For the first time in two decades, rural spending is growing faster than urban spending. How can this be?
India is rapidly shifting from a rural to urban country, but small towns and farming communities still make up the vast majority of its population, accounting for more than 833 million of its 1.21 billion residents. And now, for the first time in decades, this rural majority is spending money like it's the majority.
The Times of India reports that rural spending growth is outpacing urban spending for the first time since economic reforms took place two decades ago. Between 2009 and 2012, spending by the 69 percent of the Indian population living in rural areas increased by about $67 billion. For the 31 percent who are urban dwellers, spending increased by only about $54 billion.
Overall, the rural majority has been spending more than its urban counterparts for years. From 2004 to 2005, rural dwellers spent $52.2 trillion, about 57 percent of the $91.5 trillion spent nationally. Rural spending has been the majority every year since. But now, rural spending growth has outpaced urban growth as well.
Based on the numbers alone, you would expect this to happen; of course 69 percent of the population would be spending more than the 31 percent. But this downplays the fantastic rate of urbanization underway in India's cities and the dramatic scale at which its urban economies are developing. The McKinsey Global Institute estimates that India's cities will be producing about 70 percent of GDP by 2030. Cities are where the money is.
So why is the rural part of the country suddenly spending like its big city neighbors? There are two main factors.
One is that rural doesn't mean what it used to. While we might associate rural areas with poor farmers and dusty fields, the rural economy in India is also shifting. Non-farm work is on the rise, especially in the form of construction jobs. Between 2005 and 2010, there was an 88 percent increase in rural construction jobs, many through government sponsored employment generation schemes. At the same time, farm jobs fell from 249 million to 229 million.
The other reason is that all those people who've moved to cities to make more money are actually sending a lot of that money back to the rural areas from which they've migrated. Rural family members back home suddenly find themselves with much greater discretionary incomes than ever before, and they're very happy to spend it.
So India's swelling GDP is not yet so much that the see-saw is tipping toward cities. Rather, higher wealth generation in cities is fueling more spending both in cities and rural areas.
Photo credit: Adnan Abidi / Reuters