In this MythBusters episode, we attempt to debunk the reality of Rural India – “ The Next Billion” – Reality or illusion?
Being new to the VC world, I visualise my job to be like that of a philosopher. Replace Ancient Greece’s drama with Bangalore’s hustle, scrolls, and journals with laptops, financial statements, and chitons replaced with suits & ties.
Now, for an instant, take this philosopher out of Bangalore into the unlikeliest of spaces – rural India. Even Greek philosophers rarely ventured outside the grandeur of Athens. There is humility in acknowledging the oxymoronic nature of the idea of a VC exploring the vast expanse of rural India. But I’m going to do it anyway.
Historically, the world has witnessed important events at regular intervals that unravelled new markets to its entrepreneurial heroes in India.
We’ll call these events the market makers. Just as a tool for recall, I have given some commonly employed nicknames to the period that followed each of these market-maker events. Currently, you and I occupy a seat in the “Information Age.”
Each of these events kicked off a greater degree of access than was previously feasible – as outlined in the bottom row of the figure above.
We at Bertelsmann believe that the latest market maker event – the advent of Jio – led to the unlocking of “The Next Billion,” in other words – “EVERYONE.” We believe that there is an opportunity to attempt to solve for rural India. If replicating successful models from developed economies in developing economies is a sophisticated growth strategy, then there may be an equal opportunity to replicate urban models for rural spaces.
While the numbers in the above table may look attractive, there are still a few myths with regard to the rural consumer:
- Lack of Income and consumption expenditure: There are two major sources of income – the daily wage and remittance from city migrants. The most conservative estimates suggest that the average monthly household income is ~$100, and 83% is spent on consumption. Additionally, the annual domestic remittance from migrant labour in cities to their families in rural India is close to $10 bn, growing at 11% CAGR. This constitutes an annual consumption expenditure of over $1000 per household.
- Inaccessible Remote Locations: 80% of villages in India today are accessible by all-weather roads. Additionally, India is expected to exceed its current highway and rail line lengths to 180k KM and 120k KM, respectively. Additionally, India is home to among the most populationally dense rural regions in the world. Therefore, within villages, customers live close to one another.
- Low Literacy & Digital Penetration – 73.5% of rural India was deemed literate in 2017-18, and rural areas were home to 351 mn of India’s internet users, growing at 18% annually. Deloitte predicts that by 2026, India will be home to 1 bn smartphone users. There would usually be one smartphone present per household. Additionally, 9 of 10 users today accessed the internet daily – spending close to 107 min online. ~30% of the time spent would be on chat, social media, and online entertainment.
- Lack of Demand– Not only is the rural customer left wanting, but they desire high-quality service. Anecdotally, the rural buyer demands high-quality products and significant variety and displays strong brand affinity. Common unfulfilled demand includes – cosmetics, school books & stationery, apparel & footwear, medicines, toys & sports goods, etc.
The common problem is that the opportunity cost of procuring products for consumption is extremely high. Many of them work on a daily wage, and the nearest stores are in the nearest towns. These commutes are rarely a stroll away and often require the traveller to forego a day’s income. The cost of travel plus the missed wage, plus the uncertainty of product availability makes for quite a compelling problem statement.
There should be little doubt about the quality of the rural customer. The market is ripe for disruption, the consumer is desperate for a change of circumstance, and the infrastructure is steadily getting there. The Next Billion may indeed be a reality.