Rural markets and Indian companies

Did you know that 40% of motorcycle manufacturer Hero Honda's sales come from the rural markets? In fact, during the recent economic slowdown, Hero Honda managed to do rather well as the cash-paying rural India ensured that the company’s sales did not crumble because of scarce and expensive auto finance, something that hurt other two-wheeler producers. Hero Honda Motors Ltd reported an impressive 78.7% rise in earnings before interest and tax (Ebit), excluding other income, for the quarter ending in September.

Other Indian companies like telecommunication majors Bharti Airtel and Tata Teleservices have rolled out plans to tap the rural market. Godrej Consumer Products saw rural sales grow at 40 per cent in the past six months, compared with 20 per cent growth in urban sales. Companies such as Philips and even Eveready have rolled out new cheap lanterns to replace the kerosene ones specifically targeted at the rural market. Automaker Maruti markets its small cars like the Maruti 800, Omni, Alto and Wagon-R for the rural areas; the percentage of rural sales in the company’s total sales has reached 16%.

Pharma giant Roche Diagnostics (India), which has tied up with Delhi-based Mankind Pharma to market its new diabetes monitoring devices for the rural market. "The incidence of diabetes in rural areas is high and Mankind’s reach is very broad. This agreement has helped us significantly increase our sales in rural markets, where we still continue to look for new ways to expand our business," says Bhunesh Agrawal, chairman and managing director, Roche.

The number of urban households — 60 million — is less than half of the rural households (150 million) in the country. And despite growing urbanisation, it is generally accepted that even by 2025, over 60 per cent of the country’s population will still reside in rural India. But there are no clear statistics of the size of the rural market, and some evidence that farm activity is no longer the prime driver of the rural economy. "Almost 50 per cent of rural income now comes from non-farm activity such as kirana stores," says India’s chief statistician Pronab Sen. New roads connecting villages to cities will help villagers find better markets and better price for their produce, while giving corporate India more opportunities to sell goods and services to villages. Schemes such as NREGS and other construction-linked schemes like Bharat Nirman directly provide employment and cash to the rural consumer.
Businessworld

Power projects land acquisition

Some of India's major power projects are facing hurdles in land acquisition. The power ministry’s own assessment of India’s first three UMPPs (Ultra Mega Power Projects) — Sasan in Madhya Pradesh, Mundra in Gujarat (above photo), and Krishnapatnam in Andhra Pradesh, with a capacity of 4,000 MW each — shows it has lagged behind in meeting its own commitments to the projects.
Businessworld
Kandula Subramaniam
For instance, for the Sasan project, the central and state governments had to acquire 3,474 acres of land and then hand it over to the project company. Till the end of September, it had acquired just 1,873 acres. Around 46 per cent of the required land is still to be acquired. The concept of UMPPs involves the government (through Power Finance Corporation) setting up special purpose vehicles for each project, and then handing over the same to the successful bidder with all clearances in place.

Land acquisition has been a major bottle-neck for other infrastructure sectors as well, especially the NHDP (National Highway Development Programme), where even linear tracts of land (as compared to bulk land in one area) could not be acquired on time, delaying even the Golden Quadrilateral that was started in 1999-2000.

India urban expansion

Businessworld
Gurbir Singh
In 2008, for the first time the world’s urban population outstripped that of rural areas. In India, more than half the population will be concentrated in urban areas by 2041, estimates the World Bank. Says Junaid Ahmed, World Bank’s sector manager-urban for South Asia: "Urbanisation also boosts rural economies. As people migrate to cities, fewer people depend on land for a living."

The cities in the developed world have grown to a plan over centuries; but those in the emerging economies have exploded in the past two decades, proving to be a nightmare for city planners. Mumbai’s inner city boasts a population of 34,000 people per sq. km. Compare this to London’s 7,800 or New York’s 15,000 per sq. km. It is a pressure cooker existence in most Indian cities.

A 75-city index, developed by the ‘Mastercard Centers of Commerce’ last year, included only three Indian cities, and that too fairly low on the index. Mumbai was at 48th position, New Delhi at 61 and Bangalore at 66. London topped the chart. Within India, Mumbai, despite all its slums and traffic snarls, is still No.1 for its efficient work ethic, good power supply, and supportive industrial backup.

Another optimistic indicator is the strong performance of some of the tier-II ‘emerging’ cities. “Ahmedabad, Baroda and Visakhapatnam show a consistent performance on all indices,” says Amit Kapoor, chairman of the Institute for Competitiveness India. With cheaper real estate and affordable living standards, these will be the magnets of the future, even as migration to big cities has begun to plateau.