Indian Firms Target Small-Town Growth That’s Insulated From US Tariffs

Indian companies are betting on small towns and villages to sustain growth at a time the third-largest Asian economy is bracing for pain from US's punishing 50% tariffs.

Businesses from biscuits makers to building materials suppliers underscored the buoyant rural demand in investor calls for their June quarter earnings, adding that low inflation and the prospect of a good harvest will ensure the 900 million Indians living outside cities keep spending. Consumption growth in India's countryside has outpaced that in urban markets for six straight quarters, according to data analytics firm NielsenIQ.

Demand in rural India, dominated by its agrarian economy, is a bit more insulated from the impact of the exorbitant US tariffs, making it an important focus area to get growth from, Sudhanshu Vats, managing director at adhesives and paint maker Pidilite Industries Ltd. told Bloomberg News.

India's gross domestic production in the three months through June expanded at the fastest pace in more than a year. Private consumption grew 7% on the back of strong rural demand and improvement in agriculture wages.

The growth, however, risks hitting a speed-bump after US President Donald Trump doubled the 25% duty on Indian exports from August on more than half of goods shipped to the US — its biggest market. The levies will almost certainly bruise labor-intensive industries such as textiles and jewelry, which are concentrated around large cities.

“We see large volumes of contribution coming from rural segment,” said Nikhil Doda, co-founder of Archian Foods Pvt., which sells a popular cumin-flavored fizzy drink, Lahori Zeera.

The company that competes with Coca Cola Co. and PepsiCo Inc., even provides “insulated chill boxes” to rural sellers of its 10-rupees ($0.1) beverage, as most small shops don't even have a refrigerator. Small towns are a significant contributor to the company's sales.

There is an inclination amid rural consumers to try newer products, according to K. Ramakrishnan, managing director for South Asia at consumer research firm, Worldpanel by Numerator. “All the contributing factors to boosting consumption in rural areas are strong for India.”