Indian Auto Businesses Expand Into Rural Areas

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Mar. 10 – Auto and bike manufacturers are expanding into India’s huge countryside areas in order to take advantage of increasing affluence and to offset falling sales in semi-saturated urban areas. Similar to China, India’s rural markets, are booming and are relatively insulated from the global economic problems that have affected more internationalized cities such as Mumbai, Chennai and Pune.

Maruti, who’s JV with Suzuki is responsible for almost half of all auto sales in India, is racing ahead with its share of non-urban markets tripling in the past nine months. Hero Honda, the world’s largest two-wheel manufacturer, also sees growth in the rural areas. A source at the company said two wheeler penetration in rural areas was only at about 10 percent of households, and that the region therefore had massive potential for growth.

Rajesh Jejurikar, COO of Mahindra & Mahindra told The Times of India that “Rural areas represent much more of a cash economy…and this market does not have the current downward sentiment of urban India”. Mentioning that the Government infrastructure programs were having a positive effect, he pointed out that 60 percent of sales of the Mahindra Scorpio now came from countryside areas, up from 20 percent in December last year. TVS Motors also report the growing importance of India’s domestic rural market, with H.S. Goindi, their Head of Sales, acknowledging that 50 percent of the businesses domestic sales now came from rural India.

In other signs that rural India is starting to become a significant market, mobile phone penetration on the hinterland has dramatically increased, with the focus now shifting to second and third tier towns and villages. Most cities and major towns have already reached saturation, with Aircel, a provider based in Tamil Nadu stating it’s coverage will unfold in a further 1,200 towns by the year end just within the state. Airtel’s subscriber base as at end 2008 was about 7.5million, up 39 percent from the previous year. Airtel has some 8,700 towers in Tamil Nadu with a cumulative connectivity of 94 percent of the states geographic area.