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ASSOCHAM FINANCIAL PULSE STUDY

Rise of Consumer Durables in Rural India


December 2010

Prepared by Ravish Jaggi Assocham Research Bureau

Rural Consumer Durable Market Grow at a Pace of 40 per cent in 2011-12: ASSOCHAM
The study undertaken by ASSOCHAM on Rise of Consumer Durables in Rural India has revealed that in the next fiscal 2011-12 the consumer durable market in rural India will witness an annual growth of 40 per cent as against the current growth rate of 30 per cent on the back of change in lifestyle and higher disposable income of the rural India has fascinated the consumer durable market. Around 35 per cent of the total sales of consumer durable items come from rural and semiurban markets, which will grow by 40 to 45 per cent in the near future. The consumer durable industry is growing at fast pace and sees a strong demand in the coming period with the growing affordability of products as well as general buoyancy in the economy, said by Mr. Dilip Modi, President of ASSOCHAM.

The market for consumer durables is estimated at Rs 300 billion and is expected to reach Rs 500 billion by 2015. The urban consumer durables market is growing at an annual rate of nine to 12 per cent, the rural durables market is growing at 30 per cent annually. Some high-growth categories within this segment include mobile phones, TVs (LEDs) and music systems (IPODs).

He said the rural market in India is growing faster than the urban market, and the urban market has now largely become a product replacement market. The consumer durables industry in rural and semi-urban areas has witnessed a considerable change during the last few years. The consumer durables sector is characterised by the emergence of MNCs, exchange offers, discounts and stiff competition in the market to attract the growing middle class of India.

With India being the second fastest growing economy having at rate of more than 9 per cent, with a huge consumer class nearly 70 per cent in rural areas, consumer durables have emerged as one of the fastest growing industries in India especially in rural India. Now the consumer durable industry is paying more attention to attract rural community by promoting their products and services in their local languages.

The consumer durable sector which contributes around 8 per cent in the Index of Industrial Production (IIP) and which provides jobs to professionals, skilled, semi skilled and unskilled workers, particularly women in the rural and semi-urban areas every year. The segment improves the quality of life of people by providing entertainment / information / education / comfort and also helps to reduce daily chores. But the importance of the sector in national economy remains unnoticed.

The Chamber chief further said the penetration level of consumer durables is about 5 to 7 per cent in India as compared to other countries. Assocham suggests that for more the deeper penetration in the rural sector, the industry have to create the proper channels and aware the community for the products through local language advertising as well as other tools such as local exhibitions and mobile vans to tap the rural consumers. On the other side government has to focus on the rural economy with greater fiscal incentives and generate more rural employment schemes.

According to the Assocham Research Bureau, the Indian consumer durables segment can be segregated into consumer electronics (LCDs, home theater systems, laptops & PCs etc.) and consumer appliances (white goods) like refrigerators, washing machines, air conditioners, microwave ovens, dishwashers and small home appliances. Television, Refrigerator and Airconditioner have penetration of around 25 per cent, 17 per cent & 4 per cent respectively in the rural India.

Rising disposable income and declining prices of durables have, resulted in increased volumes. An increase in disposable income is aided by an increase in the number of both double-income and nuclear families in India.

The government is focusing on roll out of GST by 2011, this is an important consideration that is discussed included whether GST will increase or decrease the proximity of rural markets from the mainline distribution routes. It also surfaced that the excitement that rural India is causing in Indian manufacturers and marketers represents an opportunity for domestic players to develop their infrastructure in the rural sector.

The study revealed that in the coming five years it would be a new era for rural India, by 2015 it is expected that every village will be connected by an all weather road, every village will get the internet connectivity, and almost every home will have electricity and possess a mobile phone. This significant improvement in rural infrastructure coupled with agriculture reforms already under way. By this the industry expects rural market to reach at inflexion point. This built up will lead to an explosion in demand the way it happened in the urban markets in the mid 90s.