India Inc Looking To Tap Emerging Middle Class In Small Towns & Rural Areas

Its last survey found consumption grew in the January-March quarter this year by as much as 8.4 per cent in rural areas while urban demand slowed to 2.6 per cent.

Rural consumption had been even higher at 9.2 per cent in the previous three months while urban demand was 4.2 per cent earlier.

E-Comm, Consumer Goods Companies Look To Grab Rural Market Pie

This upturns the traditional approach of consumer goods firms setting their eyes firmly on large urban areas, which used to yield high returns in the past.

Now both e-commerce platforms as well as brick and mortar stores are looking for growth to be driven by tier 3 and 4 towns as well as rural areas.

Media reports suggest that online shopping giants like Amazon, Flipkart, Meesho and Nykaa are preparing delivery stations for these markets where sales are expected to pick up in the post-harvest season.

This comes along with concern over slowing sales growth in major metros especially in the case of discretionary products like cosmetics.

Why Is Rural Consumption Rising?

Rising consumption in smaller towns and rural areas stems from several factors. Buoyant farm output in recent times has enhanced purchasing power while inflationary pressures have eased, especially in the critical segment of food products.

In addition, direct benefit transfer schemes have ensured that programmes meant for rural upliftment are positively reaching targeted beneficiaries.

This has also been one of the factors in reducing extreme poverty levels in the country.

Growing Middle Class In Tier 3, 4 & 5 Cities

As far as small towns - tier 3, 4 and 5 cities - are concerned, there is a growing middle class that is taking advantage of improved infrastructure.

“We have not only been focusing on expanding the middle class but also improving livelihood and consumption in the smaller towns and rural areas,” Gopal Krishna Agarwal, national economic spokesperson for the BJP, said.

This includes basic facilities like augmented water supply and the introduction of metros that were earlier available only in big cities.

Kerala and Tamil Nadu are among the states where these smaller urban agglomerations are reaping the benefit of improved infrastructural facilities, which used to be available earlier only in large metros.

Incidentally, tier 3 cities are those with populations from 0.1 to one million, like Nagpur and Indore. A tier 4 city’s population size ranges from 10,000 to 20000. And a tier 5 city would have a populace of 5000 to 10000 and can more realistically be characterised as a large rural centre.

Consumers in these smaller towns are increasingly exposed to media and online platforms that offer lifestyle products, which are not always available in existing physical retail outlets.

Thus, the growth of e-commerce is expanding faster in these locations while sales in large urban centres are reaching a plateau. This also establishes the fact that internet penetration in the country has reached the level of the encompassing majority of Indians.

A report by Anarock Property Consultants has forecast that e-commerce adoption will reach 65 per cent in smaller cities by 2030, compared to 36 per cent in large cities.

MSMEs Tap Small Towns, Rural Markets

Micro, small and medium enterprises (MSMEs), which have traditionally mushroomed in and around large manufacturing units such as automobiles or consumer durables, are starting to produce goods which are for direct consumption by end users in villages or smaller towns.    

These MSMEs, many of which have been export-dependent, have now expanded significantly in smaller towns.

Local production and consumption are also becoming pillars of the grassroots economy.

It is no wonder, then, that the industry is looking more eagerly towards the smaller towns and developing rural areas for enhancing sales growth.

So far, the MSME sector feels that it is certainly going to benefit by targeting these smaller centres, as there is a direct link between demand for consumption and production, which is mostly local.

Even online platforms selling goods and services are sourced from small units set up in the vicinity. This is done to reduce the cost of logistics in procuring such goods and services.

However, for them, challenges linked to technology upgradation and credit access continue to plague their growth in these regions.

“With MSMEs facing a host of challenges in their operations in the traditional space and the urban markets, the smaller towns are now coming up in a big way and offering credible business opportunities,” Anil Bhardwaj, secretary general, Federation of Indian Micro and Small and Medium Enterprises (FISME) told The Secretariat.

Whatever said, a new middle class is emerging from these areas and industries, both large and small, are preparing to meet the growing demands.

Mahatma Gandhi once said that India lives in its villages. That may have been true at the time of independence. Now, India lives both in villages and small towns. Online and physical businesses have already realised this reality.