Explained: Why rural demand is crucial for India’s economic growth

By India Today Business Desk: Rural demand will play a crucial role in driving India’s economic growth, and there are positive signs of its recovery, according to the finance ministry.

The ministry highlighted this in its annual economic report, stating that the country is expected to experience sustained economic growth in the foreseeable future.

The report also identified potential risks for the fiscal year 2024, including geopolitical issues and the impact of the El Nino weather phenomenon. These factors could pose challenges to India’s economic trajectory.

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Rural demand

While urban demand has been fuelling India’s economic growth since last year, rural demand was hit by a sharp rise in inflation in 2022.

FMCG major Marico’s Founder-Chairman Harsh Mariwala said in an interview with Business Today in April that there has been a lot of stress in rural areas and that has been reflected by low volume growth rates for the entire FMCG sector.

“A lot will depend on how the rural economy shapes up in the next year, and whether inflation will be contained,” he said.

But why is rural demand so important for India’s path to economic recovery and future growth?

The significance of rural demand cannot be understated. Rural areas account for a substantial portion of the Indian population, and the purchasing power of rural consumers directly impacts various sectors of the economy.

When rural demand is robust, it stimulates agricultural production, boosts manufacturing activities, and drives consumption patterns.

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Several factors contribute to the importance of rural demand. Firstly, agriculture is a significant contributor to India’s GDP, and rural areas are predominantly dependent on agricultural activities.

When rural incomes rise, it translates into increased spending on goods and services, thus driving economic growth.

Secondly, rural demand has a cascading effect on industries such as FMCG (fast-moving consumer goods), automobiles, housing, and retail. Increased consumption in rural areas leads to higher demand for products and services, creating opportunities for businesses to expand and invest.

Moreover, rural demand has a multiplier effect on employment generation. As economic activities in rural areas flourish, there is a surge in job opportunities across sectors, reducing unemployment rates and boosting income levels.

This, in turn, further fuels the demand cycle, creating a positive feedback loop for economic growth.

FMCG companies suggest that rural demand has started picking up, which is a good sign for the overall economy.

But whether it will sustain would depend on several factors, including agricultural production and inflation.

What impacts rural demand?

However, challenges remain in ensuring sustained rural demand.

Factors such as inconsistent agricultural productivity, lack of infrastructure, and limited access to financial services can hinder rural growth potential.

Addressing these challenges requires focused efforts from the government, including investments in agricultural infrastructure, promoting rural entrepreneurship, and enhancing financial inclusion.

Furthermore, the impact of geopolitical issues and weather phenomena like El Nino cannot be ignored.

These external factors can disrupt agricultural activities, leading to fluctuations in rural incomes and demand. Monitoring and mitigating such risks are important to ensure the resilience of rural demand and overall economic growth.

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