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Rural Heartland

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By Jason Overdorf – GlobalPost.com

In India, the economic crisis may actually be good news.

During the salad days of the past decade, India's entrepreneurs grew fat selling gas guzzlers and palatial homes to the country's new rich, while ignoring the needs of the biggest segment of Indian consumers: the poor. It was an expatriate Indian, the University of Michigan's C.K. Prahalad, who first posited that there were millions to be made selling to the “bottom of the pyramid.”

Now that's starting to happen.

The rich aren't buying, and Indian businessmen are finally starting to look at the teeming masses as something more than cheap labor. The result could be the solution of some of India's most persistent problems — an abysmal housing shortage, chronic underemployment and an unsustainable rate of rural-urban migration, for instance.

“The slowdown was a great thing to happen to India,” affirmed management consultant Harish Bijoor, who said the downturn has encouraged companies to look beyond the “low-hanging fruit” in the urban market to the vast multitude of consumers in India's rural heartland — which still accounts for more than two-thirds of the country's population and some 60 percent of its gross domestic product.

“There are a whole slew of energy products, both solar and thermal, and cook stoves and all types of things, all of which are aimed at reducing fuel consumption or replacing traditional fuels,” said Vijay Mahajan, founder of BASIX, a microfinance company that provides credit to more than a million poor customers. “And there's a whole slew of clean drinking water products. These have both health and economic benefits.” The best example of the upside of the downturn, so far, comes from the real estate sector. Throughout the boom years, posh high rises were the name of the game in Indian real estate. But as the buyers for $200,000 to $1 million apartments have dried up and falling property values have left builders scrambling to finance the completion of existing projects, a dozen-odd companies have begun to take interest in building housing for the nearly endless market represented by the urban poor.

Led by Tata Housing's so-called “Nano homes,” which will go for as little as $8,000, these ventures represent the entrance of respected business leaders into the low-income housing market, including figures like Jaithirth Rao (founder of outsourcing heavyweight Mphasis), Ramesh Ramanathan (founder of the citizen's action group Janaagraha) and established companies like Bangalore's CSC Constructions. The trust factor that these players bring has given this sector new viability, according to Subir Gokarn, chief economist at Crisil, the Indian arm of Standard & Poor's.

“The focus on the base of the pyramid to create scale businesses was overdue,” Jaithirth (Jerry) Rao said. “You can sell millions of homes in this category, whereas in the upscale category you can only sell tens of thousands.”

But real estate isn't the only sector where the financial crisis has had an unexpected upside for India's future. Almost every type of business — from refrigerators to motorcycles to computers to mobile phones — is now looking to the vast market represented by India's urban poor and the legions living in its villages. By increasing competition, this expansion lowers prices, connects the dispossessed to the broader economy and makes new, income-generating products affordable.

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