Festive cheer for PVs in rural markets

According to ICRA Research, today, the rural market makes a healthy 35-40% contribution to the overall Passenger Vehicles (PVs) sales in India, as opposed to a 25-30% in FY2014.

Oct 24, 2020 SHWETA BHANOT MEHROTRA No Comments Like

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Over the last five years, the rural market has witnessed significant reforms enabling the Indian population to move up the value chain and expand income levels. Even the COVID-19 pandemic turned positive for the rural market as considerable young migrant labourers returned to their villages and took up entrepreneurship to setup small tertiary farm businesses, thereby creating new income opportunities for families. 

This, combined with relatively low potency of COVID-19 cases and a good harvest season with healthy monsoons, the rural market has become the blue-eyed boy for car makers who prepare to lure rural customers with offers, discounts and freebies this festive season. 

“The festival season will see significant sales contribution from rural markets. OEMs will come up with attractive offers/discounts and finance companies will offer higher loan quantum with longer tenures to attract potential customers,” says Animesh Kumar, Director, Automotive and Travel & Tourism Consulting at GlobalData. 

He says that from a purely need-based market for farming equipment (e.g. tractors), two-wheelers, small commercial vehicles and three wheelers, rural India, over the last few years, has started to contribute significantly to the PV (Passenger Vehicles) segment. “OEMs such as Mahindra & Mahindra (M&M), Maruti Suzuki, Hyundai and Tata Motors have a strong presence in rural markets,” says Kumar. 

“In the last five years, we have seen the demand for PVs rise from rural than urban. The rural market will be the key driver of volume in FY2021 which will benefit entry level cars and UVs, (Utility Vehicles)” says Ashish Modani, Vice President, ICRA Limited. Modani adds that ICRA expects single digit growth in PV segment this festive season. 

Shashank Srivastava, Executive Director (Marketing and Sales), Maruti Suzuki India, says, “Rural sales now account for nearly 40% of the total sales from about 38-39% [in the] previous year. We have witnessed that the rural markets are bouncing back a little faster than the urban ones. This can be attributed to good monsoon, better Rabi harvesting and Kharif sowing.”

Srivastava, however, adds that there has been a “drop in remittances to rural areas and the long-term demand will be related to fundamentals of the economy. Currently, there are a lot of uncertainties due to the COVID-19 pandemic.” Indicating that customers make choices as per their budget and requirements, Srivastava says, “All (Maruti) models are equally appreciated in urban and rural areas.” Maruti Suzuki Alto and Swift are very popular models in the rural market.

Shailesh Chandra, President, PVBU, Tata Motors Limited (TML), says, “Our rural market share is in line with our overall PV market share. With highly encouraging enquiry and booking trends, we are looking at strong volumes, with rural contributing to 40% of overall Tata Motors PV business this festive season.” 

Indicating that hatchback segment contributes to 55-65% of rural sales, followed by SUVs (Sports Utility Vehicles), Chandra adds, “We see a significant sales growth in rural areas, with expected sales of 40 – 43% of the overall industry sales over the next few years. While hatchbacks will continue to be the mainstay in rural India, we see a further growth in CUV/SUV sales in rural as rural economy further improves.”  The best sellers from Tata Motors have been Tiago, followed by Altroz and Nexon. Tiago ex-showroom price starts from Rs. 4.7 lacs (Ex-showroom), which fits the budget of rural customers. Nexon has also shown good promise in the rural market, driven by high ground clearance and performance. TML has also opened special festive outlets to cater to the significant enquiry and booking demand from rural areas.

Explaining the price sensitivity of rural market, Kumar says, “Companies have been promoting their vehicles on attributes like low cost of vehicle acquisition, low cost of ownership and high resale value.” He added that Mahindra & Mahindra (M&M)’s Bolero and Scorpio are among the other models that have been doing well in the rural market. “Majority of the models (doing good in rural) are in the ex-showroom price range of IN R 2,94, 000 to INR. 8,99,000,” he says.

Hyundai Motor India Limited (HMIL)’s rural penetration stands at 17% and the company aims to grow it by 0.7% in CY’20 over last year at 16.8%. The company has witnessed phenomenal response from the rural markets for its new Creta, i20, Grand i10 NIOS, new VERNA and new Santro, to name a few.

 “We are extremely upbeat about the demand from rural market during the festive season. Considering the improving infrastructure with good road connectivity and better monsoon this year, rural market is expected to grow better and HMIL is expecting good demand from rural market in near future,” says Tarun Garg, Director – (Sales, Marketing & Service), HMIL. 

Garg adds that HMIL has witnessed a steady change in the preference for cars that customers acquire in today’s day and age from Tier II and Tier III markets. “The customers in rural villages and towns have evolved to a great extent. I’m glad to share that we have had a retail of 44,794 units from January to September in 2020,” he says.  

Highlighting that SUV segment has been driving growth in urban markets, Garg, points towards similar trends in the rural markets with a strong response for the segment, in addition, to the compact vehicles offered by HMIL. “The SUV segment which used to contribute 27% to our sales (Jan-Sept ’2019), is now contributing close to 40% (Jan-Sept ‘2020),” he says.











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