Manya Rathore
Research expert covering India
Rural economy of India - statistics and facts
“The soul of India lives in its villages.” Mahatma Gandhi’s famous words from about 70 years ago still hold for modern India. Rural India is home to around 65 percent of the country’s population. The Reserve Bank of India defines rural areas as those with a population of less than 49,000. With agriculture as its cornerstone, the rural economy contributes significantly to India’s economic growth engine.
While still high compared to global levels, the share of food items in rural India's average monthly per capita consumption expenditure has fallen, signifying that people are spending more on other essentials -- a significant indicator of a better life. However, the share of food in expenditure is still higher than in urban India. Additionally, a recent survey shows rising inequality between the rural-urban consumer expenditure among economically weaker sections but reduced gap between high consumption groups.
Rising inflation, especially food inflation, has further compounded these issues. It is estimated that high inflation rates combined with low-income growth may lead rural consumers to compromise on the nutritional value of their food purchases, aggravating food security in the country.
Rural consumption story: Towards a slow recovery
Driven by private consumption, India registered an annual forecast of over seven percent growth in GDP. Although India’s post-pandemic economic recovery has mainly been led by high-income groups, the rural segment has continued to account for a significant portion of the country’s demand. Two-wheeler sales, an important indicator for rural consumption, showed signs of recovery in the financial year 2023. Although sales remained lower than pre-pandemic levels, recovery is expected to continue in 2024.While still high compared to global levels, the share of food items in rural India's average monthly per capita consumption expenditure has fallen, signifying that people are spending more on other essentials -- a significant indicator of a better life. However, the share of food in expenditure is still higher than in urban India. Additionally, a recent survey shows rising inequality between the rural-urban consumer expenditure among economically weaker sections but reduced gap between high consumption groups.
Pinched pockets: Cost of living in rural India
Recovery in rural areas has been characterized by slow growth in agricultural incomes. While median salaries in companies have increased by 10 percent, rural incomes have witnessed sluggish growth and have turned many towards self-employment. This contrasts to urban areas where salaried jobs are predominant. The demand for work under the government’s rural employment initiative for unskilled labor, the Mahatma Gandhi National Employment Guarantee Act (MGNREGA), has remained higher than supply.Rising inflation, especially food inflation, has further compounded these issues. It is estimated that high inflation rates combined with low-income growth may lead rural consumers to compromise on the nutritional value of their food purchases, aggravating food security in the country.
Self-help groups: A case for self-sustainability
The rural landscape in India is known for the critical role played by community-based cooperatives, including self-help groups (SHGs). India has over 12 million self-help groups and more than 88 percent of them are all women. SHGs are typically groups of 20 to 25 members, mostly residents of villages. In 1992, these groups were linked to banks for small loan disbursal under the SHG-Bank Linkage Program. As of 2022, these groups are collectively operating a financing operation emerging as the world’s largest microfinance project. In addition to microfinancing roles, SHGs play a crucial role in livelihood diversification and skill development, especially for women. For instance, started by seven women, Lijjat Papad (a type of savory snack) from Maharashtra has now become a household name. The story of SHGs showcases the strength and resilience of community-based systems and continues to shape India’s rural landscape.
