
Consumer durables: Ownership and aspirations on a high ........................................ 28
Consumption drivers: Aspirations, affordability and availability ................................. 34
Rural Finances: Prudent Savings And Leverage ...................................................... 38
Savings: On the rise; triggering huge demand for micro banking, micro insurance ...... 40
Rural households: Prudent savers with not so prudent investments ........................... 42
Saving channels: Undergoing a change with tilt towards banking .............................. 44
Debt: Powerful tool to spur economic activity as few households are leveraged........... 46
Banking penetration: Need for greater inclusion; could be a game changer ................ 47
Education: Giving Wings To India’s Socio-economic Development ......................... 52
Literacy levels: Steadily rising with growing appetite ............................................... 54
Partners in increasing education expenses: Government and rural households ............ 55
Perception change: Education now considered a window of opportunity ..................... 57
Government education programmes: Right to Education Act a great leap forward ....... 59
Annexures
Annexure 1: State wise summary findings .................................................................... 64
Annexure 2: Government programmes (MGNREGA and Bharat Nirman) ........................... 70
Annexure 3: Government education programmes .......................................................... 75
Annexure 4: Survey methodology ............................................................................... 81
2 Edelweiss Securities Limited

Executive Summary
Rural India is undergoing a favourable transformation. While this fact is widely known, what’s
lacking is the deeper understanding of this phenomenon. Paucity of information available from
rural India is surely one of the reasons for this. Therefore, to fill this knowledge-understanding
gap and overcome the hurdle of paucity of data, we set out to do a survey of rural India. The
sample of 1,989 rural households was scientifically picked from 5 different states and 200
villages to ensure true representation and freedom from biases. The survey questionnaire was
designed to explore various facets of rural living. After travelling 7,000 kms over two months
through rural India, we gained much deeper insights into our rural economy.
Rise of rural middle class: Redefining boundaries

The size of the rural middle class (earning INR 90K to 200K per annum) has catapulted
~35% in past 10 years and ~75% of the respondents are optimistic about the
sustainability of the income growth momentum. Average annual rural household
income stands at ~INR 76,000, after recording a ~8% CAGR over last five years. This
rise in incomes is characterised by a shift in occupations towards non-farm sector such
as non-farm labour, self-employment in non-farm (traders, shopkeepers), etc. One of
the key drivers of this change is the intensification of government efforts towards
inclusive growth. Schemes such as MGNREGA, Bharat Nirman, among others, which
not only offer employment opportunities, but also helps build rural infrastructure.
Consumption: Aspiring for an urban lifestyle

The average annual rural household consumption expenditure stands at ~INR 53,000,
a ~5% CAGR in the past five years. We estimate the current rural consumption market
at USD 190 bn. This market is expected to triple to USD 600 bn by 2020. Expanding
rural middle class, increased reliability of incomes, improving access to products and
aspirations for urban lifestyle are key drivers of consumption. While share of food in
consumption is on the decline, that of education, travel and personal care is rising.
Ergo, in the coming years, India’s consumption story is likely to be characterised by
rise in discretionary spending by rural households. Encouraged by the demand
potential in the rural economy, companies are also customising products to cater to
rural needs and actively promoting them through innovative delivery channels.
Rural finances: Prudent savings and leverage

Average annual rural household savings stand at ~INR 23,000, after recording a CAGR
of ~17% over the past five years, which is double the income CAGR. Nearly 78% of
rural households now earn enough to save compared with 2005 when the number
stood at 42%. With rising incomes and savings, increasing emphasis on education, and Nischal Maheshwari
expanding business activities, the need for savings and credit instruments is rising. +91 22 6623 3411
Today, ~62% of rural households have bank accounts against ~33% in 2001. ‘Cash nischal.maheshwari@edelcap.com
under the mattress’ is still high, but customised financial savings products (micro
banking) can bridge the gap. Among institutions serving rural households, microfinance Kapil Gupta
institutions are registering exponential growth. +91 22 4063 5406

kapil.gupta@edelcap.com
Education: Giving wings to India’s socio-economic development
Another important transformation captured by our study is the changing perception of Dipojjal Saha
education among rural households. Expenditure on education is increasingly being +91 22 6623 3377
considered a serious investment rather than unnecessary expenditure. Nearly 65% of dipojjal.saha@edelcap.com
respondents are now saving for education of their children. Higher education levels are
traditionally associated with rising incomes and productivity and fading socio-economic Suruchi Chaudhary
barriers of caste, class and gender. Here again, government is playing a big role in +91 22 6623 3316
bringing education to rural doorsteps. Government’s budget allocation to school suruchi.chaudhary@edelcap.com
education and literacy has increased eight-fold since 2001, reaching INR 330 bn in 2010.

Edel: Pulse
Stocks to play on the rural consumption theme

Current Market price Market cap P/E (x) P/B RoE (%)
Company
Reco. (INR) (USD mn) FY11E FY12E FY11E FY12E FY11E FY12E
Agri related
Deepak Fertilisers and Petrochem. Buy 174 340 9.1 7.1 1.3 1.1 17.1 19.0
Jain Irrigation Systems Hold 1,240 2,085 28.7 22.1 6.7 5.3 26.2 26.9
Shree Renuka Sugars Buy 82 1,217 8.0 12.6 1.8 1.6 35.6 17.5
United Phosphorus Buy 188 1,826 12.5 10.0 2.1 1.8 18.2 18.3
Usher Agro Buy 91 45 7.0 4.2 1.9 1.3 33.8 39.1
Coromandel International* NR 619 1,953 15.3 12.7 4.6 3.7 33.0 32.2
Rallis India* NR 1,426 610 20.5 16.6 5.6 4.5 30.3 29.5
Auto
Bajaj Auto Hold 1,448 9,251 19.4 18.0 8.4 5.9 56.4 40.8
Escorts Buy 199 465 10.3 8.7 1.2 1.1 11.6 12.2
Hero Honda Motors Buy 1,864 8,214 16.4 14.3 6.9 5.2 52.8 43.1
Maruti Suzuki India Hold 1,482 9,448 19.2 17.3 3.1 2.7 17.4 16.5
Mahindra & Mahindra Buy 691 8,827 17.7 15.7 3.5 2.9 25.3 22.4
BFSI
LIC housing finance Buy 1,352 2,833 14.6 11.7 3.0 2.5 22.6 23.2
SKS Microfinance* NR 1,333 2,202 33.0 23.3 5.2 4.4 18.5 20.3
Punjab National Bank Buy 1,285 8,945 8.9 6.8 2.1 1.7 25.0 26.6
Shriram City Union Finance Buy 585 637 12.4 10.1 2.5 2.0 21.0 21.4
State Bank of India Buy 3,139 44,026 15.9 13.5 2.3 1.8 17.8 18.0
FMCG
Asian Paints Buy 2,789 5,902 28.7 23.7 12.2 10.0 46.9 46.3
Dabur Buy 105 4,002 30.7 25.6 13.8 10.7 48.8 45.5
Emami Buy 489 1,634 32.2 26.6 8.0 6.7 29.4 29.9
Godrej Consumer Buy 413 2,946 28.4 23.5 6.9 5.8 34.8 29.7
Telecom
Bharti Airtel Hold 356 29,577 17.7 14.3 2.7 2.3 16.7 17.6
Idea Cellular Hold 76 5,528 39.0 38.2 2.1 2.0 5.5 5.3
Spice Mobility* NR 98 161 7.7 5.0 3.2 1.8 53.5 55.7
Pharma
Lupin Buy 402 3,948 19.7 16.6 5.0 4.1 28.3 27.2
Torrent Pharmaceuticals Buy 570 1,064 15.9 12.8 4.3 3.4 31.6 30.8
Media
Dish TV Buy 55 1,270 NM 101.7 30.8 23.6 NM 26.3
Consumer Durables
Whirlpool India* NR 295 827 19.8 14.9 NM NM 46.0 54.0
VIP Industries Buy 538 336 16.8 12.3 7.3 5.2 51.1 49.6
Source: Edelweiss research
Note: * refers to Bloomberg estimates as the stock is not under coverage, for BFSI P/Adj.B data instead of
P/B, NR= Not rated

Rise of Rural Middle Class: Redefining

Boundaries
• The average annual rural household income stands at ~INR 76,000, after registering a
~8% CAGR over 2005-10 (Edelweiss survey 2010).
• Further, 75% of survey respondents are optimistic about the growth momentum
continuing in the foreseeable future.
• More importantly, size of the rural middle class (earning INR 90K-2 lacs per annum) has
jumped ~35% over the past 10 years. In our survey, ~19% households fall into the
rural middle-class category.
• The non-farm sector is replacing the farm sector as major contributor to rural incomes.
Farm-sector contribution is expected to dip to 35% by 2020 from ~50% in 2005.
• On the occupation side as well, the farm sector’s share is giving way (64% to 43%) to
labour (30% to 36%), self-employed in non-agri categories (1-11%), and regular
salaried workers (4-9%) over the past decade.
• This rise in the non-farm sector is helping reduce over-dependence on the farm sector
(which has led to disguised unemployment over the years in farm sector) and is helping
improve reliability and seasonality of rural incomes.
• Relatively higher earnings quantity and quality in the non-farm sector is a big attraction.
Low remuneration in the farm sector (53% respondents) is the primary reason behind
occupation shift along with government schemes/incentives (30% respondents).
• Another main catalyst for the change is increasing resources in village such as
infrastructure, finance, etc., (53% respondents). Improved infrastructure is the result of
various government initiatives like MGNREGA and Bharat Nirman.
• MGNREGA has been a big employment provider, generating more than 2 bn person days
of employment in FY09 across 615 districts, which is 2.4x the person days generated in
FY07 (in 200 districts).
• Further, MGNAREGA has put upward pressure on wages throughout the rural economy.
67% respondents stated hike in wages as primary reason for shift in income patterns.
• The MGNAREGA payment policy of directly crediting the wage in the bank account of
workers makes the delivery channel very robust. In FY09, the government opened ~69
mn MGNREGA bank and post office accounts to disburse wages.

Edel: Pulse
Chart 1: Rise of rural middle class (90k – 2 lacs) Chart 2: Average annual household income on rise
120.0
175,000
96.0 140,000
(% of respondents)
105,000
(INR)
72.0
75 70,000
83
48.0
35,000
24.0 0
Self-emp.
Average
Self-emp.in
salary/wages
Labour
19
non-agri
in agri
15
Regular
0.0 2 5
2001 2010
> 5 lakhs 2-5 Lakhs 90K-2 Lakhs < 90 K
2005 2010
Rural middle class

expanded ~35% in 10 Income of labour Average annual
years increased at the fastest income increased
pace ~17% CAGR ~8% CAGR
Chart 3: Shifts in occupation towards non-farm Chart 4: Reasons for occupation shift in last decade
125 80
(% of respondents)
1 64
100 1 1
(% of respondents)
4 11
48
9
75 30 76
32
36 53 53 48
16 38
50 28 28 25
64 0
25
Increasing resources
Migration
involvement
Easier credit
More income
Decreasing profits in
Govt. prog./
43
Increasing market
generation
incentives
prev. occupation
Low risk
demand
in village
0
2000 2010
Self-employed in agri Labour
Regular salary/wages Self-employed in non-agri
Others
Over dependence on farm Pull factors- pulling people Push factors- pushing
sector reducing towards non-farm sector people out of farm sector
Source: Edelweiss survey, NSSO survey, MART Knowledge Center, MAX-NCAER survey

Rural India is seeing a shift from the farm to non-farm sector and this trend seems to have
gathered pace over the past decade. Accordingly, income levels and patterns are also
evolving. An average annual rural household income stands at ~INR 76,000, after posting a
~8% CAGR over 2005-10 (Edelweiss survey 2010). Further, 75% of survey respondents are
optimistic about this growth momentum continuing in the foreseeable future. The distribution
of income further suggests that the size of the rural middle class (earning INR 90K-2 lacs per
annum) has increased by an impressive ~35% over the past 10 years.
While incomes have generally risen in almost all rural occupations, what stands out clearly is
Traditionally, farm sector
the rise of the non-farm sector in India’s rural economy. Traditionally, the rural economy has
is characterized by high
incidence of disguised been dominated by agriculture (farm sector). Lack of opportunities in the non-farm sector
unemployment, low and poor skill levels led to overdependence on the farm sector, high incidence of disguised
income, and suppressed unemployment, fragmented land holdings, unproductive farming, low income levels,
consumption
suppressed consumption, and low aspiration levels.
While these trends have been changing slowly over the past few decades, the pace of change
seems to have gathered momentum in the past decade or so and is driven by a variety of
factors.
In the following section of the survey analysis, we explore the changing trends in rural
incomes-levels of income, distribution of income, seasonality and reliability of income, drivers
of higher income growth, among others. At the same time, we analyse the shifts in
occupation among the rural households and investigate into the reasons for these shifts.
Further, we also bring insights from our interactions with industry people such as
dealers/distributors who have exposure to rural demand.
This section covers the following:
• Rural incomes: Rising incomes, expanding rural middle class
• Occupational shifts: Rural folk no longer farmers only
• Drivers of shift: Government schemes playing significant role
• Rural perception on income: Satisfied and optimistic
• Insights from industry interaction
Income trends: Rising incomes, expanding middle class

Over the past five years, The average annual income of a typical rural household is estimated at INR 75,864 in our
the annual average rural survey, up from INR 52,000 in 2005 (NCAER), a CAGR of 8%. Along with rise in incomes,
household income has the distribution of income has also improved quite significantly. Among states covered in
grown at ~8% CAGR
our survey, Tamil Nadu has the highest average annual household income of INR
1,02,515, while Bihar has the lowest at INR 58,121.
The overall dependence of household incomes on the non-farm sector is on the rise. For
example, the NSSO survey data from 1985 to 2000 captures the shift in sources of
income, with contribution made by income from land cultivation and fishing in the total
rural income falling persistently during the stated period.

Edel: Pulse
Chart 5: Average household income increased at 8% CAGR in past 5 years

175,000
140,000
105,000
(INR)
The labour category saw
the maximum % increase
in income in five yrs 70,000
35,000
0
Self-emp. Labour Regular Self-emp.in Average
in agri salary/wages non-agri
2005 2010
Source: Edelweiss survey and Max-NCAER 2007
Contribution of the farm income to total rural income slipped below 50% in 2005 and our
survey agency estimates that by 2020, this trend will cause the share of farm income in
total rural income to fall further to below 35%.
Chart 6: Share of farm income on the decline

225 635
190 620
In line with occupation

155 605
(INR)
shifts, farm sector’s
(INR)
contribution to total
income is falling
120 590
85 575
Income contributed per INR 1000, all
hosuehold types
50 560
87-88 93-94 99-00
Fishing & other agr. Enterpr. Cultivation (RHS)

Source: NSSO survey
This is important because, generally productivity levels in the non-farm sector are
relatively higher than in the farm sector, and if the shift is from a less productive to a
more productive occupation, it is likely to boost incomes and living standards. Non-farm
incomes are not directly constrained by size of land holdings and monsoon. Regularity of
income receipt is also much better in non-farm sector as compared to farm sector.

Chart 7: Share of farm income will continue to decline

70.0 66.0
54.0
56.0
46.0
42.0
34.0
(%)
Farm share will continue
to decline over next
decade, helping reduce 28.0
overdependence on farm
sector
14.0
0.0
2005 2020 (E)
Non-farm income share Farm income share
Source: MART Knowledge Center
Importantly, what stands out from our survey is that while incomes of almost all
occupation categories rose, those involved in labour activities have seen maximum
percentage increase (more than 100%) in their average annual income over last 5 years
and largely this labour activity is in the non-farm sector. Government schemes precisely
target this area and, therefore, our sense is that a significant percentage of increase in
non-farm incomes has to do with government schemes.
Case Study: MGNREGA bringing opportunities at rural doorsteps
Our survey team visited Tonk district near Jaipur in Rajasthan for a first-hand
experience of how government schemes in rural areas, particularly MGNREGA, are
impacting the lives of rural people. We visited a household in the village, where both
the husband and wife have been working in the construction sector in some semi-
urban area far from their village. Since the work was seasonal, the whole family had
to migrate to a far-off semi-urban area where work was available and once the work
was completed in a few months, the couple would return to their village. While the
husband worked as a mason, the wife worked as a helper at construction sites. Both
were earning, but gender discrimination meant that the wife was getting paid less
than the husband.
However, some time ago the couple got to know that the government’s MGNREGA
scheme is offering employment opportunity in the construction area in their own
village. The wife approached officials and got enrolled in construction work while the
husband continued to pursue his previous work of migrating to semi-urban areas for
work and then returning to the village. As per MGNREGA scheme, only one person
from a household can participate.
Two key changes happened with this. First, the wife who was earning much less
earlier, has started earning higher wages (MGNREGA does not discriminate between
males and females), close to INR 90 per day. Second, the family as a whole does not
have to migrate every time there is work in some urban/semi-urban area. Further,
this allowed the household to send the children to a school and also afford some
private tuition because of better income.

Edel: Pulse
Another important development is that rise in income has been associated with
improvement in distribution of incomes. While ~65% of households are still in the lower
income bracket (< 90K), the number has dipped from 83% in 2001.
More importantly, size of In fact, one of the most important features of income distribution is the expansion in the
the rural middle class has
rural middle class. This middle class, i.e. households earning 90K-2 lacs per annum has
expanded an impressive
~35% in past 10 years expanded by ~35% over the past 10 years and today our survey estimates that 19% of
the rural households fall into the middle class category.
Chart 8: Middle class (90k – 2 lacs) is expanding in rural areas

120.0
96.0
(% of respondents)
72.0
75
83
48.0
24.0
19
15
0.0 2 5
2001 2010
> 5 lakhs 2-5 Lakhs 90K-2 Lakhs < 90 K
Source: Edelweiss survey, Great Indian Middle Class & NCAER 2004
Our survey clearly points out that this rise in incomes has been supported by a fairly
diverse set of factors.
First, implementation of government schemes such as MGNREGA and others has raised
minimum wage across the board in the rural economy. Approximately, 67% respondents
in our survey cited hike in wages as the primary reason for shift in income patterns,
which is largely driven by government schemes. In fact, in our separate interactions with
distributors and dealers in auto and FMCG space, we found that because of government
employment schemes, even dealers themselves are seeing an upward pressure on wages
for their employees.
Second, government schemes are undertaking projects which are labour intensive and
heavily targeted towards the lower socio-economic strata (R3 and R4 categories) in rural
areas. This is helping improve income distribution.
Third, improvement in village infrastructure, such as roads, power, telecom, irrigation

Schemes such as
facilities, etc., is boosting rural productivity and hence incomes. Around 40%
MGNREGA are putting
upward pressure on respondents in our survey cited this reason for higher incomes. Better infrastructure is
wages throughout the spurring private business initiatives in rural areas.
rural economy
Fourth, considerable rise in minimum support prices for major crops by central/state
governments over the past few years has also been quoted as a reason for higher
incomes.

Fig. 1: MGNREGA job card, district Medak, A.P.
On the farm sector side,

increase in MSPs by the
government has
supported incomes
Finally, the reduced role of middle men in the crop sale chain is leading to better price
realisations on the part of farmers. In our survey, ~38% respondents sold the crop
produce to the village middle man or village trader in 2005 whereas in 2010, only 25%
respondents are now dependent on the village middle men for selling their produce. This
means that more farmers are taking their produce to the nearby mandi, where they get
relatively better prices.
This could be partly on account of improved road connectivity and better price
information available to farmers through higher use of mobile telephony.
Chart 9: Reasons for shift in incomes over past decade

80
(% of respondents)
64
48
32
Role of village middle- 16

man is on decline, leading
to better realisations on 0
farm produce
Rise in agri prices
business/livelihood
Development of
Wages/salary
Rise in crop yield

Usual increase with
Increase in sources
increase in prices
infrastructure
increase
Growth in
village
of income
Source: Edelweiss survey

Edel: Pulse
This mandi network, however, varies from state to state and influences overall
realisations of farmers. Gujarat seems to be lagging the mandi network, thereby
suppressing realisations on crop produce, whereas Haryana is the leader. This has helped
raise income levels of farmers in Haryana compared to Gujarat.
In fact, state-wise trends in incomes show that high-income households are largely
concentrated in the states of Haryana and Tamil Nadu where more than 30% households
have income greater than INR 90,000 against 26% in Chhattisgarh and just 19% in
Gujarat, which is even lower than 24% in Bihar.
Higher income levels in Haryana could be attributed to benefits of the Green Revolution
(use of high-yielding varieties of seeds, better irrigation facilities etc) over the past few
decades and these benefits have been largely absent in states like Bihar and
Chhattisgarh.
In Tamil Nadu, higher income levels could be the result of larger chunk of rural
population involved in labour activities (~60%) compared to other states. This labour is
generally better educated and is primarily involved in the non-farm sector. As we
established in our previous section, households which have seen maximum increase in
their incomes over the past five years are the ones involved in labour activities.
Chart 10: State-wise distribution of rural income

120
96
(% of respondents)
States with better mandi-

72
network(Haryana) have
higher farm incomes than
those without (Gujarat)
48
24
0
Average Bihar Haryana Gujarat Chhattisgarh Tamilnadu
> 5 lakhs 2-5 Lakhs 90K-2 Lakhs 60-90K 30-60K Upto 30K
The question then arises as to why Gujarat with more percentage of people involved in
labour activities and self-employed in agriculture (both occupations are associated with
higher income levels) has lower average household income than Haryana. The possible
reason for this anomaly could be the lower productivity or lower realisations of agri-
produce in Gujarat, which possibly could be due to not-so-well developed mandi network
in Gujarat as compared to some other states, particularly Haryana and Punjab.

Chart 11: State-wise distribution of occupation

115
(% of respondents)
92
69
46
23
Gujarat
Chhattisgarh
Tamil Nadu
Haryana
Bihar
All India
Self-employed in agri Labour Regular salary/wages
Self-employed in non-agri Others
Occupation shifts: Rural folk no longer farmers only

The income trends are heavily influenced by the underlying trends in occupation and
therefore we explored this aspect in detail in our survey.
The contribution of farm sector occupation continues to remain substantial in the overall
rural economy, but its share is gradually declining over the decades. This pace seems to
have gathered momentum. As per our survey, ~30% respondents reported change in
their primary occupation over the past 10 years, which is substantial.
Further, percentage of households whose chief wage earner (CWE) is self-employed in

Now, rural households are
agriculture has fallen from 64% in 2000 to less than 45% in 2010. Against this,
finding opportunities as
non-farm laborers, self- percentage of households who are engaged in labour activities and those who are
employed in non-agri salaried has increased. Importantly, a large portion of this labour is involved in the non-
sector or as salaried farm sector. In other words, households moving out of the farm sector are finding
workers
opportunities as labourers in the non-farm sector or getting self-employed in the non-
agri sector or becoming salaried workers.
Chart 12: Rise of non-farm sector reducing overdependence on farm sector

125
1
100 1 1
4 11
(% of respondents)
9
75 30
36
50
64
25
43
0
Shift towards non-farm
sector is helping reduce 2000 2010
over-dependence on the Self-employed in agri Labour Regular salary/wages
farm sector
Self-employed in non-agri Others

Edel: Pulse
This shift is healthy for the rural economy. It relieves the farm sector from the burden of
disguised unemployment because traditionally, the sector has been perceived as a
parking lot for rural unemployed and has contributed to suppressed incomes and
fragmented land holdings. Second, the reliability and regularity of incomes in the non-
farm sector are much better than in the farm sector.
Fig 2: Benefits of non-farm sector
Reduced
dependence
on farm
sector
Multiple
Non-farm sector is Risk sources
associated with better reduction of
reliability and regularity income
of incomes compared with
farm sector
Localisattion
Seasonality of
employment
Benefits of
non-farm
Gender
sector
Reducing
empower- rural-urban
ment disparity
Real dent
Labour
to
absorption
poverty
Backward
and
forward
linkages
Drivers of the shift: Government schemes playing a significant role

The reasons behind this shift towards non-farm sector come from both the push side
(households willing to move out of the farm sector) and pull side (non-farm sector
offering better opportunities)
• Lower farm-sector remuneration a push factor

What we found was that ~75% of households who have changed their primary
occupation have done so to generate higher incomes, and since the shift is generally
from the farm to non-farm sector, it could be deduced that remuneration in the
former is not keeping up with people’s expectations and hence they exited the farm
sector. This sounds logical given the high incidence of disguised unemployment in
the farm sector.

Case Study: Low remuneration in farm-sector pushed Mr. Puttanna out into
non-farm activity
The survey team visited a household in a village Harnahalli, 25 km away from district
Shimoga in Karnataka where the Chief Wage Earner (CWE)- Mr Puttanna is running a
small transport business. He owns a mini bus, which he uses to transport people
between Shimoga and his village to generate income.
Before starting a transport business, he used to work on his own small land holding,
growing ground nuts and some vegetables as well. He would sell his produce to a
commission agent in a mandi, who was also a seller of some agri-inputs such as
fertilisers, seeds, etc. The commission agent used to buy the produce at relatively
suppressed prices because he also used to provide agri-inputs to the CWE and
sometimes on credit as well. So overall, dependence on the commission agent was
On the push side, high and the CWE’s income from his farm holding was quite low.
relatively low
remuneration for many in Apparently, Mr Puttanna was looking for ways to boost his income and one of the
the farm-sector is things which caught his attention was that with the increase in the economic activity
encouraging shift to non-
in his village, more and more people need to travel to the nearby district Shimoga
farm sector
and there is not enough state transport available to meet the growing demand.
Hence, he decided to sell most of his land (~1 acre) and invest the same in buying a
mini bus which could be used to transport people. However, the proceeds from the
land sale were not enough to buy him a mini-bus which he could run to and fro
between village and the district to carry people and therefore he started looking for
additional resources to fund his vehicle purchase.
Fortunately, Mr. Puttanna’s wife is part of a women self-help group, which in turn is
associated with a microfinance institution (MFI). He tried to use his wife’s contact at
the MFI to get a small loan from MFI and fortunately, he was able to get enough loan
from the MFI so that he could buy the vehicle. In additions, he hired a driver and
started running transportation services between Shimoga and his village.
The business plan worked and soon the business was generating revenue of ~INR
1,500/day. After accounting for diesel, maintenance of the vehicle, and salaries for
the driver and handyman, the CWE was still able to generate ~INR 400/day, much
higher than what he earned from his farm activities. Also, the CWE opened a small
grocery shop in the village, selling sugar, rice etc., to supplement his income which
helped him pay his loan EMI regularly.
Two key changes took place in the life of the household. By moving from the farm
sector to non-farm sector, the household was able to enjoy, higher, more reliable
and frequent flow of income. Secondly, the household was able to shift the children
from the existing low quality school to a better school run by a trust..

Edel: Pulse
• Expanding opportunities in non-farm sector creating pull pressures

Expanding opportunities in the non-farm sector are clearly playing out. Better
resources in villages (including infrastructure, availability of credit etc), lower risk,
On the pull side, migration, and intensification of government effort in rural India etc are some of the
increased opportunities in factors that are attracting rural households towards non-farm sector.
non-farm sector is
encouraging the shift
Chart 13: Rising opportunities in non-farm sector driving this change
80
Reasons for shifts in main occupation in past decade
(% of respondents)
64
48
76
32
53 53 48
16 38
28 28 25
0
resources in village
previous occupation
involvement
Increasing market
Govt. programmes/
income generation
Migration
availability for
Easy credit
Need for more
Low risk
profitability in
activity
Increasing
incentives
demand
Declining
Fig. 3: Rural women involved in non-farm activity
Government schemes are

directly generating
employment opportunities
in the non-farm sector
Here we would like to stress upon the importance of government’s inclusive

growth agenda and associated schemes such as MGNREGA and Bharat Nirman
which are encouraging these shifts.
First, the government is providing employment opportunities in the non-farm

sector and these are largely targeted at the lower socio-economic strata. Thus,
people who were barely managing a living in the farm sector are moving into a
more productive and remunerating economic activity. In our survey, a substantial
~30% respondents attributed the shift in their primary occupation to government
programmes and incentives.

Fig. 4: Passbook from MGNREGA
MGNREGA generated ~2
bn person days of
employment in FY09, 2.4
times person days
generated in FY07
Second, through schemes like MGNREGA and Bharat Nirman, the government is
helping build rural infrastructure such as water conservation, rural connectivity,
electricity, safe drinking water, among others, which is essential in raising
productivity and encouraging private entrepreneurship in rural areas.
Indirectly, government
schemes are helping build
rural infra, thereby For example, under MGNREGA, the government aims to provide livelihood security
enhancing sustainability to rural households by providing at least 100 days of guaranteed employment in
of income growth
each financial year. MGNREGA has been a big employment provider, generating
more than 2 bn person days of employment in FY09, which is 2.4x the person
days generated in FY07. In FY09, 67% of the funds spent under MGNREGA were in
the form of wages to labourers.

Edel: Pulse
Fig . 5: Water pond bunding for storing rain water (MGNREGA)- Medak, A.P.
Projects under MGNREGA

are labour intensive and
wages are directly
credited to workers’
salary accounts
Further, projects undertaken in MGNREGA schemes are labour intensive (it is

stipulated that 60% of the expenditure in the project must be on wages). Lastly,
the payment policy of directly crediting the wage in the worker’s bank account
makes the delivery channel of MGNREGA quite robust.
In other words, schemes such as MGNREGA are brining job opportunities and
infrastructure to rural doorsteps.
Meanwhile, another trend which is captured by our survey is the increasing incidence of
supplementary occupation. Our survey found that ~30% of rural households have
Increasingly, households supplementary occupations i.e., an occupation in addition to the primary occupation or is
are doubling their pursued on a seasonal basis and provides lesser income than the main occupation.
incomes through
supplementary Normally, it has been observed that if the main occupation is in the farm sector, the
occupations supplementary tends to be in the non-farm sector and vice-versa. Out of the
respondents who admitted to a supplementary occupation, 56% stated self-employment
in agriculture as their supplementary occupation.

Chart 14: Households reporting at least one supplementary occupation

60.0 56.0
48.0
(% of respondents)
39.0
36.0
24.0
13.0
12.0
5.0
0.0
Self-employed in Labour Self-employed in Regular
agri non-agri salary/wages

(The numbers may not add to hundred because there could be instances of multiple response)
Rural income perception: Satisfied and optimistic

Perception of the current income and expected future income is extremely important in
Perception of current and
expected future income determining the spending/saving behavior of households. With this in mind, we tried to
has strong influence on gauge the general perception of rural households about the change their incomes have
consumption patterns seen over the past decade and their expectations in the future.
In our survey, ~60% respondents were ‘somewhat satisfied’ and ‘highly satisfied’ with
the changes their incomes have undergone in the past decade and only 7% respondents
were ‘highly dissatisfied’ with the change.
Chart 15: Large % households satisfied with change in income over past decade
Highly
dissatisfied
Highly satisfied
7% Somewhat
17%
dissatisfied
6%
Neither satisfied
nor dissatisfied
27%
Somewhat
satisfied
43%
More importantly, we found that rural households are increasingly confident about
sustainability of this rise in their incomes. For example, a vast majority (~75%) expects
incomes to rise mildly or heavily in the next two-three years.

Edel: Pulse
Chart 16: Expectations of income momentum strong

How do you see your household income changing in year 2012 ?
Can't say
23%
~75% rural households
remain optimistic on the
income growth
momentum
No change
4%
Mild increase
58%
Heavy increase
15%
Insights from industry interactions

The key findings from our survey were well brought-out in our interactions with FMCG
and auto dealers (across various states like Haryana and Gujarat that have exposure to
rural demand) as well. What we found in these interviews is the confident
acknowledgement by dealers that rural demand has increased and is expected to
increase in the coming years.
The optimism on rural The reasons behind this optimism are by and large in line with our survey findings such
incomes is well reflected as improvement in rural infrastructure and intensification of government schemes. In
in our interactions with addition, considerable appreciation in land prices, which has not only boosted wealth
auto/FMCG dealers across
perception of households but also allowed many households to sell part of the land and
states
invest the proceeds in some small business or in the education of children, or buy some
durable goods.
Below, we present our interaction with Mr. Waheed Hussain, dealer for M& M tractors in
Kurnool district (Andhra Pradesh) which gives insights into transformation in rural India.

Investment in tractors: Demand high driven by increased income stability
Excerpts from an interview with Mr. Waheed Hussain, dealer for M&M tractors in
Kurnool district (Andhra Pradesh).
Q: Where does demand for tractors come from?

Broadly, demand for tractors comes from 3 categories—mining & industry which
constitutes ~25% of total sales; infrastructure & construction, which constitutes
another 25% of our total sales; the biggest sector is the farm sector which
contributes almost 50% to our total sales.
Q: How has demand been over the past few years?

Demand for tractors has increased significantly over the past few years. We have
seen ~20% growth in sales every year between FY03 and FY09, although there was
decline of ~28% in FY10. This was partly due to delayed monsoons in June 2009,
weakness in local real estate market and also local political factors in the state of
Andhra Pradesh such as clash for separate state of Telangana and sudden death of
the erstwhile chief minister. However, we expect sales to bounce-back and grow a
healthy ~20% in FY11.
Q: What is driving demand for tractors?

One of the reasons for increase in demand for tractors is government schemes such
as MGNREGA have put an upward pressure on wages across the rural economy. This
rise in labour costs has encouraged landowners to increase their reliance on tractors
in sowing and harvesting. Farmers with sizeable land holdings are buying tractors
whereas relatively smaller farmers are hiring tractors for farm work.
Second, there has been a substantial appreciation in farmlands value over the past
few years. This, through wealth effect and improved access to credit, has helped
enhance affordability of tractors. Third, general improvement in rural infrastructure
such as irrigation, improved access to various grain/vegetables market through
better roads, reduced role of village middlemen etc., have boosted production of
crops and realisations. This has also supported mechanisation.
Q: How monsoons impact demand for tractors?

Monsoons seem to have a asymmetrical impact on demand for tractors. Good
monsoons substantially boost demand but bad monsoons do not impact demand
more than 10-15%.
Q: How do you see the change in the financing of tractors?

Financing of tractors is not that risky. The tractor itself acts as a collateral and
second appreciating land value give added comfort to lenders. Besides, meaningful
down payment and social stigma of default keep incentives to default quite low. Also,
many banks have entered the tractor financing segment. Thus, interest rates
charged on tractor loans have reduced in recent years.
Q: What are your future demand expectations?

We expect to resume 20% growth in FY11 and foresee the robust growth to continue
in subsequent years. We are looking to expand our business.

Edel: Pulse
Consumption: Aspiring for an Urban Lifestyle
• Annual consumption expenditure of a rural household stands at INR 53,000 (Edelweiss

survey 2010). Growth rate of consumption has lagged income growth (CAGR 5% vis-à-
vis 8% for income for 2005-10).
• However, rising and reliable income streams, coupled with aspiration to lead an
urbanised lifestyle, will get expenditure growth rate to pick momentum, transforming
rural India into one big and growing consumption centre.
• At USD 190 bn in 2010, rural consumption market size is greater that the GDP of
Singapore and Hungary. We estimate rural consumption market to triple in the next 10
years to USD 600 bn.
• As expected, share of food in rural wallet has declined from 52% in 2006-07 to 40% in
2010. This is in line with urban spending trends on food in 2006-07.
• The lost share of food has moved in favour of education (3-6% of wallet), travel (9-11%)
and personal care (6-8%). Entertainment expense has gathered pace with 7% of current
wallet share.
• Lifestyle improvement is also reflected in improving ownership of consumer durables.

Two wheelers (26% households), mobile phones (75%), and TV sets (68%) are the most
widely owned assets.
*
• R3 and R4 represent 80% rural population and their asset ownership level is below the
overall rural average for many durables. This ownership divergence between socio
economic classes (SECs) indicates big potential market for TV sets, VCD/DVD players,
motorbikes etc., as these durables top their list of planned purchases for the next year.
• Auto dealers sounded very optimistic. Better road connectivity, innovative financing
products, among others, are additional factors along with increasing income levels in
driving auto sales.
• An interesting observation relates to the demand for entertainment by rural population.

25% households own VCD/DVD players and 33% have a cable/DTH connection.
Increased media penetration is changing mindsets at a rapid pace.
• Most importantly, incrementally, companies are doing everything possible to tap rural
markets as this is where growth is. They now have customised products, affordable
ticket sizes, innovative delivery channels, and widespread advertising.
* R3 and R4 represent the bottom 2 classes under SEC classification of rural households on the basis of educational
qualification and type of the household

(% of respondents)
0
7
14
21
28
35
VCD/DVD Player
Motorbike/Scooter
5%
in rural wallet
TV Set
6%
7%
6%
6%
DTH/Cable Connection
Communication
Education
Telephone/Mobile Apparel
Healthcare
durables
Entertainment
9%
Pressure Cooker
Bicycle
Personal care
3%
Potential market big for

Refrigerator
electronics and Consumer

Motorbikes/Entertainment
Durables
Car/Jeep
Gold/Silver
Air Cooler
5%
Tractor
looking to add assets in the coming year

Housing
PC/Laptop
Chart 19: Incrementally many households

Electric Fan
Washing Machine
11%
Travel
years back
Generator/Inverter
Chart 17: Discretionary spending gaining foothold
Air Conditioner
42%
Food
line with urban trends 3

(% of respondents) Discretionary spending in (% of respondents)
0
16
32
48
64
80
0
15
30
45
60
75
To improve living Telephone/Mobile
penetration
standard Electric Fan

Income increase TV Set
Bicycle
Additional income of
maturing children Gold/Silver
Rising prices
VCD/DVD Player
powered by affordability
Driven by aspirations and
Increase in family Motorbike/Scooter
Refrigerator
Increasing mobility
Air Cooler
Rising aspiration Washing Machine

Tractor
Need to communicate Generator/Inverter
Availibility of branded PC/Laptop

products
Chart 20: Diverse reasons driving consumption
Car/Jeep
Edelweiss Securities Limited

Chart 18: Consumer durables also see increased
Increasing literacy Air Conditioner

levels
23

Edel: Pulse
Domestic consumption has been a driving force of the India growth story which unfolded
over the past decade. The robust story has so far played itself out in two phases—the
first phase with increased levels of discretionary spending in urban India. The second
phase saw scaling up of demand in urban India and parallel rise in spending on non-
discretionary products in rural India. While the second phase is playing itself out, the
third phase is on the rise—increasing discretionary consumption in rural areas.
This increased consumption spells not only a big opportunity for corporate India, but also
offers a natural hedge to the economy against global demand volatility. Thus, one of the
objectives of our survey was to examine the nature and drivers of this trend.
The consumption section covers the following:

• Rural market: Big and growing
• Discretionary spending: Gaining wallet share steadily
• Consumer durables: Ownership and aspirations on a high
• Ownership divergence: Under ownership in R3 and R4 spell huge opportunity
• Consumption drivers: Aspirations, affordability, and availability
Rural consumption market: USD 190 bn; growth to be at a faster pace now
Annual consumption expenditure of a rural household stands at INR 53,000 (Edelweiss
survey 2010). At this expenditure level, we estimate rural consumption to be a USD 190
bn market for 2010. At this size, the rural consumption market is greater than the GDP
of Singapore and Nigeria. We estimate the rural consumption market to triple to USD
600 bn in the next 10 years.
Rising and reliable income However, while income grew to INR 76,000 in 2010 from 2005 at a CAGR of 8%,
to give momentum to consumption has posted only 5% CAGR for the same period. In the same period rural
consumption growth
incomes have become more reliable and stable. In our opinion, this visibility of income
will increase the consumption growth rate from the current 5%. Also, rural aspiration for
an urbanised lifestyle is high, as revealed by our survey. This will further boost spending
on consumer durables and expendables.
Declining share of food in favour of discretionary spending

The share of food articles in the rural consumption basket stands at 42%, down 10
percentage points from 52% in 2006-07 as per NSSO Survey (National Sample Survey
Organisation). Interestingly, 42% spending on food is in line with urban spending trend
on food in 2006-07. This explains the increasing allocation to consumer discretionary and
consumer expendables with growth in income.
Rural non-food spending The lost share of food has moved in favour of education (3-6% of wallet), travel (9-
seen in line with urban 11%) and personal care (6-8%) for 2007-10. Expenditure on entertainment has picked
trends witnessed during up in a big way and now accounts for 7% of total expenses.
FY07
Also, a large part of households surveyed (93%) agreed to have shifted their expenditure
patterns over the past 10 years. While a large percentage (about 95%) have increased
their spending on basic expenses such as food and beverages, equally high percentage of
respondents have increased expenditure in a higher proportion on discretionary items
and consumer expendables. This explains why personal care, travel and transport and
communication have seen a steady increase in percentage of wallet share.

Chart 21: Non-food expenditure gaining foothold in rural wallet with rising
income
Housing
Durables
5%
Apparel 3%
6%
Healthcare
6% Food
42%
Education
6%
Communication
5%
Entertainment
7%
Personal care
9% Travel
11%
Fig. 6: Increased penetration of branded products
Data on healthcare and education expenditure is also encouraging, wherein both the
Healthcare and education segments have posted a steady increase. About 81% households increased their
expenditure on the rise
spending on education, while 94% raised their spending on healthcare.
Spending on travel and transport has increased ~90%, with majority households (60%)
having increased it heavily. Expenditure on travel and transport has received a big boost
from increasing ownership of vehicles and better connectivity between villages and
between villages and state highways. During our survey, villagers stated that improved
road conditions have been a factor in visiting friends and relatives living in other villages.
As connectivity further improves, spending on this segment is also expected to rise.

Edel: Pulse
FMCG demand: Uptick very strong and gaining momentum
Excerpts of an interview with a large distributor of a leading FMCG company based in

western India
Q. What are the reasons, according to you, behind the rise in consumption?
Two most important reasons are rising income levels and brand consciousness. Apart
from steadily rising farm incomes, there has been a very rapid increase in non-farm
sectors. One of the contributing causes to rising non-farm incomes has been
increasing compensation from sale of land.
The second reason is, rising awareness about various brands. For example, people
were earlier happy to buy unpackaged products, but now they have shifted to
packaged and branded products. We are seeing this shift happening across product
categories. The reason could be attributed to a greater exposure to media and
advertisements.
Q. How strong is the demand uptick?

Demand on the ground remains very strong. We are also looking to expand to double
our size in the next 2-3 years. Another emerging trend which will lead to increasing
demand is upscaling. Along with newer consumers entering the market, a significant
chunk of existing consumers are upgrading to higher-end products. However, a
Rising income and significant percentage of sales is still being derived from sachets and small stock
increasing awareness
keeping units (SKUs).
main drivers of uptick in
FMCG demand
Another factor which has received a lot of attention over the years is monsoon.
However, I have seen monsoon dependence reduce significantly in my region over
the past 2-3 years. Farmers are adopting better farm technologies, which is helping
them tide over a bad year. In fact, last year when monsoons were among the worst,
volumes still remained strong.
Q. Do you see aspirational demand increasing?

Yes, aspirational demand has certainly picked up in rural areas. We are seeing this
change, especially over the past 2-3 years. A lot of products such as creams, skin
gels etc., which were not being used so much earlier, are being increasingly adopted
in rural areas. Companies have also realised the importance of reaching out to rural
customers with an extended line of products. Products that were not available earlier
are now been increasingly made available.
Companies tapping the Q. What are companies doing to target customers?

rural market with A lot…and let me tell you that this thrust has increased across product categories as
customized products companies increasingly realise the need of targeting the rural segment. There is an
increasing stability about rural income and rural consumption which companies are
looking for. To give an example, companies have introduced smaller size SKUs and
distribute them for free in local schools and villages to create awareness about the
product line.
Q. What are your future expectations of demand?

We expect to register 20% growth in FY11 and foresee the robust growth to continue
in subsequent years. We are looking to expand our business.

Robust auto demand in rural India as road connectivity improves
Excerpts of an interview with Mr. Rakesh Jain, dealer, Bajaj Auto and Hyundai Motors
(Haryana)
Q. Have you witnessed demand uptick over the past five years? How has
Robust auto demand with
five years of steady rural household contributed to the growth?
growth Yes certainly. Speaking for the past five years, I have seen continuous pickup in
demand without any slowdown period in between. The uptick has been particularly
strong for the past one and a half years. I was selling 450/month two wheelers in
2008, which has increased to 650/month in 2010. Also, in the four-wheeler segment,
sales have increased from 60 vehicles/month to 135 vehicles/month from 2008 to
2010.
Rural consumption is a substantial chunk of my sales. Also, going forward, we are

confident of rural consumption growing at higher–than-the-average growth rate.
Accordingly, rural expansion is a focus area for us.
Q. What do you think is the main reason driving such robust demand?
Clearly, rise in income levels. Salary levels for all jobs in rural India have almost
increased by 50% in the past two years, be it for nurses, teachers, and hospital
technicians or for people like office boys, sweepers, domestic help etc. For my
dealership with an employee strength of 250, salary levels have increased 50%. So,
what we see today is a villager with basic education managing INR 4,000-5,000 as
salary on a monthly basis. This is creating a huge customer base for us as aspiration
levels are very high.
Q. Is there any other demand driver besides increased income levels?

Along with actual income increase, a very strong wealth effect is underlining demand
uptick. The land value has increased due to entry of companies setting up factories
and workshops, government acquiring land for road construction, etc.
Also, the demographics support the demand. About 25% of my demand comes from
students in various villages entering colleges in nearby towns. Marriage season is
another big contributor as a two wheeler is a main component of conspicuous
spending during weddings in rural India.
Improved roads, coupled with better connectivity, is another catalyst. It is a lot more
Better rural infra driving
travel and transport comfortable to reach from villages to state highways as kuccha roads are being
expenditure replaced by pucca ones under various government schemes.
Q. Can you brief about your customer profile, in terms of occupation, age
etc?
Our customer base is quite diverse in terms of occupation. Farmers, salaried class,
students, traders, small manufacturers all contribute healthy portion to total
demand. Another interesting phenomenon is that we see a shift in the entry level
age of customers. Today, people in the age group of 25-30 are very comfortable in
buying two wheelers on their own, while people in the age group of 30-35 are
comfortable in buying four wheelers.
With all this, we also witness mindset change of people. With increase in income,
there is a substantial amount of aspiration build up. People want to procure basic
transport vehicle as soon as they secure income for basic livelihood expenditure.

Edel: Pulse
Both farm and non-farm Q. What about customers from the farm sector? Are they significant
sectors are important contributors to demand?
contributors to demand Yes, a very substantial portion. Crop realisations have gone up and, more
importantly, how the produce is being sold has also changed. With mobile telephony,
farmers are equipped with all the information, creating a perfect market for buyers
and sellers. Also, the infrastructure has improved a lot with connectivity to nearest
mandis, making middlemen redundant.
Q. What changes are you seeing on financing front? Is recovery stable and
steady?
Financing companies see rural vehicle financing as a very lucrative opportunity and
are expanding their reach, making their products more consumer friendly. For
example, Bajaj Auto Finance has employed field officers who go to villages with their
collection machines for database purpose and collect small ticket EMIs from the
customer directly. This saves the customer the trouble of travelling to the nearby
outlet and also ensures timely payment of EMIs.
Q. What support do you get from companies for driving sales?

Rural India is surely a big consumption market. They finance and help organise
advertising camps and information kiosks deep into rural areas. This helps make
both information and the product more accessible for rural customers.
Consumer durables: Ownership and aspirations on a high

Our survey reveals a high level of asset ownership ranging from vehicles, electronic
appliances, and mobile phones to other lifestyle enhancing products. The demand for
entertainment is surprisingly high with a quarter of households possessing VCD/DVD
players and DTH/cable connection present in every third household. However, there is
some variability in the trend between states as well as households classified according to
SECs which is covered subsequently.
Ownership of consumer Chart 22: Increasing level of ownership with appetite for more
durables improving rural
lifestyles 90
(% of respondents)
72
54
36
18
0
Car/Jeep
Washing Machine
VCD/DVD Player
Refrigerator
Generator/Inverter
Telephone/Mobile
Motorbike/Scooter
Air Cooler
PC/Laptop
Connection
Bicycle
Electric Fan
Gold/Silver
DTH/Cable
Air Conditioner
TV Set
Tractor

Case study: Widespread penetration of TV and DTH
Throughout the report, in parts, we have highlighted the role of media in creating
awareness and in building the desire for an urban lifestyle. This, in turn, is driving
higher discretionary spend in villages. In this context, our survey reveals high
penetration of DTH and cable services in villages. For one, many rural households
have two television sets, colour and black & white. The black and white set is
powered by batteries and with power supply being erratic, it is often used during
power cuts.
Increased media Interestingly, many households (~26% in our survey) own a DVD/VCD player as
penetration is changing well. Many of our respondents stated that during a power cut they switch to watching
mindsets rapidly movies on the black and white TV from DTH/cable on the colour TV as it is easier to
run B/W TV on battery power. Movie CDs are generally borrowed from the local
kirana store (which also doubles up as a movie library) at INR 5/day. At times, the
tractor battery is used as a substitute for normal batteries.
Fig. 7: A semi-pucca house in Gujarat with a DTH connection
Second, what has been seen as a path-breaking trend over the past 2-3 years has
Local television channels been the advent of cable/DTH. Within that category as well, there is a marked shift
a big favourite with rural
from cable TV to DTH. Our discussions with respondents suggest that people favour
households
DTH, as the picture quality is perceived to be of superior quality and the bouquet of
channels can be customised. Popular local channels (e.g. Mahua in Bihar) and free-
to-air channels form the basic bouquet offering. While local channels offer popular
programmes for entertainment, they also serve as effective advertising platforms for
government schemes for rural employment and healthcare.

Edel: Pulse
The role played by corporate India in increased penetration of electronics and other
consumer durables is significant. It is using all channels to drive sales and its policies
clearly reflect that the rural hinterland is a focus area.
• It is first creating awareness and desire to lead an urbanised lifestyle through

innovative media campaigns.
• Second, and more importantly, it is customising products to make them suitable for
rural households, keeping in mind their erratic electric supply etc.
• On the affordability part, it is making products available in ticket sizes convenient for
a rural household to fund.
• Lastly, efforts can also be seen on devising distribution channels to have deepest
penetration in a cost effective manner.
Auto demand to remain All these efforts will boost sales of air coolers/air conditioners, generator/inverters,
strong as village interiors personal computer/laptops, washing machine, refrigerators etc. These electronics
get connected to state currently have low penetration. On the auto front, our informal interactions with survey
highways
respondents and two wheeler/four wheeler/tractor dealers suggest that penetration
levels can only increase hereon as road connectivity improves and more villages in
interiors are connected to state or national highways.
We illustrate corporate strategies at play for rural consumer with the help of an
innovative product designed by Godrej, ChotuKool (refrigerator) keeping the rural
household in mind.

Case study: Godrej ChotuKool refrigerator

Product innovation, pricing and rural marketing at play
Increasing consumption appetite of rural India has led to this market being viewed as
a significant revenue driver. Companies now design products and distribution
channels, keeping in mind requirements of rural customers.
Innovative and affordable One such product is ChotuKool refrigerator from Godrej. The idea to address the
products are improving
basic daily cooling needs of people at an affordable cost was inspired by concepts of
rural living standards
disruptive innovation. The larger vision behind this initiative was to make lives of the
people at the bottom of the pyramid brighter.
ChotuKool uses advanced solid state technology to cool instead of traditional

compressors. It operates on 12 V DC. The current product has a small foot print (less
than 592 X 418 X 472 mm) and storage volume of 43L/30L in two variants. Light
weight fully plastic body makes it highly mobile. The unconventional top opening
ensures cold air settles down in the cabinet to minimize heat loss and power
consumption. It keeps the basic needs i.e., water, milk, vegetables and fruits fresh
and cool for a family of four-five. It works best in temperature conditions of up to 35°
C. It is priced at around half the current entry level direct cool refrigerator (INR
3,490-3,790 depending on a specific variant).
Fig. 8: Godrej’s ChotuKool customised to drive rural sales
Source: Company, Edelweiss research
ChotuKool is a new category by itself. It is not a refrigerator. It serves a distinctly

different purpose. It also serves a new segment of potential consumers. Hence it
ChotuKool has needs personalised demonstrations to communicate and deliver its distinct value
tremendous potential as proposition. Godrej plans to reach out to potential consumers through a community
an earning asset as well network that also improves the livelihood of participating members of the community
as they canvass and demonstrate the product. Besides, the company believe it has
tremendous potential as an earning asset in the hands of small entrepreneurs in their
business of selling products and offering services that need some cooling. For
example, a cool drink vending or milk produce sales.
Currently, the initial model of ChotuKool is being test marketed in Maharashtra. Over
time, based on market response, the company plans to come out with a range of
sizes and models in the ChotuKool category.

Edel: Pulse
Consumer durables a top scorer in “to buy” list of rural households

The ownership of some household goods like air coolers/air conditioners,
generator/inverters, personal computer/laptops, washing machines, refrigerators etc. is
low across categories of households. However, our survey results also reveal that a fair
percentage of households are looking to acquire these goods within the next one year or
so.
Encouragingly, this trend is prevalent among R3 and R4 households as well, wherein the
Potential market is big for current ownership level of some discretionary goods is low. Given current low ownership
two wheelers and within R3 and R4 categories, the market for consumer durables is big in rural India as
entertainment electronics
they represent 80% of rural households. Purchase of a consumer durable also features
high on their list of motivations behind saving.
A high percentage of households is planning to buy VCD/DVD players, followed by

motorbikes or scooters. There is also a substantial number of households planning to buy
a TV or install a cable connection. Surprisingly, in spite of the existing large penetration,
~16% households are still looking to buy a telephone or mobile.
Chart 23: Purchase of consumer durables on many households’ ‘to buy’ list
35
(% of respondents)
28
21
14
0
Motorbike/Scooter
Telephone/Mobile
PC/Laptop
Refrigerator
Car/Jeep
Generator/Inverter
Gold/Silver
Tractor
Electric Fan
Pressure Cooker
Air Cooler
Air Conditioner
VCD/DVD Player
Washing Machine
TV Set
Bicycle
R1 category has high-end An important finding which emerges from our survey is the huge potential for big ticket
consumer electronics and high end consumer durables in the R1 category. Some product categories where
purchase planned for the absolute levels of penetration in R1 are on the lower side include air conditioners,
coming year
pc/laptops, car/jeeps and tractors. Currently, penetration of each of these products is
below 10% among R1 households. However, within the next one year, ~9% households
are planning to buy air conditioners, 20% PCs, 17% a car or jeep and 6% a tractor.
Meanwhile, among R4 category households, ~29% are planning to buy a VCR/VCD

player, while 26% are planning to buy a motorbike or scooter. Currently, the ownership
percentage for both is relatively low at 16%.
Divergence in ownership trends among socio economic classes

Although on a broad level, our survey points to strong consumption and ownership
trends, there is a wide variation within socio economic classes (SEC). Also, it has been
observed that the difference in ownership in some of the non-discretionary product
categories is not as wide as ownership levels in some discretionary categories.

For example, there are some discretionary categories where there is a reasonably high
ownership irrespective of socio economic categories; for example, the ownership levels
among entertainment electronics. There is little surprise in the ownership levels of TV
sets (~80% in SEC R1, versus 57% in SEC R4). The trend in ownership of VCDs and
cable TVs is similar, where even the R4 category has 26% households with DTH/cable
and 16% with VCDS.
Chart 24: Ownership pattern across SECs shows divergence
100
(% of respndents) 80
60
40
20
VCD/DVD Player
Telephone/Mobile
Connection
Gold/Silver
TV Set
Motorbike/Scooter
Electric Fan
Bicycle
DTH/Cable
R1 R2 R3 R4
R3 and R4 together A few other categories where the variation in asset ownership is not so large include
represent 80% of the some of the smaller ticket products. For example, mobile phone has become ubiquitous
total rural households and is used commonly by respondents across SEC categories (90% of respondents in R1
category use a mobile phone/telephone compared with ~67% in R4). Bicycles are
another category where the ownership, expectedly, is evenly spread. A healthy
percentage of households across sections owns gold and silver jewelry (about 50% of
households in R1 category and 30% in R4). Given the perceived “safety” quotient of gold,
it does not really come as a surprise. Livestock ownership is also even across SEC
categories.
However, refrigerators, motor cycles and to some extent washing machines as well have
a sizeable presence in households in R1 category, but ownership levels, predictably, drop
off through R2, R3 and R4 categories. Some of the asset classes with a relatively lower
penetration as a whole also exhibit skewed ownership patterns within SEC categories.
These products include personal computers, cars/jeeps and air conditioners/air coolers.
Divergence can also be seen within planned purchases of SECs for the coming year. TV
sets, DTH/cable connections, VCD/DVD players, motorbikes and mobile phones top the
list of R3 and R4 categories which collectively form 80% of rural households, implying
huge potential market for these asset classes.

Edel: Pulse
Chart 25: Divergence in planned purchases as well
40
(% of respondents)
32
24
16
8
0
Refrigerator
VCD/DVD Player
Telephone/Mobile
Car/Jeep
Connection
Pressure Cooker
TV Set
Motorbike/Scooter
Bicycle
DTH/Cable
R1 R2 R3 R4
Consumption drivers: Aspirations, affordability, and availability

To improve living Our survey suggests that the biggest driver of rising consumption has been the need to
standard is the biggest improve living standards. Higher aspiration due to exposure to the urban lifestyle via
consumption driver media is another important contributor. This is followed by increasing income levels,
increased mobility and, to a great extent, easy availability of branded FMCG products in
villages.
Chart 26: Drivers of change diverse and structural in nature
75
(% of respondents)
60
45
30
15
Increasing literacy
Additional income
Increase in family
Rising aspiration
To improve living
Income increase
Rising prices
communicate
branded products
Increasing mobility
Availibility of
Need to
of maturing
standard
children
levels
• Increasing income levels coupled with better visibility

Our survey indicates that one of the major factors for shift in the expenditure
pattern is rising income levels. We have discussed rising income levels in greater
detail in our previous section. Not only farm incomes, but rising non-farm incomes,
have also lent a stable outlook to consumption as income visibility is higher there.
Rising income levels have resulted in greater pie of discretionary and other high
ticket consumer items spending in the expenditure budget. For example, increased
ownership of durables and autos in rural areas validate the above point. Our ground
level interactions with dealers and retailers also indicate the same. One of the FMCG

distributors whom we interacted with mentioned that he was willing to stock up

more of relatively costlier personal care items because increasing income levels
gives him the confidence to do so.
• Lure of a better lifestyle

In the R1 category, ~71% households have indicated that increased spending is a
result of their desire to improve living standards. This percentage is relatively high
among all categories with ~60% in each of R2, R3 and R4, also indicating that the
need to improve living standard is a driving force behind changing expenditure
patterns.
• Increased awareness and exposure to urban lifestyle

About 31% respondents in the R1 category said that rising aspirations due to
exposure to urban window through media has been a reason behind increased
expenditure. The percentage among households in R2, R3 and R4 categories is
~40%, 31% and 31%, respectively. This correlates positively with the increasing
penetration of TV sets, DVDs, cable connections among households across SECs.
• Growing corporate focus on rural market

Companies are increasingly making inroads into rural areas through innovative
marketing campaigns (e.g., kiosks organised by consumer durable companies, “auto
fairs” by automobile companies), newer pricing strategies (introducing smaller SKUs
with lower price tags of beauty products), better reach (higher number of stores
reached through retailers) and innovative products (less costly durables products
suited for withstanding voltage fluctuations).

Edel: Pulse
Case study: Colgate’s bicycle model

Harnessing local youth to build a sustainable franchise
Initially, Colgate’s strategy for distributing its ubiquitous line of toothpastes was
simple—do not target villages with population less than 2,000. This was because of
the high inventory and transportation cost, for e.g., Colgate used a motor van whose
daily operational cost for reaching and distributing products within villages would be
over INR 3,000 which added to its cost overheads. Thus, by not reaching villages the
company was not only losing out on a revenue stream but also on market share to
imitators. Interestingly, duplicate Colgate branded products were being sold in
villages at the same price as original Colgate toothpaste.
MART & Colgate partnered and co-created project Disha in which educated
unemployed rural youth were trained to promote the Colgate brand. The youth were
identified from Nehru Yuva Kendra (NYK) Sangathan and youth clubs. NYK generally
functions as a platform to provide the youth with skill upgradation programmes, and
conducts youth awareness programmes. The selected youth were trained on brand
communication and market re-distribution. The selected candidates were given a
bicycle, cap, and other accessories. All the accessories and the bicycle were branded
with “Colgate” logo to create awareness. The distribution model was two fold—for one
half of the day, the youth were expected to sell Colgate products in local village
haats, while during the other half they were expected to venture to targeted villages.
Per day target was fixed at least one haat and two villages. Each youth was expected
to reach a radius of 10 km from their “base” village.
Fig. 9: Bicycle distribution model of Colgate

These youth, known as Disha traders sold to the direct consumer at a discount to
induce trials. The monthly income of each Disha traders through this program was
estimated at INR 3,000.
This was a win-win situation for both the village youth as well as the company.
Colgate is now able to reach far flung villages at negligible cost, thereby regaining
market share from competitors, while the youth gained from employment with a
steady income stream. This project was rolled out in UP about two years ago and was
initially started in 20 districts employing about 250 Disha traders.
The above is an example of how novel distribution strategies are being used by
various companies to target far flung villages where conventional methods of
transportation and logistics are not cost effective.
All the above points about corporate India’s focus on rural households have also been
noted in our conversation as well with dealers and distributors who serve India’s
hinterland. During our interaction with Mr. Sanjay Bhutoria, Havell’s dealer for the
eastern region, we came across the following interesting observations.
Mr. Bhutoria deals extensively in Havell’s products across the seven north-eastern states,
West Bengal, Bihar, Jharkhand and parts of Orissa. He has to travel often to villages and
Aggressive rural
marketing and increasing regularly interacts with sub-dealers and retailers to get a better feel of rural markets.
consumer touchpoints According to him, rural demand is growing robustly and in the category of products he
driving rural sales deals in, the difference in volume growth rates in urban and rural areas is as high as 10-
15%. He feels that government programmes, such as the Rajiv Gandhi Vidyut Yojana
(RGVY), have been major game changers in villages. Most villages across eastern India
are benefitting from this scheme. This has also resulted in increasing the penetration of
electrical goods in villages to a great extent.
As a result, the number of households in rural India who use electronic goods such as
refrigerators, TV sets, has also increased. Also, given the erratic power supply, people in
rural India are opting for only branded electrical products. “Rural India is a big
opportunity, no company can afford to ignore it”, says Mr. Bhutoria.
What Havell’s has done so far to increase the penetration and increase availability is
unique. First, its marketing campaigns, both on TV as well as on ground, have a “rural”
touch. Vans tagged with “Havell’s” brand names are parked at specific villages for a day
or so, wherein technicians talk to locals about products and receive enquiries on which
components are best suited for their homes. Apart from this, the company has instituted
the Electrician’s Training Programme (ETP), wherein local electricians are imparted basic
technical skills. The number of touchpoints with the end-consumer has also increased
with a larger number of retailers in smaller towns also being targeted.
In fact, this model of targeting the vast potential of rural India through advertisement
campaigns and increasing touchpoints and wherever possible by introducing customised
products and services is not unique to Havell’s alone. Many companies across product
categories, FMCG, durables, etc., are in the fray as well.

Edel: Pulse
Rural Finances: Prudent Savings and Leverage
• Average rural household income and savings at INR 76,000 and INR 23,000, respectively
(Edelweiss survey 2010).
• Interestingly, savings growth (17% CAGR) is 2x of income growth (CAGR 8%) from
2005-10.
• 78% of rural India is now earning enough to build a savings corpus; big jump from a
mere 42% in 2005.
• Funding of higher education (64% of respondents) and emergencies (70% of

respondents) motivates rural households to save.
• 49% of people in rural areas receive income on half yearly intervals which underline
strong demand for micro banking and micro credit to help manage finances better.
• Formal banking is expanding its roots; 62% of those surveyed by Edelweiss had bank
accounts, whereas in 2001 only one third of the rural population had access to banking.
• Bank accounts and insurance products are the new age saving channels for rural India
(62% and 24% rural households using the same).
• However, ‘cash under mattress’ is still high at 50% of total savings for want of
convenient banking. Micro banking to fill the gap by making small ticket transactions
feasible.
• Risk aversion on part of lenders and lack of collateral for loans explain why only 18% of
those surveyed had running loans.
• Loans are being used judiciously to start non-farm based activity and to acquire farm
inputs (49% of respondents) ultimately leading to income generation.
• Sources of debt have shifted in favor of co-operatives and commercial banks (50% of
respondents) from traditional village money lenders (28% of respondents).
• Among institutions serving rural households microfinance institutions (MFIs) are

registering exponential growth (90% CAGR in disbursements from 2005-09).
• MFIs can bring about a paradigm change in how rural India earns, saves, and invests.

Chart 27: Monthly savings on the rise with shrinking Chart 28: Education a top scorer behind motivation
pie of non-savers to save
70
(% of respondents)
Emergencies
56
Education
42
Old age
28
Buy consumer goods
14 Buy or build house
0 Social ceremonies
INR 6,000-12,000
Below INR 2,000
INR 4,000-6,000
INR 2,000-4,000
INR 12,000 &

Nil
Improve social status
above
Improve business
Loan repayment
0 20 40 60 80
2005 2010 (% of respondents)
78% of households saving Education a big beneficiary

on a regular basis vis-à- as it drives the savings for a
vis 42% in 2005 large chunk of the population
Chart 29: Multiple drivers behind saving channel shifts Chart 30: Loan sources reflect reduced role of money
lenders
100
45
(% of respodnents)
80
(% of respodnents)
36
60 27
40 18
20 9
0 0
generation
Interest earning
Accessibility of
accessing banks
Awareness
Need for
security
Convenience in
Co-operative
Money-lender
Trader
Self help group
society/bank
Relatives/friends
Financial cos
Commercial
banks
banks
Security and productivity of Source: Edelweiss survey

savings driving shifts towards
formal channels

Edel: Pulse
After having understood the income landscape and the consumption appetite of rural India,
we next move to unveiling trends in rural finances. A critical component in understanding
rural households is to understand how they save, invest and make use of credit. Is the rural
farmer a prudent saver and a savvy investor? Is the credit penetration enough to help rural
India capitalise on opportunities? Are financial services doing their part to alleviate economic
levels of the lowest segment in the Indian economic landscape? These are a few of the broad
questions which we answer in the rural finances section of our survey.
Rural finances section covers the following:

• Savings: On the rise; triggering huge demand for micro banking, micro insurance
• Savings behavior: Prudent savers with not so prudent investments
• Saving channels: Undergoing a change with tilt towards banking
• Debt: Powerful tool to spur economic activity as few households are leveraged
• Banking penetration: Need for greater inclusion; could be a game changer
Savings: On rise; triggering huge demand for micro banking, micro insurance
Rural households are prudent with their savings and expenses. For the five year period of
Savings growth rate 2X of
Income growth rate from 2005-10, the rural population saw its annual income grow from INR 51,922 (NCAER
2005-2010 Survey) to INR 75,864 (CAGR: 8%), as per our survey. In the same period, annual
savings increased from INR 10,320 to INR 22,960 (CAGR: 17%). The pace of increase in
the amount saved is more than twice the growth rate of income. More importantly, the
proportion of households with nil monthly savings has dropped drastically from 58% in
2005 to 22% in 2010. Majority of the households save up to INR 2,000 per month.
Chart 31: Monthly savings on the rise with shrinking pie of non-savers
70
(% of respnodents)
56
42
28
14
0
INR 6,000-12,000
Below INR 2,000
INR 4,000-6,000
INR 2,000-4,000
INR 12,000 &

Nil
above
2005 2010
The willingness to save more with rising income levels clearly demonstrates the
rationality of a rural household in financial management. Moreover, increased savings
imply huge opportunity for banking products, primarily in the form of insurance and
saving accounts.
To provide for education Motivation to save is a balanced mix of the desire to improve socio-economic condition
and emergencies and to take care of unforeseen events. This is reflected in education and emergencies
motivates rural folks to
being the two most recurring reasons to save. 64% households with savings want to
save
provide for education of their children and 70% cite funds for emergencies as a
compelling reason. Next is the desire to improve living conditions and to upgrade lifestyle
by investing in a house and large consumer durables. The strong savings momentum

underlined by the motivation behind them lends buoyancy to rural demand for education,
housing materials, and consumer goods.
Chart 32: Education a top scorer in motivation to save
Emergencies
Education
Old age
Buy consumer goods
Buy or build house
Social ceremonies
Improve social status
Improve business
Loan repayment
0 20 40 60 80
(% of respondents )
The distribution of income flow during the year also creates its own demand for saving
Infrequent income flow
and financing products. Our survey reveals that half the sample population receives
creates its own demand
for credit and savings income on half yearly intervals. This is explained by the fact that 45% of chief wage
products earners in our survey are self employed in agriculture and allied activities where income
is received only at the end of the harvest season. However, a quarter of the aggregate
sample receives income on a regular basis i.e., daily, weekly or fortnightly.
Income inflows at irregular intervals bring about the need for various financial products,
both for credit and investment. For a farmer with half yearly income flow, readily
available credit at affordable terms during the crop cycle enhances productivity along
with better management of finances. On the other hand, for households with a regular
flow of income, saving and investment products are critical to ensure efficient and
profitable management of finances.
Chart 33: Majority still has half-yearly flow of income

Yearly
7%
Daily/weekly/
fortnightly
23%
Irregular
Half-yearly 15%
49%
Quarterly
6%

Edel: Pulse
Rural households: Prudent savers with not so prudent investments

A closer look at the avenues that rural households use to park their savings reveals that
the prudency that they show in terms of amount saved is not reflected here.
Chart 34: Saving channels diverse, but majority savings as cash at home
(% of amount saved)
90 60
(% of respondents)
72 48
54 36
36 24
18 12
0 0
Insurance
Land, property
operative society
Deposit in
Deposit in bank
Gold
Other
Cash at home
postoffice
Deposit with co-

Method of saving
‘Cash at home’ though Majority of the population (85%) still saves cash at home. Also it is noteworthy that 50%
declining, continues to of the savings of the surveyed population is accounted for under this head. Households
account for majority of
lose out on interest on their savings and take the additional burden of safeguarding the
rural savings
assets at home. About 62% of the population uses bank deposit accounts, but has a low
percentage of savings in the account.
Several factors have contributed to this, ranging from inconvenience to handle frequent
small ticket transactions to the availability of a bank nearby. Very small part of the
saving is channelised into insurance products, which demonstrates the low penetration
level of investment products in rural households. There is huge potential for banking,
micro finance, and micro insurance in rural India.

Case study: Micro banking: An efficient savings channel
Nalgonda is a district situated 100 km away from Hyderabad in Andhra Pradesh.

Villages around Nalgonda depend on the handloom industry for a living. The main
article produced is silk sarees. Income levels here are stable due to sustained
demand for products manufactured; however, until recently, villagers did not have
access to formal banking channels. The village size and population restricted banks
from opening branches there. Also, it did not make economic sense for villagers to
travel to nearest banks as their deposits and withdrawals ticket sizes are very small.
This led to a major chunk of their savings kept as cash at home.
The situation has, however, changed now with the State Bank of India (SBI)
providing micro banking to villages with population even below 2,000 through its
business correspondents (BC). It has engaged FINO (Financial Information Network
and Operations) for this purpose. FINO opens no frills saving accounts, whereby
Personalized Biometric Cards are issued to villagers. Since the agents employed by
FINO hail from the same or nearby villages, people trust the BCs with their money.
The card issued acts as a passbook plus ATM card and provides facilities like balance
inquiry, deposits and withdrawal of cash. This has enabled people with small and
regular savings to get benefits of security and interest associated with bank deposits.
Later these banking channels can also be used for other financial products like loans,
remittances, insurance, etc.
Fig. 10: Biometric cards solving dual purpose of passbook plus ATM card
Mr. Suresh Mittapally, one of the BC employed on behalf of SBI has opened more
than 1,300 no frill saving accounts across 18 villages in Nalgonda district in the past
one year. Many of his customers are daily wage earners who work under MGNREGA
projects. Since these wage earners have a regular flow of income, the savings
account provided by the bank is a convenient option for safe and secure banking.

Edel: Pulse
Saving channels: Undergoing a change with tilt towards banking

Although the current scenario implies a lot of room for improvement in how rural India
saves and invests, the methodology has definitely changed. Increasing awareness about
the need for better financial inclusion and products is reflected in the fact that more than
a third of the population has changed its saving pattern in the past decade. Changes
have come in the sources used to save, along with allocations to the same.
The proportion opting for a change is big, but still a huge proportion has not reaped the
benefits of increased opportunities and better saving mechanisms. This segment
represents a sizeable potential market for the banking industry in India.
The dominant reason that propelled rural households to change their saving pattern was
the desire for safety and security of investments (88%), followed by interest earned on
saving (77%). Convenience in accessing banks/financial institutions (67%) is another
driving factor behind the shift. Penetration of banking channels, given the central bank’s
thrust on financial inclusion, should serve well for the rural population by making banking
accessible and convenient.
Chart 35: Shifts seen in savings channel for security and interest income
100
80
(% of respondents)
60
40
20
0
Need for Interest Convenience in Awareness Accessibility of
security earning accessing generation banks
banks
As seen from table above, the change has been brought about majorly in levels of cash
held at home. Of the survey population who responded to having changed their saving
pattern in the past decade, only 27% see cash at home as a saving mechanism now vis-
à-vis 93% a decade ago. This has clearly resulted in 69% people using bank accounts to
save compared with a paltry 14% at the beginning of the decade. Popularity of post
office savings schemes has also increased, driven by the offices’ convenient location.
Demand and use of The most interesting phenomenon is the surge in usage of insurance products. One third
insurance products on the of the surveyed population now uses insurance as a savings option. This segment of
rise population was only 5% a decade ago. Gold, as a saving mechanism, is slowly losing
sheen with continuously dropping percentage (19% currently) of households using it as
an investment.

Table 1: Increasing role of formal channels for parking savings

% of Household
Methods of savings 2000 2001-05 2005-10
Cash at home 93 42 27
Deposit in bank 14 56 69
Deposit in post office 2 12 13
Deposit with co-operative society 1 3 4
Deposit in no-banking society Gainers 1 2 3
Insurance 5 16 29
Deposit with money lender 0 0 1
Bonds 1 2 1
Gold 25 22 19
Land, Property 4 5 9
The above mentioned table can be used to chart the future course of growth in
channelising of funds. With the growing awareness and availability of suitable banking
and insurance products, the market has substantial potential for the banking industry
and will clearly drive volumes at a rapid pace.
Although the population surveyed responded in affirmative to the level of satisfaction on

their income growth, savings is one area where they are not happy with the way they
are progressing currently.

Edel: Pulse
Chart 36: Satisfaction level with savings behavior still low

Satisfaction level lower
for savings behaviour vis- Highly satisfied Highly
à-vis income growth 10% dissatisfied
13%
Somewhat
dissatisfied
11%
Somewhat
satisfied
28%
Neither satisfied
nor dissatisfied
38%
May be it is the awareness that better avenues are possible is what is leading to the
dissatisfaction. With increased access of better saving instruments and spread of
financial literacy, rural savings will surely flow into formal banking channels.
Debt: Powerful tool to spur economic activity as few households are leveraged
The rationale behind analysing the borrowing behavior of a rural household was to see
the extent to which debt is driving the rural economy and consumption which showed
strength even in the face of global economic slowdown. Also, it is important to judge if
optimal level of debt is available and being put to productive use.
Very few households Survey results reveal that only 18% of the surveyed population has any kind of running
reported having running loans currently.
loans
About 40% of those who are leveraged in the aggregate sample use co-operative
societies for borrowing, followed by money lenders and relatives/friends at 28% and
11%, respectively. Commercial banks, as a source of funds, are being used by only 10%
of the survey population in need for funds.
Chart 37: Diverse sources of loans with reducing dependence on moneylenders

45
(% of respondents)
36
27
18
0
Co-operative
Money-lender
Trader
Self help group
society/bank
Relatives/friends
Financial cos
Commercial
banks

Lack of collateral a The primary reason for commercial banks having such a small share in the rural debt pie
hindrance for rural is the lack of collateral with rural households. Also the convenience in transacting is less
households seeking debt with commercial banks due to the number of procedures and paperwork involved.
Another factor which increases the motivation to use money lenders is the convenience
of borrowing. Loans can be arranged at a short notice and that too without any collateral
which makes it an accessible source in emergencies.
Rural households are utilising funds for productive and income generating activities.
Farming is the main area where demand for outside funds remains huge and 35% of the
surveyed population is using loans to buy farm inputs. Non-farm business purpose is
another important area where funds are channelised to start small trade and
manufacturing businesses. Another large segment of loans raised is being used for health
related emergencies, which highlights the need for better hospitals and sanitation
services.
Chart 38: Loans are being used for income generating purposes
40
(% of respondents)
32
24
Income generating
activities main reason 16
behind taking loans
8
construction
Household
Emergency
Livestock
Social ceremonies
Non-farm
Education/Sending
business
Farming
durables
(health)
House
abroad
An interesting fact to note is that a quarter of the surveyed population has changed the
Dependence on
source of loans in the past five years, primarily by reducing dependence on village
moneylenders reducing
money lenders in favour of organised players. The interest rate charged by money
lenders is high in comparison to the rate charged by intermediaries in the formal banking
channel. However, penetration of commercial banks and financial companies/institutions
is still abysmal. Awareness on these products needs to increase, along with making them
more accessible and dependable as a source of money for business and trade.
Prudent use of funds for income generating activities, along with the fact that few of
those surveyed are leveraged make a strong case for expansion of rural credit. The
products need to be designed completely from the rural customer’s perspective as
fundamentally they are different from their urban counterparts.
Banking penetration: Need for greater inclusion; could be a game changer

More innovative methods need to be used to take banking to the grass roots of the
Close to one-third of rural
population fall under economy as still close to one third of rural population falls under the unbanked segment
unbanked segment as revealed by our survey. However, even for the banked segment the convenience and
viability of small ticket deposits and withdrawals needs to increase manifold. Micro
finance and micro banking will be a solution to the above mentioned problem by
increasing banking penetration.

Edel: Pulse
Fig. 11: Small entrepreneurial activities helping break vicious circle of poverty
The Reserve Bank of India (RBI) has defined microfinance as, “provision of savings,
credit and other financial services and products of very small amounts to the poor in
rural, semi-urban and urban areas for enabling them to raise their income levels and
improve their living standards”. The Development and Regulation Bill, 2007, states that
any loan with a maximum loan size of INR 50,000 per individual or enterprise can be
classified as a micro finance loan.
The two largest micro finance models in India include micro finance institutions (MFI)
and self help groups (SHG). The growth of the MFI space over the past five years is
phenomenal and outpaces the growth rate of any other type of lending model in India.
Micro finance as a lending model, is achieving great results with its products completely
tailored for the rural population. Also, its enormous growth has demonstrated that rural
households are creditworthy. MFI is a commercially viable mechanism to take formal
banking to poor households in rural India and help them establish a foothold in the
mainstream economy. It is commercially viable is proved by the fact that it is attracting
sizeable private capital as well. It aims to enable the poor to build assets, increase
incomes, and reduce vulnerability to shocks and economic stress and ultimately lay a
path of better lifestyle with greater access to education and healthcare facilities.
However, MFI still primarily revolves around micro credit, as micro savings, micro
insurance etc., form a minuscule segment of the micro finance space.
MFI loan growth CRISIL estimates that MFI disbursements posted a 90% CAGR over a four year period
disbursements CAGR ending March 31, 2009, at the total outstanding credit of INR 114 bn (CRISIL: India Top
stands at 90% for the 50 Microfinance Institutions). To understand the prospects of MFI better, we spoke to the
past four years
management of Sahara Utsarga Welfare Society based in West Bengal.

Micro finance institutions: Clocking exponential growth
Excerpts from an interview with the management of Sahara Utsarga Welfare Society
Q. For the next 2-3 years, do you see your loan book growing at a rate
witnessed by the MFI industry during the past 3-4 years?
Yes certainly. Demand for small ticket loans from rural households is huge as this
economic opportunity is directly leading to improvements in their income levels and
aspirations. Many of our customers are now sending their children to private schools
which for most of them was unthinkable till some time back.
Q. Have you witnessed demand for education loans? Do you offer the same?
We do have lot of customers asking for education loans. However, currently, we
predominantly extend loans for direct income generating activities. Going forward, we
might evaluate extending education loans to our customers whose credit worthiness
has been proved.
Q. Do you see loan ticket size increasing for old customers?

Yes, actually we start with loan tickets of INR 5,000-7,000, and in the next cycle it
can go up to INR 10,000-12,000. Their good business performance drives their
repayment ability, credibility, liquidity and, more importantly, their appetite for
higher credit to scale up business. Since we know these customers, we do not mind
extending them bigger ticket loans.
Q. How do you see monsoons impacting loan disbursement and loan

recovery?
Loans directly to the agriculture sector form a very small part of our portfolio.
However, good monsoons and festival season increase demand for our loans. With
loan repayments, we have never witnessed problems due to monsoons. Current
example is West Bengal where the monsoon this year has been quite bad, but we are
Demand strong for micro not facing any problems there.
insurance and other micro
savings products Q. How strong is the need for other microfinance products, namely saving
and insurance?
10% of our customers do show willingness to have saving channels; however, we
don’t do that currently. We might look at entering into investment products in the
next 2-3 years as the demand is high driven by increasing income levels, growing
awareness, and the desire to improve lifestyles.
Q. Along with providing economic opportunity, do you also help your

customers improve their skills sets?
Yes, actually we do a lot of field training for our customers. We help them with
business ideas, provide financial literacy, and also organise exhibitions for their
products.
Savings, insurance, remittances, and pensions are other areas of rural finance which
need further penetration and servicing by MFI players. While the business of lending is
now established and being run in a commercially viable manner, a lot needs to be done
about small ticket savings and micro insurance. It is crucial that commercially viable
models are developed for these products for them to pick up any kind of meaningful
scale. With growing migration the need for remittance services is even higher now than
in the past.

Edel: Pulse
Case study: Microcredit: A powerful tool to break vicious cycle of poverty
During the survey, at Tamil Nadu we met, Shrilata, a 35-year old woman in a small
village in Thanzavur district.
Both Shrilata and her husband worked as agriculture labourers until the time their
village was severely affected by unseasonal floods in end 2008. Both of them lost
their employment. While some of the other labourers in the village landed up with
jobs in fish farming, Shrilata’s husband got a job in a textile printing establishment.
However, bad luck still haunted the couple and her husband lost his eyesight due to
exposure to chemicals at his textile printing job.
Fig. 12: Weekly loan repayment and disbursement in progress
Around this time, she came across an MFI agent at her village. He informed her that
in order to get credit she needed the guarantee from the local village group appointed
for the purpose of credit disbursements. She convinced the local group about the use
of funds and its repayment. Post this, she was advanced a loan of INR 5,000 to start
sewing business from home. She spent INR 1,800 for the sewing machine and similar
amount for the fabric to make blouses and petticoats. The rest of the loan she spent
for her consumption.
She started selling her output to a local shop that then started giving her fabric in
advance so that she could increase the number of garments produced. Soon she
started receiving orders from local hawkers for clothes of kids. Her business grew and
she could save enough to repay her loan. After repaying the loan, she supported her
husband in starting his bidi business, as it is one of the very few activities that he can
manage without eyesight. He now makes bidis and supplies them to the local bidi
manufacturer.
This is a classical example of how credit acted as a catalyst in income generation by a

rural household. It not only helped Shrilata get employment, but also bailed her out
from poverty. The stability that the couple now enjoys helps them earn, consume,
and save sufficiently.

It goes without saying that developed and inclusive banking system brings growth,
opportunity and better income distribution to an economy. Constant efforts by RBI to
provide financial services like savings, money transfer, credit, trade finance, insurance
etc. to the rural segment of the economy is gaining steam with every passing day. The
central bank’s thrust on inclusive banking will change the face of rural India’s finances
and economic landscape.
Fig. 13: Banking penetration to help rural India earn, save and invest better

Edel: Pulse
Education: Giving Wings to India’s Socio-

economic Development
• Desire to attain education among the rural households is on a high. Number of literates
has increased from 60% to 70% from 2001 to 2010 (Edelweiss survey-2010).
• Expenditure on education is on the rise. Union budget allocation to school education and
literacy expenditure has grown eightfold in the past 10 years, from INR 40 bn in 2000-
2001 to INR 332.1 bn in 2010.
• Spending by government is matched by the rural households as well. Education now

forms 6% of the wallet share, double from 2007 levels.
• The buoyancy will be maintained as 64% of the households save to provide for children’s
education.
• 50% of the respondents in our survey agreed to have heavily increased expenditure on
education in the past five years, pointing to a structural shift in demand for education.
• Also, 16% respondents said that education facility is the one thing they wish to change
in their village, if given a chance. This was second only to desire for better water supply
and sanitation.
• This changing perception regarding education is quite influential in shaping the socio-
economic trend. It opens doors to various employment avenues in the non-farm sector
where incomes are higher and have better visibility.
• Right to Education Act is a great leap forward by the government. The act gives
fundamental right to children (age 6 to 14 years) to free and compulsory elementary
education in a neighbourhood school.

Chart 39: Rural India registering rising literacy levels Chart 40: Union budget allocation towards school
education and literacy on the rise
45 350
(% of respondents)
36
280
27
(INR bn)
210
18
9 140
0
70
SSC/HSC
Below primary
Graduate/Post
Illiterate
5th-9th
graduate
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2001 2005 2010
Number of literates rose from

60% to 70% from 2001 to
2010
Chart 41: The one thing to change in the village.. Chart 42: Education motivates rural India to save
80
Public
(% of respondents)
Healthcare transport 64
6% 3%
48
Employment 32
10%
Water & 16
sanitation
35% 0
Roads Improve business
Loan repayment
Emergencies
Improve social
Buy consumer
Social ceremonies
Buy or build house
Education
Old age
15%
goods
status
Power supply
Educational
15%
infrastructure
16% Education driving rural
savings clearly
Desire for educational demonstrates change of
infrastructure development perception among rural
second only to improved households
water & sanitation
Source: Edelweiss survey, Ministry of Finance

Edel: Pulse
Rural India does not have a very good track record as far as literacy levels are concerned.
Lack of proximity to schools and poor approach roads, shortage of teachers and classrooms,
lack of awareness about the benefits of education, and low income levels have contributed to
high illiteracy and drop-out ratios among rural households. Further, the traditional belief in
the profession of agriculture - more the working hands, the better it is - also played a role in
discouraging parents from committing their children to schooling. However, these trends are
clearly changing. Education is now increasingly seen as a prime instrument of social and
economic upliftment in rural India.
‘Education’ section covers the following:

• Literacy levels: Steadily rising with growing appetite
• Partners in increasing education spend: Government and rural households
• Perception change: Education now considered a window of opportunity
• Government education programmes: Right to Education Act a great leap forward
Rising literacy levels in rural households

Rising literacy levels seen The levels of literacy among rural households have markedly improved over the past
with increasing number of decade, as seen in the chart below. In a survey conducted by National Sample Survey
graduates Organisation (NSSO) in 2001, literacy levels were pegged at 60%, whereas in the
Edelweiss survey 2010, literacy has increased to 70%. Further, in 50% of our survey
households, the Chief Wage Earner (CWE) of the household was educated till 9th
standard and ~5% of CWEs in the total sample were graduates against with just 2% in
2001.
Chart 43: Rural India depicting rising literacy levels over past decade
45
36
(% of respondents)
27
18
0
Illiterate Below primary 5th-9th SSC/HSC Graduate/Post
graduate
2001 2005 2010

Case study: Education: A powerful tool empowering Mr. Mahesh Kumar turn
into entrepreneur
Mahesh Kumar, aged 32, is now settled in Gulbarga, Karnataka. He spent his
childhood in a nearby village where he completed his basic education in a
government school. Post this, he came to Gulbarga where he took up menial jobs.
Along with work, he kept pursuing vocational courses in the medical field (X-Ray,
biochemistry etc). He paid for his own further education and could hardly save
anything.
As his qualification grew, he landed up with a job at a pathology clinic in the same
town. Here, his income levels also improved, along with better exposure to medical
field that has always been his passion.
After few years of working with the pathological clinic where he could save money
and gained the necessary exposure, he wanted to start his own diagnostic laboratory.
He came across Pradhan Mantri Rozgar Yojna (PMRY) that has been initiated to lend
small amounts at minimal interest rates to help people like Mahesh start their own
entrepreneurial venture. He got INR 1.5 Lac from the scheme, which he combined
with his own savings to start his own diagnostic centre.
Fig. 14: Hoarding of diagnostic laboratory started by Mahesh Kumar
Mahesh received phenomenal response for his venture from his own town as well as
neighbouring villages. He then designed suitable packages for villagers where they
could get a full body check up at reasonable charges. He has now repaid most of his
loan to the government and plans to expand his business by adding more equipment.
He is also making access to basic medical facilities convenient for the rural
households, thereby improving their living standards.
Partners in increasing education expenses: Government and rural households

Government increasingly The Government of India (GoI) has intensified its efforts to promote education with its
allocating substantial
initiatives such as Sarva Shiksha Abhiyan, Mid Day Meal Scheme and, most importantly,
amounts towards
education the enactment of Right of Children to Free and Compulsory Education. These government
efforts have positively influenced the spending patterns of rural households as well as
education. The data from government sources suggest that there is a marked
improvement in the gross enrollment ratios, proximity of the schools, infrastructure in
the schools and overall quality of teaching, although trends vary from state to state.
Nonetheless, a lot remains to be done.

Edel: Pulse
Along with moving in the right direction, GoI has increased the Union budget allocation
to school education and literacy to INR 332.1 bn for 2010-11, an eightfold increase in the
past 10 years from INR 40 bn in 2000-01.
Chart 44: Union budget allocation to school education and literacy

350
280
(INR bn)
210
140
70
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Source: Ministry of Finance, Edelweiss research
Our survey reveals that rural households currently allocate 6% of their wallet share to
education. NSSO survey for 2006-07 estimated the expenditure share at 3%. Clearly,
the allocation to education has picked up rapidly for the share to double in the span of
three years.
Households matching The good part of the expenditure is that among various socio-economic segments (R1-
government spending R4), this trend does not change much. However, based on occupation of the CWE of the
pace by increasing wallet household, the trend varies somewhat. For example, spending on education as a
share on education
percentage of total spending is higher at 8% for salaried household against 5% for
labour or self-employed. Across states, this percentage is the highest for Tamil Nadu, at
9%, and lowest for Gujarat, at 4%.
Chart 45: Share of wallet shows substantial allocation to education

Housing
Communication 5%
5%
Education
6%
Healthcare
6% Food
43%
Apparel
7%
Entertainment
8%
Personal care
9% Travel
11%

Also, this phenomenon is picking further stream. Today, rural households are quite
willing to increase expenditure on education. They have done so in the past five years.
For example, more than 50% respondents in our survey agreed to having increased
heavily on expenditure on education; another 30% increased expenditure on education
mildly. Only 4% reported decreasing expenditure on education. Such a shift shows that
households are more convinced about the benefits of admitting their children in schools
and colleges.
Chart 46: Have you increased expenditure on education in past 5 years?

60
48
(% of respondents)
Rising income to result in

rising education spend 36
and that too in a higher
proportion
24
12
0
Decrease No change Mild increase Heavy increase
In addition, rising incomes also increase the willingness of households to increase

expenditure on education. For example, study done by Jandhyala Tilak in 2000 showed
that the coefficient of elasticity of household expenditure on education to total income is
close to 1.5. This means 1% increase in the total household income would result in 1.5%
increase in the household expenditure on education.
Perception change: Education now considered a window of opportunity

The fundamental shift which is underway in rural areas and which is well-born by our
survey is the change in the mind-set of rural households with regards to education.
When respondents were asked about one thing they would like to change in their village,
education scored the highest, after better sanitation and water supply. In other words,
education is the most important consideration after water supply and sanitation.

Edel: Pulse
Chart 47: One thing you can change in your village..

Public transport
Healthcare 3%
6%
Education now seen as an

instrument of socio- Employment
economic upliftment 10% Water &
sanitation
35%
Roads
15%
Power supply Educational

15% infrastructure
16%
Education is no more considered a not-so-necessary and burdensome expenditure but a

serious instrument for social and economic upliftment. The fact that rural households are
willing to send even girl child to school is a testament to the changing perception of
education.
This change in perception is also supported by the fact that non-farm incomes are also
on the rise in rural areas and better education significantly aids such incomes. For
example, surveys by NSSO have shown that proportion of non-farm employment in the
total rural employment has risen from 16.6% in 1977-78 to 18.5% in 1983, 21.7% in
1987-88, 23.7% in 1999-00 and finally to 27.6% in 2004-05. This trend is also
encouraging rural households to focus on education.
When respondents in our survey were asked about their motivation for savings, nearly
To provide for education 64% replied in favour of education for their children. In fact, education constituted the
motivates rural India to biggest motivation for savings after emergency. Importantly, this trend cuts across
save socio-economic groups and states covered in the survey. Among states, Tamil Nadu had
the highest percentage of respondents (~80%), stating education as their motivation for
savings. Among the socio-economic groups, the R1 segment understandably showed
maximum motivation to save for education (~70%), although none of the segment had
this percentage below 60%.

Chart 48: Education a big motivation behind rural savings

80
(% of respondents)
64
48
32
16
Emergencies
Buy or build house
Improve business
Education
Loan repayment
Improve social
Buy consumer
Social ceremonies
Old age
goods
status
Case study: Savings and insurance: Motivation is to provide for childrens’

higher education
Mr. Tuttana is a farmer by profession. He hails from village Haranahalli, situated 32

Kms away from Kolar district in Karnataka. He has his own 1.2 acre land which he
uses for growing vegetables, mainly tomato and onions. On an average, he earns INR
3,800 per month, of which, he spends INR 2,700 on consumption. He has two sons
who study in elementary and middle school in Standard I and VI in the nearby
government schools. His main motivation behind savings is to provide for the
education for his two sons.
For this purpose, he has taken two Post Office Insurance policies for a monthly
premium of INR 114 and INR 102. The policies assure him INR 25,000 whenever his
sons turn 18. He plans to send his sons to Kolar where they can complete their 10+2,
i.e. to complete their schooling. This trend is widespread in his village where people
in group of four rent rooms in Kolar and send their children for further education.
The trend is catching up, whereby farmers in the village are saving so that their
children can have higher education post government sponsored basic education and
move to non-farm based or salaried activities. This instance also highlights the need
for micro saving products by rural households which can provide them with assured
returns in future.
Government education programmes: Right to Education Act a great leap

forward
Government initiatives in education clearly focus on two main aspects:
• Increasing access to education
• Improving quality of education, ultimately ensuring employment
The point is driven hard with the passing of Right to Education Act (RTE) and increasing
expenditure on the various programs in budget outlays. Key indicators and our survey
findings further underline the success of the initiatives. However, a lot remains to be
done and achieved to create a meaningful difference.

Edel: Pulse
Government programs cover all age group of the population, with special emphasis on
education of the girl child. Passing of Right to Education Act with stringent norms and
accountability is clearly a game changer in imparting basic education to the children of
India.
Education for all breaking Right to Education Act, 2009

social barriers among
The Act provides for the fundamental right of children (age 6 to 14 years) to free and
rural households
compulsory elementary education in a neighbourhood school. It seeks to ensure the
following:
• Adequate number of schools to provide access to entire population
• Skilled and trained teachers in appropriate numbers
• Proper infrastructure in terms of school buildings, classrooms, amenities
• Reduction in dropout rates and improvement in enrolment ratio for upper primary
• Equality across gender, caste etc
• Improvement in the quality of education, aiding employability
Main government programmes are as follows:

1. Sarva Shiksha Abhiyan (SSA)
2. Mid Day Meal Scheme (MDM)
3. Rashtriya Madhyamik Shiksha Abhiyan (RMSA)
4. Sakshar Bharat (A versatile new variant of National Literacy Mission)
Fig. 15: Education for all will be the driver for rural socio economic development

I. Sarva Shiksha Abhiyan
SSA proved to be an SSA is GoI’s flagship programme for universalisation of elementary education as
effective program as mandated by the Right to Education Act, 2009. It covers all states and union
reflected in increased
territories and reaches out to an estimated 194 mn children in 1.23 mn habitations
knowledge levels among
students in the country. The program seeks to open new schools in those habitations which
do not have schooling facilities and strengthen existing school infrastructure through
provision of additional class rooms, toilets, drinking water, maintenance grant and
school improvement grants. Along with infrastructure development at the schools,
reasonable attention is paid to providing adequate well trained teachers and quality
education. Under SSA, special focus is on girls, children belonging to SC/ST
communities, other weaker sections, minorities and urban deprived children.
The impact of SSA is measured at various levels of the implementation of the

program, which indicates improving student learning outcomes. National surveys on
learning achievement of students are conducted by NCERT every three years to
assess the level of achievement of children in different subject areas at the end of
classes III, V and VII/ VIII.
Round 1 and 2 have been conducted at the inception and the mid course,
respectively, of SSA. The information revealed clearly shows remarkable progress
since the implementation of the programme.
Table 2: Results of Round 1 and 2 conducted to judge progress of SSA show marked improvement
Language Math Science Social Science
Class Round I Round II Round I Round II Round I Round II Round I Round II
Class III 63.1 67.8 58.3 61.9 - - - -
Class V 58.9 60.3 46.5 48.5 50.3 52.2 - -
Class VII 52.2 57.4 30.5 40.4 37.8 42.9 34.0 44.7
Class VIII 53.9 56.5 39.2 42.6 41.3 42.7 46.2 47.9
Source: HRD Annual Report 2009-10
II. Mid Day Meal scheme in schools
GoI’s objective behind the Mid-Day Meal programme is to enhance enrollment,

retention and attendance, and simultaneously improve nutritional levels among
children. It aims to address two main issues facing the Indian children – hunger and
education. Under the scheme, every child studying in government, government-
aided and local body schools, Education Guarantee Scheme (EGS) and Alternative &
Innovative Education (AIE) centres is to be served a prepared mid-day meal for a
minimum of 200 days in a year.
Mid Day Meal scheme The government aims to achieve the following with the program:
solving dual purpose of
1. Preventing classroom hunger to enhance concentration
education and hunger
2. Promoting school participation
3. Facilitating healthy growth of children
4. Intrinsic educational value by imparting various good habits
5. Fostering gender equality
6. Enhancing gender equality
7. Psychological benefits

Edel: Pulse
Table 3: Achievement of the Mid Day Meal scheme during 2006-09
Particulars 2005-06 2006-07 2007-08 2008-09

Children covered (mn) 119 107 114 112
Foodgrain allocated (mn MTs) 2.3 2.2 2.5 2.9
Budget allocation (bn) 33.5 53.5 66.8 80.0
Total expenditure (bn) 31.9 52.3 58.4 66.9
Source: HRD Annual Report 2009-2010
Fig. 16: Meals at school solve dual purpose of attendance and nutrition
III. Rashtriya Madhyamik Shiksha Abhiyan
With widespread implementation of SSA, the natural progression is to launch RMSA,

with the objective of universalising access to secondary education while improving
its quality and ensuring equity and social justice.
The main guiding factor behind the implementation of the program is to improve
quality while ensuring equity. It aims to achieve an enrolment rate of 75% from
RMSA a natural
progression to SSA to 52.26% in 2005-06 in the next five years by providing a secondary school within
universalize secondary reasonable distance of any habitation. The objective of quality and equality is planned
education to be achieved by making all secondary schools conform to prescribed norms,
removing gender, socio-economic and disability barriers, providing universal access to
secondary level education by 2017 and achieving universal retention by 2020.
While RMSA will remain the umbrella scheme in the secondary sector, a bouquet of
other schemes has also been launched during the initial two years of the Eleventh
Five Year Plan. These include setting up of 6,000 model schools, construction and
running of ~3500 girls' hostels in educationally backward blocks, inclusive education
for the disabled at the secondary stage, information and communication technology
(ICT) in schools, national means-cum-merit scholarship, and incentive to girls for
secondary education.

IV. Sakshar Bharat
The demand for literacy and education of adults has been growing over the years.
To meet this growing demand, Saakshar Bharat, a versatile new variant of the
National Literacy Mission was launched by the prime minister on September 08,
2009. This flagship programme of GoI will offer adult non-literates and neo-literates
a package of opportunities, including those for basic literacy, basic education
(equivalency), skill development and continuing education. The thrust of Saakshar
Bharat is on rapid increase in literacy levels among rural women.
Government education The program is focused on reducing gender and socio-economic disparities in
programs reducing literacy levels. It is clear from the fact that 85% of the total target will be women
gender and socio- and nearly 50% will comprise SCs/STs and minorities. The mission is aimed to be
economic disparities implemented by gram panchayats at the grass root level.
Along with the above mentioned main government programs covering all segments
of education for all citizens, emphasis has been placed on formulating a policy
framework for Public Private Partnership (PPP) model in school education. Following
this, a concept note on PPP model has been placed by the government, inviting
suggestions from the public and private stakeholders.

Edel: Pulse
Annexure 1: State-wise Summary Findings

Our rural survey was spread across five states - Bihar, Chhattisgarh, Haryana, Gujarat and
Tamil Nadu. The survey covered three districts and ~400 households in every state. While we
have already highlighted the variations which exist between SECs, it would be also
worthwhile to mention the inter-state variations.
Occupation trends across states

Occupation trends across the five states in our survey reveal that majority of rural
households are either self-employed in the farm sector or are involved in labour activities
(both farm and non-farm sectors). Labour activity seems to be higher in relatively more
prosperous states of Tamil Nadu and Haryana compared with Bihar and Chhattisgarh,
where the farm-sector seems to be much bigger. In other words, Bihar and Chhattisgarh
have been relatively slow in catching up with the trend of shift from farm to non-farm
sector.
Chart 1: State-wise distribution of occupations

65.0
52.0
(% households)
39.0
26.0
13.0
0.0
Self employed - Labour Salaries Self employed -
agri non agri
Bihar Haryana Gujarat Chhattisgarh Tamil Nadu
Source: Edelweiss Survey
Distribution of income across states

In our survey, on an aggregate basis, ~60% of the households earn below INR 60,000
per year, while ~25% households earn above INR 90,000 per year. Expectedly, there is
a divergence in the distribution of incomes across states with high income households
more prevalent in Tamil Nadu and Haryana. Lower income households are more common
in Bihar and Chhattisgarh where ~67% and 75% households, respectively, earn below
INR 60,000 per month. The striking finding is that the average annual household income
in rural areas in Gujarat is much below Haryana and Tamil Nadu and is closer to that of
Bihar and Chhattisgarh. In Gujarat, ~65% respondents were found to be earning INR
60,000 or below /year against ~45-47% in Tamil Nadu and Haryana.
The percentage of households in both Gujarat and Haryana who are employed in
agriculture is very similar at ~36% each. However, what works in favour of Haryana is a
better organised mandi system. This mandi-network trend varies from state to state and
is quite influential in determining the overall realisations by the farmers on their crop
yield. Gujarat clearly lags behind in grain market network, thereby suppressing the
realisations on crop produce by the farmers, whereas Haryana clearly leads in this regard.
As discussed above, this has helped raise income levels of the farmers in Haryana
compared with Gujarat.

Chart 2: State-wise distribution of income

55.0
44.0
(% households)
33.0
22.0
11.0
0.0
Up to 30K 30 to 60 K 60 to 90 K 90 K to 2 L 2 to 5 L
There are some interesting sub-trends emerging within the income category. Among the
states surveyed, Chattisgarh had ~15% of the respondents employed through NREGA,
while in Tamil Nadu, the comparable figure was 12%. In Bihar, ~10% of the households
gained employment through NREGA, while in Haryana and Gujarat it was relatively lower
at 1.3% and 4.6% respectively.
Spending trends across states

Our survey reveals that on an aggregate basis, the maximum household spending is on
basic necessities; food accounts for ~42%, followed by travel at 11% and personal care
at 8%. About 6% is spent on healthcare and education. We have already highlighted in
our previous section on consumption as to how this trend is undergoing a change given
an increased thrust on spending on discretionary goods and spending on education.
Among states, the spending patterns tell an interesting story. Households in Tamil Nadu
and to some extent Haryana spend a lot more on discretionary items (entertainment,
apparel, durables and housing) than other states. Consequently, the share of spending
on necessities such as food is relatively lower in these states. For example, our survey
points out that, on average a household in Tamil Nadu spends ~29% on food against
45% in Gujarat and 51% in Bihar. Similarly, in Tamil Nadu an average household spend
on discretionary items is ~28%, which is higher than the average discretionary spend of
a household in Bihar (~17%).
The spending on discretionary products highlights some of the variation between states.
Our survey reveals that ~11% of the total household spending in Tamil Nadu is on
entertainment. This is higher than Bihar at 5% and Chhattisgarh at 6%. Spending on
durables too show some variation. In Tamil Nadu, ~8% of the total household
expenditure is on durables against a miniscule 1% in Bihar and Chhattisgarh. However,
the variation is not much large between spending patterns on apparels or housing across
states. Spending on housing forms ~4-7% of total spending across states.
One of the main reasons for the increased level of discretionary spending per household
in Tamil Nadu against other states is the higher average household income. Again, this
data suggests that as rural income continues to rise and becomes more stable,
discretionary spending will garner a larger share of total household spending. Also, with
increasing awareness, we will see increasing levels of spending on education and
healthcare.

Edel: Pulse
Ex-food, non discretionary spending across states is relatively evenly spread out.
Average spending on travel per household is ~10-12% of the total spending across the
five states. Spending on personal care shows slight divergence across states and
communication is on similar lines.
Spending on education shows slight variation across states. Survey data suggests that in
Tamil Nadu ~9% of total household spending is on education against 4% in Gujarat and
5% in Bihar and Haryana. Spending on healthcare is on an even keel, comprising ~5-7%
of total household spending.
Chart 3: Household spending on discretionary goods Chart 4: Household spending on basic necessities
12.0 60.0
(Share of wallet, %)
9.6 48.0
7.2 36.0
4.8 24.0
2.4 12.0
0.0 0.0
Gujarat
Gujarat
Chhattisgarh
Tamil Nadu
Chhattisgarh
Tamil Nadu
Haryana
Haryana
Bihar
Bihar
Entertainment Apparel Durables Housing Food Travel Personal care Communication
Chart 5: Household spending on education, healthcare and housing

10.0
8.0
6.0
4.0
2.0
0.0
Education Healthcare Housing
Source:Edelweiss Survey

Asset ownership trends across states

On an overall basis, as we have discussed, asset ownership trends across our survey
universe remain strong. However, there are a few inter-state variations which we
highlight below:
Household goods: For some segments of household goods, there exists a wide
variation in ownership trends. About 98% of households in Tamil Nadu own a TV set
against 84% in Chhattisgarh and 35% in Bihar. In Haryana, in comparison, ~66%
households own a TV set.
Ownership in other categories also shows a diverging trend. In Haryana, ~34%

households own a refrigerator against 22% in Tamil Nadu and only 3% in Bihar. For
washing machines too, penetration among households in Haryana seems relatively
higher (11%) compared with Bihar, Gujarat and Chhattisgarh. Gujarat has shown
relatively lower ownership of most household goods; in some cases, ownership levels are
closer to that of Bihar or Chhattisgarh.
Chart 6: Ownership of household goods

110.0
88.0
(% of households)
66.0
44.0
22.0
0.0
TV VCD/DVD Refrigerator Washing machine
Source:Edelweiss survey
One product that has found wide acceptability across states is telephone/mobile. About
76% of the households surveyed own a mobile or a telephone. Such high level of
penetration has been possible owing to increasing purchasing power and customised
offerings by mobile companies (for example, companies generally have smaller size
denominations of recharge vouchers, handsets are affordable- higher availability of low
cost variants and have features such as in-built torch and longer battery life).
Surprisingly, among the households surveyed in Gujarat, only 61% own a mobile or
telephone. In Haryana and Chattisgarh, the comparable percentage is ~90%.
High end electronic products: Our survey suggests that the overall ownership level of
electronic products is very low. There are some inter-state variations observed, but the
data is negligible to merit a trend. Going ahead, in our view, as incomes further rise, we
might see increase in adoption of ACs and computers.

Edel: Pulse
Autos/Bicycles: Ownership trends in autos paint an interesting picture. For example, a

relatively higher 80% of households surveyed in Bihar own a bicycle compared with 40%
in Tamil Nadu and 41% in Gujarat. Consequently, the ownership level of two-wheelers is
much higher in Tamil Nadu (39% of the households own a two wheeler) than in Bihar
(only 9% own a two wheeler). Chhattisgarh surprised us by reporting ~35% of its
households owning a two wheeler against just 29% in Haryana. The penetration of
car/jeep overall is just 2%. In Haryana, the ownership level is ~4%, but again the
overall ownership level of car/jeep is too small to merit a separate trend.
Only 4% of the households surveyed own a tractor. In Haryana, ownership of tractors is

relatively higher (~8%), while it is the lowest in Tamil Nadu (~2%).
Chart 7: Ownership of autos/bicycles

90.0
72.0
54.0
(%)
36.0
18.0
0.0
Bicycle Motorbike/Scooter Car/Jeep Tractor
Ownership of other household assets, especially gold throws up a mixed picture. Gold
has an intrinsic investment value linked to it and, thus, we see a decent 36% ownership
of gold or silver ornaments. As expected, this is high in Tamil Nadu (~73%), and
relatively lower in Bihar (~18%).
Asset purchase plans

The survey questionnaire on asset purchase plans throws up some interesting
observations. For example, given the relatively higher penetration of TV and DVD/VCD
player, only fewer respondents in Tamil Nadu are planning to buy one in the subsequent
months. Conversely, a much higher percentage of households in Bihar and Gujarat would
like to purchase a TV DVD/VCD player in the near future.
About 48% respondents in Tamil Nadu said they would like to buy a two wheeler. For
four wheelers, the comparable number is 16%. This is significantly higher than Bihar,
where a relatively lower 21% would like to own a bike or scooter and just 3% who would
like to own a car or jeep. Overall, for all the states, only a small percentage (~5%)
would like to own an air cooler or AC.
What the above examples show is that there is a lot of potential for up-scaling. In states
such as Tamil Nadu where people already own two wheelers, have indicated plans to
purchase a four wheeler. For example, in Bihar, where there is relatively lower
penetration of TV sets, a higher number of respondents are willing to buy a TV next year.
However, the overall inclination to buy a PC or a laptop is relatively lower across the
states surveyed. We believe with increasing thrust on education, people’s inclination to
buy computers will rise.

Motivations for saving

On a pan-India level, our survey data suggests that apart from emergencies, spending
on children’s education and plans for buying large consumer goods are the two biggest
motivators for saving. This is a welcome change in the mindset of rural India, wherein
education is now been seen as a serious investment. Apart from education, future
spending on consumer goods is also seen as a big motivating factor.
Overall, ~36% respondents have said that they would like to save for old
age/retirement; there was, however, a wide variation among the states with ~66%
respondents in Tamil Nadu saying they would save for retirement versus a mere 9% in
Haryana. In Chhattisgarh, ~45% respondents said they would like to save for
retirement/old age. At an aggregate level, buying or building a house was also a
motivator among 30% respondents; it was a big motivator for savings in Tamil Nadu
(~53% respondents), and in Haryana, it was the lowest at 8%.
About 70% of the households in our survey save to account for emergencies in the
future. In Haryana, this percentage was relatively higher at 81% compared to just 44%
in Chhattisgarh.
Chart 8: Reasons for saving (retirement /housing)

70.0
56.0
(% respondents)
42.0
28.0
14.0
0.0
Buy or build house Old age/retirement To improve social status in future
Methods of saving
Cash at home was a predominant method of savings across states (survey average
~85%). However, for some states like Bihar, it was as high as 99%, while in Tamil Nadu
it was just 60%. Deposit in banks was also quite prevalent with an average of 62% of
respondents. Surprisingly, in Bihar it was as high as 83% against a mere 22% in Gujarat.
Insurance products also have a fairly decent penetration (~24% respondents). Bihar
leads the pack in this case with ~32% of households surveyed saying they hold an
insurance policy.
Land and property is a popular saving option in Tamil Nadu (32% respondents) and
Chattisgarh (24% respondents). EPF/PPF or shares/mutual funds are not very popular
choices for savings.

Edel: Pulse
Annexure 2: Govt. Programmes

MGNREGA
Direct efforts taken by the government towards the rural sector has a twin aim of
achieving rural development and rural employment. Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) is one of these schemes. It provides a rights-
based framework for wage employment. Employment is dependent upon the worker
exercising the choice to apply for registration, obtaining a Job Card, and seeking
employment for the time and duration that he/she wants.
MGNREGA was enacted in 2005 by the Parliament with an objective of enhancing

livelihood security in rural areas by providing at least 100 days of guaranteed wage
employment in a financial year to every household whose adult members volunteer to do
unskilled manual work.
The Act was perceived as a potential tool for empowerment for rural laborers, the
premise being guaranteed employment can protect them from economic insecurity.
While this could have been conceived as an “employment scheme”, the importance of it
being an “Act” provides a legal guarantee of employment and creates accountability.
The benefits are many, with the most important one being protection of rural households
from poverty and hunger. Second, MGNREGA is a source of empowerment. Not only does
it provide economic independence by guaranteeing equal wages to both men and women,
but also raises the bargaining power of “unorganized” or marginalized segment of
workers by guaranteeing them a minimum wage level. Third, it helps creating useful
infrastructure assets in rural areas.
• Implementation
A “block” is the basic unit of implementation. The Programme Officer essentially acts
as a “coordinator” for the Rural Employment Guarantee Scheme at the Block level.
The programme officer is responsible for scrutinizing village Employment Guarantee
Scheme plans, ensuring that they match with employment demand, work starts on
time and workers receive their due entitlements.
At the village level the Gram Panchayat is the principal authority for planning and
implementation of the Scheme. The Gram Panchayat is responsible for identification
of the work in the Gram Panchayat area as per the recommendations of the Gram
Sabha and Ward Sabhas and for executing and supervising the same. Gram
Panchayats also have to process applications for registration and employment. This
involves registering potential workers, issuing job cards to them, receiving their
applications for work, forwarding these to the Programme Officer, and informing the
applicants as and when work is available. The Gram Sabha is expected to monitor
the work of the Gram Panchayat, and also to participate in the planning process.
Apart from the Gram Panchayat, the implementing agencies are Public Works
Department (PWD), Forest Department, and Irrigation Department. NGOs can also
act as implementing agencies. However, private contractors are not permitted.
• Nature of work
Broadly, the Act specifies certain categories of project/work that can be undertaken
under it. These include water conservation and water harvesting, drought proofing,
irrigation canals, provision for irrigation facility, renovation of traditional water
bodies (including desilting), flood control and drainage and rural connectivity. Apart
from this the state government can prepare a list of preferred works in consultation
with the central government. Also a 60:40 wage and material expense ratio has to
be maintained. No contractors and machinery is allowed.

• Transparency
MGNREGA includes various provisions for transparency and accountability. Job Cards
are issued to all laborers, wages are paid directly and relevant documents are made
available for public scrutiny. Also, regular audits are conducted at the Gram Sabha
level. The Right to Information (RTI) Act, passed in 2005, powerfully supplements
the transparency provisions of the MGNREGA 2005 and its operational guidelines.
• Cost sharing
The Centre is required to pay for the wages of labourers employed under MGNREGA,
and for three fourths of the material costs. The state government pays for one
fourth of the material costs, and also the unemployment allowance. The Act is
designed to offer an incentive structure to the states for providing employment as
90% of the cost for employment provided is borne by the Centre. There is a
concomitant disincentive for not providing employment as the States then bear the
double indemnity of unemployment and the cost of unemployment allowance.
Fig. 1: Nature of work done under MGNREGA
Water conservation
Water harvesting
Micro and minor

irrigation facilities
Provision for
irrigation facilities
Water based
Desilting of tanks
Renovation of
traditional water
bodies
Nature of work done
Flood control and

protection works
Drought proofing
Land based Land development
Afforestation
Agro based
Horticulture
Infrastructure based Rural roads

Edel: Pulse
Fig. 2: MGNREGA website – making information accessible and transparent
Some of the salient features of the MGNREGA website are:
1) State-wise detail of implementation reports, work status, financial progress

report and labour budget analysis
2) Section of grievance redressal-lodging complains, status on action taken on

complains and details on grievance redressal system (in select states such as
UP, Haryana, Kerala and Sikkim)
3) Section on transparency & accountability with a feature on “report to people”

and details on budget and status of works allocated
4) Job Card details

Bharat Nirman
Bharat Nirman project was launched in 2005 as a time bound plan aimed at
strengthening the country's rural infrastructure in partnership with state governments
and Panchayati Raj institutions. Phase I of the programme was implemented in the
period 2005-06 to 2008-09. Phase II is being implemented from 2009-10 to 2011-12. It
comprises projects on irrigation, roads (Pradhan Mantri Gram Sadak Yojana), housing
(Indira Awaas Yojana), water supply, electrification and telecommunication connectivity.
The major objective was to impart a sense of urgency, make the programme time-bound,
transparent and accountable. Under this scheme, the public expenditure towards the
rural infrastructure and irrigation has been stepped on a significant scale. Augmentation
and modernisation of the existing infrastructural facilities are taking place along with new
construction.
• Drinking water
Goal: To cover ~55,000 uncovered habitations and provide safe drinking water to
~200,000 villages affected by poor water quality.
Under Bharat Nirman project, emphasis has been laid in ensuring adequate provision
of drinking water along with maintaining the quality. Sustainability of drinking water
sources and systems have also been accorded high priority.
• Rural housing
Goal: Provide additional 12 mn houses at the rate of 2.4 mm houses each year to
be built by funds allocated to the homeless through Panchayats.
The rural housing programme is implemented by the Ministry of Rural Development

through the Indira Awaas Yojana (IAY) scheme. The schemes specifically targets
people in rural areas living below the poverty line (BPL), people belonging to SC/ST
category, minorities in BPL category and next-of-kin to defence personnel killed in
action (irrespective of income criteria). The cost of this scheme is shared between
Centre and states on a 75:25 basis.
The unit assistance for construction of houses and upgradation is given as under:
Table 1: Grant available under Indira Awaas Yojana (IAY)

Type of dwelling Plain areas Hilly/ Difficult areas
Construction of house INR 45,000 INR 48,500
Upgradation of un-serviceable households INR 15,000 INR 15,000
Source: Ministry of Rural Development
In addition to the assistance provided under the IAY, an IAY beneficiary can avail a
loan of up to INR 20,000 per housing unit under differential rate of interest (DRI)
scheme at an interest rate of 4% per annum. Payment is made to the beneficiary on
a staggered basis, depending on the progress of the work. No contractor is to be
involved and the house is to be constructed by the beneficiary.
Under the guidelines, the District Panchayat/Zilla Panchayat/District Rural

Development Agencies (DRDAs) decide the number of houses to be constructed or
upgraded Panchayat wise. The guidelines also clearly specify that the house
allotment should be in the name of the female member of the family as a first
priority.

Edel: Pulse
• Rural electrification
Goal: Provide electricity to 40,000 villages and connections to about 17.5 mn
households.
Rural electrification is provided through Rajiv Gandhi Grameen Vidhyutikaran Yojana

(RGGVY) and was introduced in April 2005. Under RGGVY, electricity distribution
infrastructure consists of Rural Electricity Distribution Backbone (REDB) with at least
a 33/11KV sub-station, Village Electrification Infrastructure (VEI) with at least a
distribution transformer in a village or hamlet, and standalone grids with generation
where grid supply is not feasible. Rural Electrification Corporation (REC) is the nodal
agency for implementation of the scheme. The management of rural distribution is
mandated through franchisees. As on June 30, 2010, 81,317 villages have been
electrified and 11.7 mn free electricity connections have been released to BPL
households.
• Roads
Goal: To provide road connections to remaining ~23,000 villages with population of
1,000 or 500 in case of hilly or tribal areas.
Since rural road connectivity is a major component of economic development, the

government launched Pradhan Mantri Gram Sadak Yojana (henceforth referred to as
PMGMSY) in 2000. The original target was to achieve all weather road access to
every village with a population greater than 1000 by 2003 and providing all-weather
road access to all villages of population greater than 500 by end of Tenth Five Year
Plan (by 2007).
• Telecom
Goal: Increase rural tele-density to 40% and provide broadband connectivity and
Bharat Nirman Seva Kendras to all 250,000 Panchayats.
• Irrigation
Goal: 6.5 mn hectares brought under assured irrigation till 2009. Remaining 3.5 mn
hectares to be completed by 2012.
Overall, this will be done as follows:
• 4.2 mn hectares by completing major and medium projects.
• 1.0 mn hectare through implementation of extension, renovation and

modernisation of schemes along with command area development and water
management practices.
• 2.8 mn hectare through ground water development.
• 1.0 mn hectare by way of minor irrigation schemes using surface flow.
• 1.0 mn hectare by way of repair, renovation and restoration of water bodies and
extension, renovation and modernisation of minor irrigation schemes.

Annexure 3: Govt. Education Programmes
Sarva Shiksha Abhiyan (SSA)

Monitoring of the Sarva Shiksha Abhiyaan
The National University of Educational Planning & Administration (NUEPA) has developed
an Educational Development Index (EDI) to track progress of states towards Universal
Elementary Education (UEE).
Table 1: Criteria for Educational Development Index (EDI)

Component Indicators
Access Percentage of habitations not served
Availability of schools per 1000 child population
Ratio of primary to upper primary schools/sections (only at upper
primary stage)
Infrastructure Schools with student-classroom ratio>40
Schools with drinking water facility
Schools with common toilet
Schools with girl's toilet
Percentage of schools with female teachers ( in schools with 2 and
Teachers
more teachers)
Schools with pupil-teacher ratio>40
Percentage of schools with less than 2 teachers (in schools with more
than 15 students)
Percentage of schools with < 3 teachers (upper primary
schools/sections)
Teachers without professional qualification
Outcome Gross enrolment ratio - overall
Participation of SC children : Percentage SC population (2001 Census)
Participation of ST children : Percentage ST population (2001 Census)
Gender parity index in enrolment

Repetition rate
Drop-out rate
Ratio of exit class over class I enrolment (only at primary stage)
Transition rate from primary to upper primary level (only for upper
primary level)
Percentage of appeared children securing 60 per cent and more
Source: NUEPA
The table on the next page lists down the Education Development Index (EDI) score
state-wise with the per capita income. A strong relation can be seen between literacy
levels and the per capita income. All the states with score of 0.7 and above have per
capita income greater than the national average of INR 33,283 in 2007-08. Higher
income levels, in turn, result in higher willingness and savings ability as demonstrated by
our survey. The result is a virtuous cycle whereby high literacy levels and high income
levels fuel each other.

Edel: Pulse
Table 2: State wise EDI score
Adjusted per capita

State EDI 2008-09 income 2007-08 (INR)
Chandigarh 0.722 110,676
Goa 0.678 105,582
Delhi 0.732 78,690
Puducherry 0.841 63,524
Haryana 0.752 58,531
A & N Islands 0.736 47,980
Maharashtra 0.7 47,051
Punjab 0.737 44,923
Gujarat 0.702 42,311
Kerala 0.756 41,814
Tamil Nadu 0.75 40,757
Himachal Pradesh 0.679 40,134
Sikkim 0.67 37,825
Karnataka 0.708 35,555
Andhra Pradesh 0.702 34,063
West Bengal 0.494 31,722
Uttarakhand 0.661 31,340
Tripura 0.539 31,314
Mizoram 0.714 27,501
Arunachal Pradesh 0.516 27,398
Meghalaya 0.51 26,636
Chhattisgarh 0.577 25,360
Jammu & kashmir 0.623 24,214
Nagaland 0.654 23,767
Orissa 0.545 23,403
Rajasthan 0.612 23,053
Assam 0.483 21,464
Jharkhand 0.456 19,928
Manipur 0.547 19,258
Madhya Pradesh 0.578 18,051
Uttar Pradesh 0.614 16,060
Bihar 0.463 11,135
Source:NUEPA
Government outlay on Right to Education Act: What is budgeted going forward?

The financial estimates for the implementation of Right to Education (RTE) Act have been
prepared by National University of Education, Planning and Administration (NUEPA) for
the period 2010-11 to 2014-15. The estimated expenditure totals to INR 1,715 bn over a
period of five years.

The central government’s share of the financial burden will be at 68%. The Ministry of
Human Resource Development has been pushing for Centre’s share of 75% after more
and more state governments expressed their inability to set aside the required funds to
meet the stringent norms of RTE. The Bordia Committee set up by the ministry in 2009-
10 to harmonise the Sarva Shiksha Abhiyan (SSA) and the RTE also argued for a higher
financial burden for the Centre. Also, in the mean time, the cost of implementation of
RTE in the next five years has escalated from INR 1,710 bn to INR 2,310 bn.
Challenges in the successful implementation of SSA

1. Teacher shortages
Inadequate availability of teacher education institutes and teacher educators has
resulted in large teacher vacancies. The problem is particularly grim in Bihar,
Jharkhand, Orissa and Chhattisgarh.
Table 3: Teacher shortages

State Annual intake Annual intake Annual intake Existing
for D.Ed. for B.Ed. for M.Ed. teacher
Bihar 1,850 5,610 75 51,074
Jharkhand 1,310 4,850 25 18,314
Orissa 3,240 1,348 153 37,901
Chhattisgarh 1,920 8,880 400 34,985
Source: RTE SSA Final Report
2. Infrastructure gaps
NUEPA has estimated the following gaps in school physical infrastructure which need
to be bridged within three years from the commencement of the RTE Act.
Table 4: Gaps in school infrastructure

Particulars Shortfall
Construction of additional classrooms 778,000 classrooms
33,405 semi pukka and 26,981 kuccha
Upgradation of semi pukka and kuccha schools
schools
Construction of store cum head-teacher rooms 943,000 rooms for head teachers
Provision of toilets for girls 800,000 schools

Provision of drinking water 300,000 schools
Source: RTE SSA Final Report
3. Planning problems with SSA

• While the SSA has envisioned a bottom-up planning process where plans are
made through village-level education committees, on-ground evidence suggests
that there is lack of autonomy at the village level. In practice, funds arrive
based on standard guidelines developed at the national level. In this process,
the village specific priorities tend to get ignored.
• Another weakness in SSA is that there is lack of predictability as far as fund

flows to schools are concerned. In other words, schools lack vital information
regarding amount of funds they are going to receive and when. Therefore,
planning with regards to allocation of resources gets hampered. In fact, a study
revealed that the funds received are not scattered through the year, rather they
are concentrated during December-February period, when most of the school
year is over.

Edel: Pulse
Educational infrastructure
Educational infrastructure in rural areas still leaves much to be desired. Although
infrastructure and facilities have improved markedly in rural schools since 2004-05, they
are yet to match the urban standards.
The ratio of number of elementary schools between urban and rural areas is 0.15 (as of
FY09). This ratio has largely remained unchanged between 2005 and 2009.
Chart 1: Elementary schools in urban and rural areas

1,200
960
(No. of schools, in '000)
720
480
240
0
2004-05 2008-09
Urban Rural
Source:DISE
As explained earlier, most required catalysts for progress of education in rural areas is in
place. Our survey has already demonstrated that a growing number of households attach
large importance to education. Government thrust in terms of schemes to support
education (Sarva Shiksha Abhiyaan, Kasturba Gandhi Balika Vidyalaya) is present, but
unfortunately there seems to be a gap in providing the right infrastructure. The gap is even
more evident when compared with the educational infrastructure in the urban areas. For
example, in urban India about 37% of schools have access to computers, while it is only
10% in rural areas. Moreover, only 30% schools in rural areas have access to electricity
against 74% in urban areas. This gap further widens at the level of primary schools.
Chart 2: Elementary schools-access to electricity Chart 3: Elementary schools-access to computers

100.0 80.0
80.0 64.0
(% of schools)
(% of schools)
60.0 48.0
40.0 32.0
20.0 16.0
0.0 0.0
Primary Upper primary All schools Primary Upper primary All schools
schools with Sec/H Sec schools with Sec/H Sec
Urban Rural Urban Rural
Source:DISE

While the gap in infrastructure is wide between the urban schools and their rural
counterparts, what is also a matter of concern is that infrastructure in the latter has not
improved significantly over the past 4-5 years. As far as basic infrastructure facilities go,
according to FY09 data, 3% of schools in rural areas still do not have proper buildings,
~13% are without drinking water facilities, 70% lack electricity connection and 35% do
not have toilets. Although some of these parameters have improved over the past five
years, there still remains much to be desired.
Chart 4: Schools without basic facilities (rural)

90.0
(% of schools without facilities)
72.0
54.0
36.0
18.0
0.0
Building Water Electricity Toilets
2004-05 2008-09
Source:DISE
This observed lack in infrastructural facilities in rural areas manifests itself on the
teaching side as well. In 2004-05, only ~47% of the schools had a regular headmaster
and teachers. This percentage dipped to ~44% in 2008-09. Among the primary schools,
only ~46% had a regular headmaster and teachers in 2004-05, which declined to ~41%
in 2008-09.
Table 5: Percentage of schools with regular headmaster and teacher

Primary Primary with Primary with upper Upper Upper primary with No All
(%)
only upper primary primary and Sec/H Sec primary only Sec/H Sec responses schools
2008-09 41.0 53.2 56.8 49.4 43.3 44.4
2004-05 45.6 55.2 42.9 48.2 33.0 33.4 46.7
Source:DISE
The percentage of schools having pucca (permanent) buildings have also not gone up
significantly, at least not in the five states for our survey. Among the states which we
have surveyed, Haryana leads the pack with 98% of the schools having a pucca building.
In contrast, the corresponding number for Bihar stands at 60% and for Tamil Nadu at
55%. In Chhattisgarh, ~73% schools have a pucca building; in fact, it is one of the few
states where there has been a sharp jump in number of schools having a pucca building
from 55% in 2004-05 to 73% in 2008-09.
Table 6: Schools with pucca building

(%) Haryana Bihar Chhattisgarh TN Gujarat
2008-09 98.3 60.1 73.0 55.4 79.9
2004-05 96.2 68.2 54.5 49.1 75.6
Source:DISE

Edel: Pulse
However, there has been an improvement in the student-classroom ratio between 2004-
05 and 2008-09. Students per classroom have decreased to ~34 in 2008-09 from 42 in
2004-05. Encouragingly, this decrease has been more pronounced in primary only
schools. For such schools, the ratio has declined to 35.0 from 45.5. Schools with only
upper primary facilities have also seen a dip, from 40 in 2004-05 to 30 in 2008-09.
Table 7: Student-classroom ratio

Primary Primary with Primary with upper Upper Upper primary with No All
only upper primary primary and Sec/H Sec primary only Sec/H Sec response schools
2008-09 35.0 36.0 27.0 30.0 29.0 34.0
2004-05 45.5 42.4 29.5 40.0 33.0 13.1 42.2
Source:DISE

Annexure 4: Survey Methodology
A. Approach and methodology
A combined approach of both primary and secondary research has been used in this
study
Secondary research
Historical data has been captured from following sources:
• Internet/publications
• NSSO, NCAER, IRS database
• MART Knowledge Center
Primary research
Current data has been captured through primary research approach of face-to-face
interviews which were quantitative in nature
• Target group of the study was chief wage earner (CWE) of the rural household
• Key opinion leaders in the village, including Panchayat head/Panchayat

representative/Village secretary, were interviewed for capturing overall village
information
Questionnaire
• A semi-structured questionnaire was used where a few questions were kept

open-ended to gain more insights from the respondent
Table 1: Study location

State District 1 District 2 District 3
Haryana Ambala Kaithal Rewari
Gujarat Ahmedabad Mahesana Banaskantha
Tamil Nadu Coimbatore Salem Dharmapuri
Chhattisgarh Raipur Surguja Rajnandgaon
Bihar Patna Bhagalpur Darbhanga
B. Sample size and design
A combined approach of both primary and secondary research has been used in this
study
Sampling technique
Sample households have been selected using systematic random sampling method
Sample plan
• A sample size of 1989 respondents has been achieved, ensuring 95% confidence
level @ +5% error in the findings. The sample is spread equally among the study
districts

Edel: Pulse
• Sample has been spread across different types of villages in proportion to their ratio
in the universe
Table 2: Sample size (villages and households)

Village pop. strata No of villages covered No of respondents covered
<2,000 120 942
2,000-5,000 65 829
>5,000 15 218
Total 200 1,989
• Sample spread of different rural socio economic classifications in proportion to their

ratio in the universe, i.e. R1=4%, R2=12%, R3=41%, R4=43%
Table 3: Sample size by state

State Sample size
Haryana 396
Gujarat 388
Tamil Nadu 402
Chhattisgarh 399
Bihar 404
Total 1,989
C. Table 4: List Of Villages Surveyed

Village name State Dist
Rampur Smile Bihar Patna
Kamarji Bihar Patna
Maksude Pur Bihar Patna
Kedalpura Bihar Patna
Jamnipur Bihar Patna
Kasari Bihar Patna
Nagwa Bihar Patna
Mohamadpur Bihar Patna
Doulat Pur Bihar Patna
Bibipur Bihar Patna
Dalani Chak Bihar Patna
Ghghara Bihar Patna
Parchari Bihar Bhagalpur
Sheopur Bihar Bhagalpur
Babatra Bihar Bhagalpur
Buhpur Bihar Bhagalpur
Kharikkatela Bihar Bhagalpur
Parmanan Pur Bihar Bhagalpur
Haria Bihar Bhagalpur
Mirzapur Bihar Bhagalpur
Akidanpur Bihar Bhagalpur
Muhiudin Pur Bihar Bhagalpur
Farid Pur Bihar Bhagalpur
Logen Bihar Bhagalpur
Kuhukpur Bihar Bhagalpur
Farka Bihar Bhagalpur


Simari Bihar Darbhanga
Kewalsa Bihar Darbhanga
Birdipur Bihar Darbhanga
Brahmtour Bihar Darbhanga
Ami Bihar Darbhanga
Bhagwan Pur Bihar Darbhanga
Chakdargah Bihar Darbhanga
Madhupur Bihar Darbhanga
Ratanpura Bihar Darbhanga
Keoliranway Bihar Darbhanga
Banara Bihar Darbhanga
Kuwar Patli Bihar Darbhanga
Duliyana Haryana Ambala
Lamdha Haryana Ambala
Patrehri Haryana Ambala
Nagla Haryana Ambala
Saha Haryana Ambala
Karasan Haryana Ambala
Sullar Haryana Ambala
Dulyani Haryana Ambala
Jatwar Haryana Ambala
Rachheri Haryana Ambala
Dhavana Haryana Ambala
Rajauli Haryana Ambala
Bhumi Haryana Ambala
Tika Haryana Kaithal
Barot Haryana Kaithal
Kakatan Haryana Kaithal
Kheri Haryana Kaithal
Jaswanti Haryana Kaithal
Kasoor Haryana Kaithal
Mahal Kheri Haryana Kaithal
Village Guhna Haryana Kaithal
Sotha Haryana Kaithal
Dhumder Heri Haryana Kaithal
Balwanti Haryana Kaithal
Buchi Haryana Kaithal
Kakrdla Haryana Kaithal
Gurwada Haryana Rewari
Nandram Pur Haryana Rewari
Kanderi Haryana Rewari
Ganda Alabal Pur Haryana Rewari
Bhalukhi Haryana Rewari
Palhabas Haryana Rewari
Gujar Haryana Rewari
Kundal Haryana Rewari
Bhalpura Haryana Rewari
Chowki No-2 Haryana Rewari
Mamadiya Haryana Rewari
Purushottampur Haryana Rewari
Pranpura Haryana Rewari

Edel: Pulse

Unghraj Pur Gujarat Ahmedabad
Kalana Gujarat Ahmedabad
Madrishana Gujarat Ahmedabad
Dodra Gujarat Ahmedabad
Begva Gujarat Ahmedabad
Jetalpur Gujarat Ahmedabad
Moti Rantai Gujarat Ahmedabad
Sakodra Gujarat Ahmedabad
Andei Gujarat Ahmedabad
Kharati Gujarat Ahmedabad
Navapura Gujarat Ahmedabad
Khodiyar Gujarat Ahmedabad
Tatosun Gujarat Mahesana
Motipura Gujarat Mahesana
Davol Gujarat Mahesana
Undai Gujarat Mahesana
Chada Gujarat Mahesana
Gunchnali Gujarat Mahesana
Gamanpasa Gujarat Mahesana
Titotun Gujarat Mahesana
Kanediya Gujarat Mahesana
Upera Gujarat Mahesana
Kamal Pur Gujarat Mahesana
Virja Gujarat Mahesana
Dabu Gujarat Mahesana
Dabhela Gujarat Banaskantha
Bharkawada Gujarat Banaskantha
Makdala Gujarat Banaskantha
Needasar Gujarat Banaskantha
Dhori Gujarat Banaskantha
Ramun Gujarat Banaskantha
Pepral Gujarat Banaskantha
Khuniya Gujarat Banaskantha
Candioad Gujarat Banaskantha
Jalotara Gujarat Banaskantha
Assasan Gujarat Banaskantha
Dhebhk Gujarat Banaskantha
Bagoli Chhattisgarh Raipur
Saragaon Chhattisgarh Raipur
Matha Chhattisgarh Raipur
Jarouda Chhattisgarh Raipur
Mowa Chhattisgarh Raipur
Bhata Chhattisgarh Raipur
Dondhe Khwrde Chhattisgarh Raipur
Sarona Chhattisgarh Raipur
Jhanki Gram Chhattisgarh Raipur
Kenda Chhattisgarh Raipur
Kumare Chhattisgarh Raipur
Somni Chhattisgarh Raipur
Caroda Chhattisgarh Raipur


Sitapur Chhattisgarh Surguja
Kumar Nagar Chhattisgarh Surguja
Madarkala Chhattisgarh Surguja
Silsila Chhattisgarh Surguja
Luhahila Chhattisgarh Surguja
Maheshpur Chhattisgarh Surguja
Ganesh Pur Chhattisgarh Surguja
Kamalpuri Chhattisgarh Surguja
Batoci Chhattisgarh Surguja
Lakhanpur Chhattisgarh Surguja
Ladwara Chhattisgarh Surguja
Silphil Chhattisgarh Surguja
Borel Chhattisgarh Rajnandgaon
Ghorda Chhattisgarh Rajnandgaon
Segohura Chhattisgarh Rajnandgaon
Asuni Chhattisgarh Rajnandgaon
Ardesivanth Chhattisgarh Rajnandgaon
Bhanpuri Chhattisgarh Rajnandgaon
Redsara Chhattisgarh Rajnandgaon
Ranitalab Chhattisgarh Rajnandgaon
Apakha Chhattisgarh Rajnandgaon
Thai Gram Chhattisgarh Rajnandgaon
Tumdibod Chhattisgarh Rajnandgaon
Macanpura Chhattisgarh Rajnandgaon
Rajora Chhattisgarh Rajnandgaon
Narana Puram Tamil Nadu Coimbatore
Muthur Tamil Nadu Coimbatore
Merkupathy Tamil Nadu Coimbatore
Valliankadu Tamil Nadu Coimbatore
Pongaloor Tamil Nadu Coimbatore
Gomangalam Tamil Nadu Coimbatore
Adimadaiyanoor Tamil Nadu Coimbatore
Avinash Palayam Tamil Nadu Coimbatore
Madapur Tamil Nadu Coimbatore
Pannaikunar Tamil Nadu Coimbatore
Pappampatti Tamil Nadu Coimbatore
Vallipuram Tamil Nadu Coimbatore
Vanapatti Tamil Nadu Coimbatore
Paramanoor Tamil Nadu Salem
Vaithiyakavandanpvthur Tamil Nadu Salem
Kottamedu Tamil Nadu Salem
Koliapatty Phuthur Tamil Nadu Salem
Nallagoundampatti Tamil Nadu Salem
Senai Goundanoor Tamil Nadu Salem
Parappatti Tamil Nadu Salem
Periyeri Tamil Nadu Salem
Sarvoy Tamil Nadu Salem
Aragalur Tamil Nadu Salem
Devakuruchi Tamil Nadu Salem
Priya Krishna Puram Tamil Nadu Salem
Kattur Tamil Nadu Salem

Edel: Pulse

Gudaloor Tamil Nadu Dharmapuri
Palayampatti Tamil Nadu Dharmapuri
Gopinath Puram Tamil Nadu Dharmapuri
Vadalaarai Tamil Nadu Dharmapuri
Veerappana Kanan Patti Tamil Nadu Dharmapuri
Theorthamalai Tamil Nadu Dharmapuri
Arugan Patai Tamil Nadu Dharmapuri
Tenkarai Tamil Nadu Dharmapuri
Pauipatti Tamil Nadu Dharmapuri
Vepram Patty Tamil Nadu Dharmapuri
Erumiuampatti Tamil Nadu Dharmapuri
Matiyam Pauayam Tamil Nadu Dharmapuri
D. Table 5: Definition of Socio Economic Classification (SEC)

Type of House Pucca Semi Pucca Kuchha
Literacy Level of CWE
1 2 3
Illiterate R4 R4 R4
Literate but no formal school R3 R4 R4
Upto 4th standard R3 R3 R4
5th -9th standard R3 R3 R4
SSC / HSC R2 R3 R3
Some colleges but no graduate R1 R2 R3
Graduate /Post graduate –General R1 R2 R3
Graduate / Post graduate –Professional R1 R2 R3

Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021,
Board: (91-22) 2286 4400, Email: research@edelcap.com
Vikas Khemani Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206
Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411
Access the entire repository of Edelweiss research on www.edelresearch.com

This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated
investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking
activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or
complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that
may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to
be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this
document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in
this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment
discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to
time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving
such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with
respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your
information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in
whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in
any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain
jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions.
The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this
information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as
may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to
providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither
Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special
or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a
guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be
treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their
family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies
that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no
part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Copyright 2009 Edelweiss research (Edelweiss Securities Ltd). All rights reserved
Edelweiss research is also available on www.edelresearch.com ,Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. EdelweissEdelweiss
SecuritiesSecurities
Limited Limited
87

Rural - India Oct 10 EDELWEISS

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rural - India Oct 10 EDELWEISS

Uploaded by

Copyright:

Available Formats

Rural India: Transcending Boundaries

a) How sustainable is the rise in rural incomes?

Wish you a happy festive season!

Edelweiss Securities Limited 1

Rise of Rural Middle Class: Redefining Boundaries ................................................... 5

Income trends: Rising incomes, expanding middle-class ............................................ 7

Occupational shifts: Rural folk no longer farmers only.............................................. 13

Drivers of the shift: Government schemes playing a significant role........................... 14

Rural income perception: Satisfied and optimistic.................................................... 19

Insights from industry interactions ........................................................................ 20

Consumption: Aspiring For An Urban Lifestyle ....................................................... 22

Rural market: Big and growing ............................................................................. 24

Discretionary spending: Gaining wallet share steadily .............................................. 24

Consumer durables: Ownership and aspirations on a high ........................................ 28

Consumption drivers: Aspirations, affordability and availability ................................. 34

Rural Finances: Prudent Savings And Leverage ...................................................... 38

Rural households: Prudent savers with not so prudent investments ........................... 42

Saving channels: Undergoing a change with tilt towards banking .............................. 44

Education: Giving Wings To India’s Socio-economic Development ......................... 52

Literacy levels: Steadily rising with growing appetite ............................................... 54

Partners in increasing education expenses: Government and rural households ............ 55

Perception change: Education now considered a window of opportunity ..................... 57

Annexure 1: State wise summary findings .................................................................... 64

Annexure 2: Government programmes (MGNREGA and Bharat Nirman) ........................... 70

Annexure 3: Government education programmes .......................................................... 75

Annexure 4: Survey methodology ............................................................................... 81

2 Edelweiss Securities Limited

 Rise of rural middle class: Redefining boundaries

 Consumption: Aspiring for an urban lifestyle

 Rural finances: Prudent savings and leverage

institutions are registering exponential growth. +91 22 4063 5406

Edelweiss Securities Limited 3

Stocks to play on the rural consumption theme

4 Edelweiss Securities Limited

Rise of Rural Middle Class: Redefining

Edelweiss Securities Limited 5

Rural middle class

6 Edelweiss Securities Limited

This section covers the following:

• Rural incomes: Rising incomes, expanding rural middle class

• Occupational shifts: Rural folk no longer farmers only

• Drivers of shift: Government schemes playing significant role

• Rural perception on income: Satisfied and optimistic

• Insights from industry interaction

 Income trends: Rising incomes, expanding middle class

Edelweiss Securities Limited 7

Chart 5: Average household income increased at 8% CAGR in past 5 years

Chart 6: Share of farm income on the decline

In line with occupation

Fishing & other agr. Enterpr. Cultivation (RHS)

8 Edelweiss Securities Limited

Chart 7: Share of farm income will continue to decline

Case Study: MGNREGA bringing opportunities at rural doorsteps

Edelweiss Securities Limited 9

Chart 8: Middle class (90k – 2 lacs) is expanding in rural areas

Third, improvement in village infrastructure, such as roads, power, telecom, irrigation

10 Edelweiss Securities Limited

Fig. 1: MGNREGA job card, district Medak, A.P.

On the farm sector side,

Source: Edelweiss research

Chart 9: Reasons for shift in incomes over past decade

Role of village middle- 16

Rise of rural middle class: Redefining boundaries

Consumption: Aspiring for an urban lifestyle

Rural finances: Prudent savings and leverage

Income trends: Rising incomes, expanding middle class

Occupation shifts: Rural folk no longer farmers only

Drivers of the shift: Government schemes playing a significant role

Rural income perception: Satisfied and optimistic

Insights from industry interactions

Declining share of food in favour of discretionary spending