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The Rise of Rural Consumers in Emerging Economies

post Wednesday February 12, 2014

Tags: china, consumer, india, rural, urbanization

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Since the Industrial Revolution people in rural areas moved to the big cities hoping to find a job. This phenomenon is called urbanization and is happening all over the planet. However, this trend is about to change, starting in the world’s two most populous countries; India and China. The Credit Suisse Research Institute’s 2013 Emerging Consumer Survey, which was published on the 10th of February, showed signs of a recovery of the rural consumers.

The development is especially caused by the rural middle class in the emerging economies of India and China. Their expectations for wage increases are higher than those of the urban consumers. The same phenomenon is happening in other emerging markets, such as Russia and Mexico. With more money in their pockets, people in rural areas plan to consume more as well. The economic circumstances of the rural population of India have improved. For example the use of electricity has increased from 55 percent to 67 percent since 2001, according to Credit Suisse.

Furthermore, the wages for rural jobs in India have also increased by 7 percent. Since the income growth for urban professions, such as services and technology software has slowed, the change in wages for the rural professions is even more notable. Along with the increasing wages, the behavior of consuming also changed. The rural consumers were more likely to spend money on not only the ‘’essential’’ goods, such as food and water, but also ‘’useful’’ and ‘’discretionary’’ items. These last two categories include products like educational courses and smartphones respectively.  

Not only the salaries of rural consumers have increased, the governments are also trying to boost the country sides of their nations. In China, plans to reform the economy included more leeway for farmers to sell, rent or mortgage their land. This plan will slowly change China’s system of collective ownership and this way farmers will benefit from appreciating land values.

However, the boost of rural areas is not occurring in all the emerging economies. For example, the consumer demand in Brazil is still largely driven by the urban residents. Due to the higher inflation and declining real income growth, the consumption in the countryside of Brazil is not as booming as in India or China.

A rising middle class in the rural area has to be taken into account by all companies, says the Credit Suisse report. Even though some emerging economies are not capable to boost their rural areas, the prosperity and optimism of rural consumers in countries like India and China can be very beneficial for companies who are willing to invest time and money in this market.

Source: The Financialist
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