Spending
Rural consumers buying more durables due to higher affordability

According to CRISIL, even though higher income is a necessary factor, it is not the sole factor, influencing purchase decision for durables in rural households

Rise in discretionary spending and the low level of price rise in consumer durables have resulted in higher affordability of these articles for rural households, reports PTI quoting a CRISIL research.

 

According to a report from ratings agency CRISIL, consumer durables have become more affordable to rural households in recent years, due to rising discretionary spending and relatively low levels of price rise in durables.
 

It also states that at least one in every two rural households owned a bicycle, an electric fan and/or a mobile phone in 2009-10.

 

The report, however, points out that the penetration pattern of consumer durables varies distinctly in rural areas, “clearly indicating that even though higher income is a necessary factor, it is not the sole factor, influencing purchase decision for durables.”
 

The report says discretionary spending grew to Rs24,000 in 2009-10 from Rs14,000 in 2004-05, a growth of over 11% annually, which was higher than inflation that rose about 6% per year over the same period.

 

While Kerala and Punjab are at the top spots in terms of the highest discretionary rural household spending, it grew higher than the national average in Maharashtra, Bihar, Gujarat and Madhya Pradesh.

 

The report also notes that discretionary rural household spending grew at lowest rates in Andhra, Bengal and Karnataka.

 

On the availability of electricity and its impact on some of consumer durables, the report says access to electricity will play a major role in expanding penetration of these goods.

The report said, “In future, while rural households in relatively poorer states could enjoy higher affordability levels towards purchase of consumer durables, improving access to electricity will play a more critical role in expanding penetration of these goods.”

 

It said this will especially hold true for Bihar, Bengal and Uttar Pradesh.

 

According to CRISIL estimates nearly 12 million additional rural households in Uttar Pradesh and 4 million more in rural Bihar would have owned electric fans by 2009-10, had there been better access to electricity. Further, each of these two states would have had 5 million more households owning a television set.

 

In contrast to the relatively poor electricity access, an improvement in road connectivity between 2004-05 and 2009-10 appears to have resulted in a sharp pick-up in ownership of two-wheelers in several states including Bihar, Orissa and Rajasthan. Therefore, apart from raising rural incomes, boosting rural infrastructure will help unlock the true demand potential for consumer durables, CRISIL said.

“While several factors, including availability of finance determine penetration of two-wheelers and cars in rural areas, an improvement in rural road network could enhance demand for these items,” it stated.

 

Better connectivity through the Prime Minister's Rural Roads Scheme appears to have positive impact on auto sales, it added.

 

The report adds that apart from raising rural incomes, boosting rural infrastructure will help unlock higher demand.

 

“In times to come, in addition to higher incomes, improved access to electricity and roads will be key determinants of demand for consumer durables in rural areas across many states,” the report says.

Rural households in richer states such as Kerala and Punjab are likely to move further up the ladder and purchase more high-end durables goods, such as refrigerators, ACs, four-wheelers and digital cameras in future, it added.

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