India: A New Crop Of Consumers

Photograph by Olivia Arthur for TIME
A tomato farmer in Punjab

It's mid-March in Muzaffarpur, and the lychee trees are almost in bloom in this remote corner of northern India. When the flowering begins, beekeepers like Manoj Kumar Singh will take their hive boxes to the edges of the nearby orchards, leaving their bees to produce the region's renowned lychee honey. Beekeeping is a tradition in Muzaffarpur, and for decades, so was poverty. "If you had guests, you'd wonder, How are we even going to offer them a cup of tea?" he says. But honey prices have tripled in the past few years, and that's afforded Singh, 33, enough income to hire a full-time employee, purchase new plots of land, build an addition to his brick house and buy a new motorbike to ride around his village.

Singh's reversal-of-fortune story is all the more remarkable because it is set in a village, not in one of India's urban centers like Bangalore, Mumbai or Delhi. It's a sign of change as the nation's development experts and multinationals turn their attention to rural India. It's there that the income gap between Rising India and the Other India is most pronounced. From 2005 to 2010, India's consuming class grew even faster than expected, to more than 216 million people. But so did the ranks of the desperately poor a population more than twice that size, most of it in rural India whose incomes aren't enough to buy much of anything.

This gap became plain during a surge in food prices earlier this year. Spikes in the prices of onions and other vegetables sent thousands into the streets to protest, a reminder that despite India's 8% growth, it is also home to 64 million malnourished children, nearly half the world's total. India produces enough food for them, but not all their families can afford to buy it. "There is a very vulnerable section who may not have seen any change in their income levels," says Kaushik Basu, India's chief economic adviser. "If income does not change and if prices rise, you're being hit badly."

These numbers tell a hard truth: India's economic epic has reached the end of Act I and can't continue unless the rural poor join in. Leaving them behind undermines the health of the whole economy, says K.M. Chandrasekhar, India's Cabinet Secretary. The consumption and spending of a small but thriving urban elite cannot sustain growth or generate enough jobs for the 840 million people in rural India. "We cannot afford to exclude the rural population," he says. If India can double growth in the farm sector to 4%, he estimates, it could add as much as 2 percentage points to GDP growth and finally close the gap with China. That realization has led to a deeper engagement with the so-called bottom of the pyramid; forward-thinking companies and development groups are trying to raise the incomes of the rural poor by connecting them with the rest of the economy and transforming them into a new base of consumers.

It won't be easy. Traditionally, climbing the social and economic ladder has meant leaving one's village and heading to the city. Over the past 20 years, India's urban population has grown by 120 million, to 30% of the population; over the next 20 years, it is expected to grow by 250 million, to 40%. That's not sustainable or realistic, says Abhijit Banerjee, an economist at MIT's Abdul Latiff Jameel Poverty Action Lab, a project that examines the data on the world's poor to analyze what works and doesn't work in alleviating poverty. Before China's megacities took off, the Middle Kingdom invested in agricultural reform and rural education and then urban infrastructure to handle the massive influx of new workers. India has done none of these things, and its urban centers are already overburdened with unskilled rural migrants. MIT's early data show that there are very few ways for the rural poor to participate in India's thriving economy. They can leave their farms and go to work as construction laborers or domestic servants or else stay in their villages and collect subsidies. Their wages might go from about $1 to about $3 a day, but that's not enough to alter their standard of living. "That's where it will stop," Banerjee says. "It's not transformative for their lives."

What India really needs are more Manoj Kumar Singhs, who prosper without leaving the village. For that to happen, old power structures and traditions will need to change. Creative solutions are coming from big organizations and small ones, in the public and private sectors. One example is EDA Rural Systems, a consultancy with a nonprofit arm that works with farmers all over northern India. The key to changing rural India, says EDA's Bihar director, Ashok Kumar, is deceptively simple. "All of our interventions are around the individual, trying to increase their income," he says. EDA did exactly that for Singh and his fellow beekeepers in Muzaffarpur, where India's largest honeymaker, Dabur, had effectively cornered the annual harvest, buying through middlemen who would pay only about 50 cents a kg. "We realized we had to break that system," says Kumar. Dabur spokesman Byas Anand says it uses consolidators because "it would be difficult to get the same quantity from individual beekeepers." Kumar brought in new buyers and encouraged them to deal directly with the beekeepers, who formed groups of their own. The effort raised prices, gave the beekeepers leverage over all the buyers, including Dabur, and broke the monopoly.

Several hundred kilometers west, in Malerkotla, Punjab, the world's biggest retail company is also digging deep into India's villages. Walmart supplies about 140 stores in the region through its joint-venture partner, Bharti Retail, and wants to expand nationally. To do that, it must turn its small network of 800 farmers, half of them in Malerkotla, into a reliable, efficient supply chain of 35,000 farmers by the end of 2015. Walmart agronomists are working with Malerkotla's vegetable farmers to improve yields with basic techniques like soil testing and germinating seedlings in trays. They have also reduced costs by using Walmart-negotiated discounts for seeds and pesticides. Walmart set up village collection centers to shorten travel time, uses digital scales to ensure fair weights and replaced burlap bags with plastic crates to minimize waste and damage in transit.

The target is a 20% increase in farmers' incomes in five years. Raj Jain, head of Walmart India, says this is the only way to build a sustainable business. If incomes rise, farmers will sell their produce to Walmart first; if incomes rise enough, they will also become its customers. That's about to happen in Malerkotla, where Bharti Walmart will open a new store later this year, Jain says. "The only way that we can make a difference to a country like India would be to close that circle."