Small town India makes the big play for economic recovery

Small town India makes the big play for economic recovery
Small town India makes the big play for economic recovery

The normalisation of work from home is fuelling a reverse migration of white-collar professionals to small towns to beat high costs and pollution. This, coupled with rising farm incomes, is providing a fresh thrust to India's growth trajectory.

*A recent survey by online food delivery service provider Zomato has found that small town India is leading the recovery in food deliveries across the country.

Indian Finance Minister Nirmala Sitharaman sees green shoots of growth sprouting in several sectors of the Indian economy. Reserve Bank of India Governor Shaktikanta Das has said India is on the cusp of a full-blown economic recovery. And the Indian central bank's monthly bulletin for November says the Indian economy could turn the corner and register positive growth in the third quarter (October-December) of the current financial year.

Hinterland drives consumption demand

Providing ballast to this return to a growth trajectory is an unexpected source: Rising prosperity and higher consumption in Tier II and Tier III towns and in rural India. A recent survey by online food delivery service provider Zomato has found that small town India is leading the recovery in food deliveries across the country.

Home delivery order levels in small towns such as Jamshedpur, Siliguri and Ranchi, which, had hitherto not figured among the top cities, are now much higher than in the big metros, which had, till recently, led the charts on this count.

And this has driven Zomato's all-India deliveries in September to 85 per cent of their pre-Covid levels, a significant improvement over the 75 per cent level seen in August.

A typical kirana store in rural India. There has been a bounce in consumer demand across multiple product platforms in Tier 1 and II cities which sets the country on the track to economic recovery.
A typical kirana store in rural India. There has been a bounce in consumer demand across multiple product platforms in Tier 1 and II cities which sets the country on the track to economic recovery.

Sales are rising across sectors

Hero MotoCorp, the world's largest two-wheeler company, as well as its older rival Bajaj Auto, reported record sales largely because of a sharp increase in rural demand.
Hero MotoCorp, the world's largest two-wheeler company, as well as its older rival Bajaj Auto, reported record sales largely because of a sharp increase in rural demand.

This bounce in sales in smaller towns and rural India is visible across sectors - from passenger vehicles to motorcycles to fast moving consumer goods, iron and steel, cement, jewellery, housing and more. Both Hero MotoCorp, the world's largest two-wheeler company, as well as its older rival Bajaj Auto, reported record sales largely because of a sharp increase in rural demand. “Despite Covid-19 and the related lockdown, the agricultural activities across the country have almost remained unaffected. This has raised the hope that rural demand could drive the economic recovery,” the Indian unit of Fitch Ratings said in a report.

Many professionals are moving to small towns

The wider acceptance of work from home measures ensures business continuity, employee safety and most importantly makes the talent pool present in Tier II and Tier III cities more easily available to the big corporations.
The wider acceptance of work from home measures ensures business continuity, employee safety and most importantly makes the talent pool present in Tier II and Tier III cities more easily available to the big corporations.

Helping this trend is the new normal in Indian companies - Work From Home (WFH). There is enough anecdotal evidence to show that many professionals working in big cities like Mumbai, Delhi and Bangalore are moving back to the small towns they hail from, or moving to places like Goa or small hill towns to get away from the stress, pollution and high costs associated with metropolitan lifestyles in India. For example, if an executive sitting in Gurgaon or Pune can meet the service needs of clients sitting in the US or Europe or any other location in the world, there is no reason why these same functions cannot be fulfilled from smaller Tier II and Tier III cities, or, for that matter, even from villages. All it needs is a laptop, reliable power supply and a robust internet connection. The wider acceptance of WFH rules ensures business continuity, employee safety and most importantly makes the talent pool present in Tier II and Tier III cities more easily available to the big corporations, tweeted Debjani Ghosh, President of Nasscom, the apex body of India's IT industry.

Big city executives are carrying their lifestyles to smaller towns

A view of Ahmedabad city. Many executives are carrying their big city paycheques and lifestyles with them to smaller towns, thus, generating new demand for goods and services in centres that had been considered too small to service earlier.
A view of Ahmedabad city. Many executives are carrying their big city paycheques and lifestyles with them to smaller towns, thus, generating new demand for goods and services in centres that had been considered too small to service earlier.

This is leading to a fundamental change in the way business is conducted. Till now, it has been the norm for people living in smaller towns and villages to migrate to the big cities in search of jobs. This involved heavy costs especially in the case of senior-level recruitments as moving costs, housing costs, transportation, etc., had to be factored in both by the employers and the employees.

Now, with movement in the opposite direction, many of these executives are carrying their big city paycheques and lifestyles with them to smaller towns, thus, generating new demand for goods and services in centres that had been considered too small to service earlier. A survey conducted by Gartner, leading global company in the field of advisory and research services, recently found

*This bounce in sales in smaller towns and rural India is visible across sectors - from passenger vehicles to motorcycles to fast moving consumer goods, iron and steel, cement, jewellery, housing and more

that 41 per cent of employees would like to carry on working from home even after the pandemic passes and the associated scare subsides. With health and safety becoming a key issue for many people, the benefits associated with WFH like no commuting, much less exposure to the pollution in big cities and the additional flexibility if affords, are becoming key issues for companies to take into account. This is expected to ensure that the spike in demand for goods and services in smaller towns and even villages could sustain even after the pandemic eases.

Rental enquiries spike in Tier II and Tier III towns

Agricultural prosperity is soaring. The farm sector accounts for only about 16 per cent of India's GDP but the hinterland is home to 58 per cent of the country's population, an overwhelming majority of whom are connected in one way or the other to the farm economy.
Agricultural prosperity is soaring. The farm sector accounts for only about 16 per cent of India's GDP but the hinterland is home to 58 per cent of the country's population, an overwhelming majority of whom are connected in one way or the other to the farm economy.

Here's actual on-the-ground evidence of this reverse migration. Leading Indian online home rental company Nestaway Technologies estimates that at least 10,000 people on its own database have given up their leases in big cities and returned to their hometowns or to other Tier II and Tier III cities in the last three months alone. The company managers 60,000 rental homes and has 50,000 tenants on its roster.

Nestaway says it has noticed an uptick of three times in owner requests from smaller towns and cities.

To cater to this rising demand, the company has recently launched a franchise model for its services in small town India. “We need to be where tenants are. Pre-Covid, our tenant base was crowded in central business districts and a few areas in Tier I cities. We see a tectonic shift in consumer behaviour now," Amarendra Sahu, Co-founder and CEO, Nestaway, told Bloomberg.

Some reports said this reverse migration could be as high as 50 per cent among white collar workers in cities like Bengaluru where over 30 per cent of rental homes now lying vacant.

The company said it aims to do at least 30 per cent of its business from non-metros in the next two years.

Rising farm incomes driving demand

Another reason driving the rising rural demand is the rising level of agricultural prosperity. The farm sector accounts for only about 16 per cent of India's GDP but the hinterland is home to 58 per cent of the country's population, an overwhelming majority of whom are connected in one way or the other to the farm economy.

Rural prosperity critical for Indian growth

Thus, India's rural sector is a critical leg of its economy and accounts for 46 per cent of aggregate consumption in the country. Rural prosperity is critical for Indian industry as it accounts for almost 100 per cent of the demand for fertilisers and tractors, more than 50 per cent of the demand for two-wheelers, including both bicycles and motorbikes, and leather goods, about half the consumptions of fast moving consumer goods, more than 40 per cent of the demand for steel and cement and a significant proportion of the sale of automobiles, garments and apparel, televisions, mobile phones and a host of other products and services. So, the good monsoon this year, which is increasing rural prosperity and purchasing power, is impacting not only the farming community but also the entire economic value chain that sustains the rest of the Indian economy. With companies like Facebook and Google announcing WHF for all employees till June-July next year and with many other Indian companies following suit, the trend of WFH in smaller centres is likely to gather steam. With many more parts of India now having stable internet connections and with the launch of 5G services around

* Many of these executives are carrying their big city paycheques and lifestyles with them to smaller towns, thus, generating demand for goods and services that didn't exist earlier.

the corner, this trend will only get stronger in the years to come. So, the law of unintended consequences many actually end up delivering a Covid dividend to India - a coming of age of consumption demand in small town India providing a new engine of growth for the country's recovering GDP.

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