Zoo Station

Over at the Indian Economy Blog, Naveen Mandava links to a story in the Washington Post by John Lancaster, where he offers up some more proof of the spread of economic growth to rural India. In this case, the drivers of the spread into BOP markets are MNCs and the story will be familiar to those of you that are familiar with C.K.Prahalad's or Stuart Hart's work.

Hindustan Lever is not alone in recognizing the vast potential for profits in rural India. As urban markets become saturated, more businesses are retooling their marketing strategies, and in many cases their products, to target rural consumers with tiny incomes but rising aspirations fueled by the media and other forces, according to experts. Companies are offering many products, from single-use shampoo packets that sell for less than a penny to $340 motor scooters available for monthly payments as low as $4.50. Banks are targeting first-time customers with $10-minimum-deposit savings accounts. Cellular phone companies are upgrading rural networks while offering monthly plans for as little as $3.40.

"In four to five years the rural market will be a major sector that is well beyond anyone's imagination," said Rajesh Shukla, principal economist for the National Council of Applied Economic Research in New Delhi. "Nobody was expecting this was going to happen."

As Naveen says, all this is happening despite high transaction costs caused by the lack of any real institutional of physical infrastructure, not to mention government apathy. The mind boggles at what may be possible if the govt made a concerted effort to build the infrastructure instead of pouring tax-payer money down the drain chasing after chimeras like the REGS.