It's poor market economics, common sense tells you, if in a country of 110 crore, one-third live in poverty. That automatically shuts out a large part of industry and services. Indeed, according to an NCAER study, 90 per cent of goods sold is in cities and towns. Translated, it means that marketers don't even attempt to sell directly to the poor. That's fine as long as the economy is on a roll and the urban buyer is keeping the topline afloat. But the moment a recession hits, the shock of market collapse is worse for a company if its market is concentrated and not spread evenly across regions and demographic segments. Therefore, if India wants sustained economic growth, it has no choice but to beef up rural incomes.

Currently, rural incomes are touching a new low. The culprit: the drought of last year in western parts of the country; delayed monsoon in south that affected paddy sowing; and poor offtake by the Food Corporation of India, which is sitting on surplus foodstock. The squeeze in incomes is showing up not only in stagnant FMCG sales of companies like Hindustan Lever Ltd (HLL), but also those of consumer durables, automotive, and tractor manufacturers, who probably are the worst affected. For instance, between April and November 2001, the number of tractors sold were 21 per cent less than that sold in the same period in 2000. Except for the states of Rajasthan, Gujarat, and Madhya Pradesh, all the markets reported negative sales. In Maharashtra, the market shrank by 40 per cent, in UP by 35 per cent, in Haryana by 24 per cent, and in Punjab by 12 per cent.

The problem is not that affordability in rural India isn't rising, but that it is not rising fast enough. According to NCAER, while the number of 'climber' households (those with incomes between Rs 22,000 and Rs 45,000 per year) in rural India doubled to 54 million between 1989-90 and 2001-02, that of 'destitutes' (earning less than Rs 16,000 a year) has only marginally fallen from 27 million to 21 million. And while the size of the consuming class has trebled during that time, that of the very rich households (making more than Rs 2.15 lakh a year) has gone up only to 1 million, and even by 2006-07, will add only another 4 lakh. So, even in the richest rural household, a sedan, an air-conditioner, or even international travel will remain a dream for a long time to come.

Still, there's little doubt what a rise in rural incomes can mean for the economy. According to the Central Statistical Organisation, a 1 per cent rise in rural income translates into Rs 10,000 crore of buying power. Which means if India could do that, it could add a company of HLL's size or five companies of the size of BPL, or 10 companies as big as Dr Reddy's Laboratories, every year. In fact, growth or no growth in rural incomes, it is clear that marketers will have to target the large, untapped population of India to keep their cash registers ringing.

The ideal thing to do would be look at ways to spur incomes in villages. Contrary to popular belief, agriculture isn't the only source of income in villages. Self-employment (in petty trades), construction work locally or elsewhere, or urban employment all contribute to rural incomes. Therefore, to create a robust rural market, a number of issues need to be addressed. These include education, healthcare, technology, and access to developed urban markets. Better education would mean that villagers are able to pursue activities that pay more; better healthcare would increase their productive up-time, and technology will raise their return on investment.

In the end, all these measures will do what the marketers really want: a stable income and consumption pattern. Quite frankly, the government doesn't seem capable of doing that anytime soon. Which means the private sector must create marketing strategies aimed at increasing buying power of the people they sell to. It will be a new lesson in marketing, but one worth learning.