2 Understanding the Rural Economy – Rural Marketing: Text and Cases, 2nd Edition

2

Understanding the Rural Economy

LEARNING OBJECTIVES

Upon completion of this chapter, you will be able to:

 

•  Understand the socio-economic characteristics of rural areas in India

•  Know the infrastructural facilities available for rural people

•  Appreciate the technological developments and innovations that transformed rural life

•  Recognize the role played by the government and other agencies in promoting rural development

•  Identify the potential rural markets can offer in the future years

 

The life of a farmer, K.T. Srinivasa, has changed recently, though the two dirt roads near his home about 40 miles from India’s high-tech capital of Bengaluru, his house without toilet facility, farm without tractor support and the way in which his family threshes rice by crushing it with a massive stone roller, have remained the same. How?

The change has been brought about by a cell phone. The little, attractive gadget is helping him make decisions related to farming. When to plant and harvest, at what price to sell the produce rice, coconuts and jasmine), and how and when to transport and sell—all these intriguing questions are now resolved intelligently. Idea Cellular, Mr Srinivasa’s service provider, has effectively utilized its first-mover advantages. Close to half the 800 people in the village, including Mr Srinivasa, have become its subscribers. Most of the villagers make voice calls as they don’t know how to text message or download e-mails. On an average, rural Indians use their phones around 8.5 hours a month, up by 10 per cent over the past year.

The villagers are very amused with their new found connectivity with the world. They are now aware of the people and events affecting the rest of India and the world. They can answer quiz questions such as who is America’s President and why there is an economic slowdown. The recession is not bullying them. They have understood that it is hurting their high-tech neighbours in Bengaluru much more and that the Indian economy is able to absorb the shocks much better than other developed nations. “After the global crises,”says Mr Srinivasa, the farmer, “I think we are in better shape.”1

This is an example of one of the many changes in the rural environment that have had a profound impact on rural lives. Every change brings with it an opportunity and a challenge. This chapter deals with environmental changes and their implications on marketers.

INTRODUCTION

Rural marketing requires an understanding of the environment in which companies have to operate to deliver products and services. As successful marketing is customer-centric, it starts from under standing the consumers. Consumer decisions and actions can be properly comprehended only when the force field in which they are operating is understood. As such, a study of environmental factors is essential for marketers. It is also important for marketers to realize the developments and trends rather than know the static picture of the environment. Today’s decisions are not only for current problems but also for future opportunities, performance and results.

RURAL MARKETING ENVIRONMENT

One of the standard ways of analysing the environment is by using the STEP model. The different factors that are relevant, directly or indirectly, to rural marketers in each of the environments are as given under.

  • Social environment—Population and households, education and literacy levels, social groups, festivals and melas, entertainment and arts.
  • Technological environment—Power and energy sources, postal services, telecommunications, information and communication technology, appropriate technology and innovations.
  • Economic environment—Occupations, land distribution, land use pattern, irrigation, asset holding, income, consumption, savings, disposable incomes, rural lifestyles and sales potential, rural credit institutions, rural retail outlets, micro-financing and rural industry.
  • Political environment—Development initiatives and administrative bodies.

How do these factors influence marketing decisions? Table 2.1 shows the four key decision areas of marketing and the relevant environmental factors.

 

Table 2.1 Marketing Decisions and Environment

Sl No. Decision area Environmental factors
1
Demand estimation Demographics (size and distribution of population by age, gender, occupation, education, geographical areas, marital status and family size), income, consumption, savings and investment.
2
Segmentation and target marketing Demographics, lifestyle indicators, purchase and usage of inventories, etc.
3
Product decision Income, quality consciousness, brand awareness and preferences of consumers, competition, technology developments, etc.
4
Price decision Disposable incomes, propensity to consume, competition, costs of input factors, demand, etc.
5
Place decision Availability of trade channels, physical distribution facilities, technological developments, competition, location and participation of consumers, etc.
6
Promotion decision Media availability and costs, media habits of target customers, competition, etc.

We will now discuss the key factors that influence the decision making of consumers and; hence, rural marketers.

SOCIAL ENVIRONMENT

Information about population, households and number of earning members in a family provides the starting point for understanding the rural economy.

Population and households

The country’s population is 1,027 million and the share of rural population is about 73 per cent. There are 205.9 million households of which 30 per cent (61.4 million) are in urban areas and the rest, 70 per cent (144.5 million), in rural areas.

The average family in the country consists of five members. The rural family size is larger than the national average at 5.08. Obviously, the urban family size is smaller being 4.81. The MAX-NCAER survey of 2008 identified that less than one per cent of Indian households are single-member ones and around 10 per cent have more than seven members.

How many in a household are earning members? Table 2.2 gives the answer: an average of 1.43 in rural and 1.34 in urban areas. It implies that most of the families have a single earning member, both in urban and rural areas.

The MAX-NCAER survey has divided the states into three categories based on incomes as follows.

  • Low-income (LI) states:

    Assam, Bihar, Madhya Pradesh, Meghalaya, Orissa, Rajasthan, Uttar Pradesh, Chattisgarh, Uttaranchal and Jharkhand

  • Middle-income (MI) states:

    Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala, Tamil Nadu and West Bengal

  • High-income (HI) states:

    Goa, Gujarat, Haryana, Maharashtra, Punjab, Puducherry, Chandigarh and Delhi

The distribution of population across the three different categories of states is shown in Table 2.3. The income levels and population parameters are inversely related. The high-income states have lower estimated population and households. The percentage of rural population in the high-income states 54.5 per cent is less compared to 68.2 per cent in the middle-income states and 80.7 per cent in the low-income states. Therefore, it can be said that a larger proportion of the rural population is living in less developed areas of our nation.

 

Table 2.2 Distribution of Population (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.3 Distribution of Population Across States (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.4 Household Size in Rural India

Size Percentage
1 to 2
10.3
3 to 4
32
5 to 6
33.7
7 to 8
14.5
9 to 10
5.2
Above 11
4.1

Source: IRS 2007 R2 Hansa Research, The Marketing Whitebook (New Delhi:Businessworld, 2009–2010).

 

What is the average size of a household? The average size ranges from 4.51 to 5.38 across different categories of states. Table 2.4 provides the household sizes in rural India. The predominant sizes are 3 to 4 and 5 to 6. About 32 per cent and 33.7 per cent households, respectively, are found with these sizes in rural India.

Gender-wise distribution

Sex ratio (the number of females per 1,000 males) for India is 933 females per 1,000 males. Table 2.5 provides the gender-wise distribution of population in rural areas. Women and men are almost in equal numbers in many of the states. The male population is larger in union territories like Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Delhi and most of the northern states such as Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Nagaland, Punjab, Rajasthan, Uttar Pradesh and West Bengal. In almost all southern parts of the nation, males and females are almost equal in number, the exception being Kerala where the female population dominates the male population.

Literacy levels

What is the education level of chief earning members in rural households? The percentage of educated heads of households in rural areas is less compared to those in urban areas. The percentage of rural chief earners is less than the percentage of urban persons in all categories of educational levels, excepting middle school as given in Table 2.6. The illiterate and primary school educated in rural areas constitute 26 per cent and 22.5 per cent, respectively, as against 7.9 per cent and 11.5 per cent in urban areas. This means that half the chief earners in rural areas are less educated as against the one-fifth in urban areas. About 19.2 per cent of rural chief earners and 14.21 per cent of chief earners in urban areas have middle school-level training. This case is an exception, but at the next higher levels of education, we find the urban citizens dominating their counterparts in rural areas. At the graduate level, we find the statistic is only seven per cent in rural areas as against 29.2 per cent in urban areas.

 

Table 2.5 Rural Population—Gender-wise Distribution

Source: Census of India, 2001.

 

Table 2.6 Education Levels of Chief Earners (per cent) (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Indicus Analytics provides data on the education levels of people above 20 years in rural areas. Table 2.7 shows that 37 per cent of rural persons above 20 years are illiterate. The number of people at higher education levels are low at 11 per cent. The happy news is that about 62.8 per cent of rural people are now literate.

Media habits and reach

The Media Guide, 2008 released by the Lintas Media Group, analyses the penetration and reach of each medium of communication. The population distribution shows that of the 1,028.7 million people in the country, 65.4 per cent are literate. Around 29.1 per cent live in urban areas and 70.9 per cent in rural areas. Males form 51.8 per cent of the total population and females, 48.2 per cent. Media analysts like Atul Phadnis proposed the idea of a two-in-one nation to signify the urban–rural divide. Table 2.8 supports the view.2

Television

Television continues to be the medium with the highest reach, but penetrates only 38 per cent of the huge rural population in the country. From six channels in 1991 to just under 300 TV stations by end of 2004, TV has come a long way. The last National Readership Study (NRS) (2003) puts TV ownership at only 86 million of the 202 million Indian homes, a meagre 42 per cent. In fact, TV ownership for urban India and rural India is 75 per cent and 30 per cent, respectively. Though there is an increase in the ownership numbers, an important concern is the kind of TV sets available in rural India. Of the 30 per cent that own TV sets in rural India, three-fourth have black-and-white sets, meaning that they probably receive less than 20 channels. India will have more than 500 channels in the next two years and may well become the largest television market in the world by 2015.

 

Table 2.7 Educational Distribution of Population Above 20 Years in Rural Areas (2004–05)

Education level Rural
Illiterate
37.2
Less than Primary
11.2
Primary
12.1
Upper primary/Middle
13.3
Secondary
9.1
Higher secondary
6.1
Graduate and above
11.0
Total
100.0

Source: Indicus Analytics, available at www.indicus.net.

 

Table 2.8 Media Habits in Urban and Rural Areas

Source: N. Bhaskara Rao and P.N. Vasanti, “Media Scene as India Globalises,” September 2005, available at www.cmsindia.org

 

Radio

Radio has overtaken the print media in rural India and has become the medium with the second largest reach. Radio channels reach 18 per cent of the rural population. The advent of community radios have opened up an easy-to-reach local channel. Box 2.1 describes one such community radio initiated by Development Alternatives.

Print

The penetration of the print media in the rural market is 15 per cent. Initiatives by social organizations to design and supply newspapers are generating new hopes of increasing rural readership. Box 2.2 describes how a group of women in UP, supported by a centre for gender and education, created infotainment for the villagers.

Cinema

Like in urban India, cinema has the lowest reach in rural India—it reaches a mere five per cent of the rural population.

Internet

According to a new report of the Internet and Mobile Association of India (IAMAI), rural India has 3.3 million active Internet users. The research report—part of the ongoing I-Cube, 2008 being jointly undertaken by IMRB International and IAMAI—also notes that there are 5.5 million people who claim to have used the Internet at some point. For the first time, rural India was mapped. The rural market holds tremendous potential for any media. However, for the Internet to flourish in rural India, the applications need to be in vernacular languages, preferably with “Text to Speech” capabilities. It would be better if visual symbols, graphics and rich media applications are used. The key question is whether we have the right infrastructure to support these applications.

Box 2.1 Bundelkhand Radio—Giving Voice to the Voiceless

The women in Azadpura village in Bundelkhand region are thankful to Radio Bundelkhand as it helped to solve the acute water scarcity problem of the village. The wheel of their only well was missing and their request to repair it was not given due attention by concerned authorities. They were able to get a respite when the problem was aired on the radio and the concerned authorities responded within four days.

Development Alternatives (DA) is the first among several NGOs to start community radio station in its project area under the Government of India scheme. The radio has service and entertainment purposes. It reaches about 15,000 people in 25 villages located in the range of approximately 5–10 kms. Its special focus groups are the poorest women and unemployed youth. The programmes provide information and encouragement to people to take part in local self governance. The programmes are designed based on the requests and feedback from the community. The field work is organized by five community reporters and six community coordinators.

In fact, the community and DA, jointly manage the station. The management committee comprises the Sarpanch (elected village-head) of the village, doctors, farmers and self-help group members.

The communities prefer infotainment programmes with a focus on livelihood opportunities, development of women, girl’s education, legal rights, farmer’s issues, training, their culture and history, infrastructure problems such as water, energy and roads, development issues, etc. Entertainment programmes include traditional songs, folk music and nataks, discussions, reports, phone-ins, reports of events in villages, jokes, etc.

Source: Indira Mansingh, “Building Change-makers Through Community Radio,” 19 August 2009, available at org.www.digitalopportunity.org.

Box 2.2 Khabar Lahariya—A Weekly Newspaper in Bundeli

A group of women from various sections of the society from the interiors of Chitrakoot and Banda in Uttar Pradesh were in the news for winning the prestigious Chameli Devi Jain Award for Outstanding Woman Media person. What was their outstanding contribution? Why did they attract the attention of leading national dailies including The New Indian Express, The Hindu, Hindustan Times, Tehelka and various other dailies and weeklies?

The recognition was given to them for running a weekly newspaper in Bundeli (the local dialect of Bundelkhand) that provided infotainment for the people in the nearby villages.

It was in the year 2008 that the Khabar Lahariya (KL) group registered themselves as an indepen dent organization, Pahal drawing inspiration and support from Nirantar, an acclaimed centre for gender and education.

The eight-page newsletter focuses on issues of importance to the masses, youth and women. Accordingly it has sections presenting current affairs, national and international news, cases of violence against women, problems of Dalits, school education, marriage, health care and more.

The teamwork of the women is impressive. They divide the research and writing works among themselves and work to contribute to the different items of the paper. They go all the way to the nearest city of Allahabad for printing. The women are tech-savvy too. The offices of KL have computers with broadband connections.

They also added another feather in their caps when three members of the group received fellow ships from the Dalit Foundation in 2004 for reporting on issues related to the rights of the Dalit community.

Source: Jheel Parekh, “Khabar Lahariya—A Weekly Newspaper in Bundeli,” August 2009, available at www.thebetterindia.com

State-wise reach of different media

State-wise reach is highest for television in Goa, with 83 per cent penetration; it is the lowest in Bihar, with 11 per cent penetration. Radio, like in urban India, has the maximum reach in Tamil Nadu (40 per cent) and the minimum reach in Andhra Pradesh (3 per cent). Print is most effective as a medium in Kerala with 62 per cent reach, and least effective in Madhya Pradesh, with only 4 per cent reach. Cinema follows the same trend in rural India as in urban India and has the highest reach of 20 per cent in Andhra Pradesh. The medium has the lowest reach in the states of Bihar, Gujarat, Haryana, Chattisgarh, Orissa, Uttar Pradesh and West Bengal—with one per cent penetration in each of these states.

Gender-based analysis of different media

Looking at the reach of the various media on the basis of gender division, TVs penetration in rural areas is 39 per cent for men and 35 per cent for women. Radio reaches 22 per cent males and 13 per cent females. Print reaches 20 per cent males and seven per cent females. Cinema reaches four per cent males and one per cent females.

What does this mean for advertisers?

According to the Lintas Media Guide 2008, radio is estimated to provide 1.5 million hours of content for 300 channels at present. The medium accounts for three per cent of the total advertisement expenditure this year, and is expected to grow to five per cent in 2008–09. The Out-Of-Home (OOH) industry is growing at a rate of 17 per cent per year and is expected to grow from Rs 10 billion at present to Rs 21.5 billion by 2010. The Internet also shows a lot of promise and has grown by 43 per cent in terms of advertising revenue.3

ECONOMIC ENVIRONMENT

The economic variables that impact the decisions of marketers are explained here.

Occupation

What are the major occupations and incomes of the rural and urban households? Who earns most and how? Table 2.9 shows that the self-employed in agriculture, followed by labour, comprises the largest group in rural areas, accounting for 41.3 per cent and 34.6 per cent of the population, respectively. In other words, they are the average rural households. On the contrary, in urban areas, regular salaries and wages constitute the largest part of income—being 45.2 per cent of the total. The next predominant occupation in urban areas is self-employment in non-agricultural areas. From this, it is evident that rural occupations are agriculture related unlike urban ones.

The data provided by Indicus Analytics throws light on different categories of workers in rural areas as shown in Table 2.10. Obviously, 70 per cent of the workers are in agriculture and allied activities. The percentage of white collar workers is very less.

Land holding

Levels of land possessed (land possessed = land owned + land rented-in and land rented-out) have as much of an impact on earning levels as occupation. Table 2.11 shows that nearly 40 per cent of rural households in India do not possess any land while 30 per cent own 0.1 to 2 acres of land. The table shows that the average size of households as well as the per capita income is positively related to land holding. The average size of households and per capita income of the landless is 4.68 persons and Rs 8,409. In case of large-size holders, the figures are 6.42 persons and Rs 19,666, respectively.

 

Table 2.9 Distribution of Households by Occupation (Percentages), 2004–05

Source Rural households Urban households
Regular salary/wages
10.5
36.9
Self-employment in non-agricultural fields
11.5
32.5
Labour
34.6
22.9
Self-employment in agriculture
41.3
3.1
Others
2.1
4.6

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.10 Distribution of Workers (2004–05)

Categories Percentage
Farmers, fishermen, hunters, loggers and related workers
70
Production and related workers, transport equipment operators
17
Sales workers
5
Professional and technical workers
3
Service workers
2
Administration, executive and managerial workers
2
Clerical and related workers
1

Source: Indicus Analytics, available at www.indicus.net.

 

Table 2.11 Land Holding Patterns, 2004–05

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Income profile

Income levels vary significantly across rural and urban areas, as well as across occupation groups. Table 2.12 provides information about incomes. As already pointed out, the number of earning members in urban households (1.43) is slightly higher than in rural households (1.34). The average household in India had an annual income of Rs 65,041 in 2004–05. The rural household earnings are lower than that of urban households at Rs 51,922 per annum compared to Rs 95,827 of urban households. The per capita income of rural households (Rs 10,227) is about half of the urban households, whose per capita income is Rs 19,935. The poverty ratio (21.7%) as well as the population below the poverty line (159 million) is much higher in rural areas when compared to urban areas. The poverty ratio in urban areas is 18.7% and the population below the poverty line is 55.2 million.

Table 2.13 shows the income pyramid of rural and urban people. At the bottom of the pyramid, in the income bracket of less than Rs 75,000 per annum, we find 428 million people in rural areas as against 49 million in urban areas. However, two interesting points emerge from the observation of the data:

 

Table 2.12 Estimates of Incomes (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.13 Income Distribution Across Population (Population in millions)

Annual income size (Rs) Urban Rural
>1, 000 k
11
4
500 to 1,000 k
18
10
300 k to 500 k
51
22
150 k to 300 k
119
111
75 k to 150 k
84
239
> 75 k
49
428

Source: Indicus Analytics, available at www.indicus.net.

  • People in rural areas are also spread across different income categories like their urban counterparts.
  • In all income categories, excepting the lowest two, the size of the rural population is less than the urban one.

The analysis of minimum household income in rural and urban areas helps us to understand the minimum earning potential in rural areas. The data in Table 2.14 confirms that the percentage of low-income groups is more in rural areas. Majority of households in rural areas are in the income range of below Rs 2,000 per month, whereas urban households are found mostly in different categories above Rs 2,000.

It is believed that education makes a big difference in earning levels. How far has it been proved true in rural and urban areas? Table 2.15 shows the average household earnings in relation to education level of chief earning members. The average income of households headed by illiterates is less, being Rs 36,028 per annum, compared to those who have higher educational levels. The average income of households headed by graduates is about 3 times that of the illiterate chief earning members. Another important observation is that the urban households have higher incomes in all categories. Th is indicates that besides education there should be opportunities to make it big. Rural people have limited opportunities.

 

Table 2.14 Minimum Household Income (MHI) (Percentages)

Levels of MHI (in Rs) Urban Rural
Upto 500
1.0
4.1
501 to 1,000
4.7
20.1
1,001 to 1,500
8.7
17.5
1,501 to 2,000
12.2
21.4
2,001 to 3,000
20.1
16.9
3,001 to 4000
12.7
8.2
4,001 to 5,000
12.0
5.0
5,001 to 6,000
7.6
2.4
6,001 to 8,000
8.8
2.2
8,001 to 10,000
5.7
0.4
10,001 to 12,000
1.8
0.3
Above 12,000 to 1,00,00
4.9
1.5

Source: IRS 2007 R2 Hansa Research, The Marketing Whitebook (New Delhi: Businessworld, 2009–2010).

 

Table 2.15 Education Levels of Chief Earning Members and Household Incomes (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

How confident are people in the urban and rural areas about the stability of their earnings? In most of the cases, it is the confidence level that determines the distribution of income among consumption, savings and investment. The confidence in the stability of household income is ascertained for this reason. Table 2.16 shows that confidence in stability of income is less in case of rural people. Only 50 per cent of rural people are confident as against 62.9 per cent of urbanites.

Consumption, savings and investment

Table 2.17 provides the consumption and savings statistics of rural, urban and overall India in detail. At the all India level, the annual household expenditure is Rs 48,902 leaving a surplus of Rs 16,139 to save and invest. Urban income levels are around 85 per cent more than rural ones (Rs 95,827 per annum in urban India versus Rs 51,922 per annum in rural areas). Since expenses in urban areas are substantially higher (Rs 69,065 per annum in urban areas versus Rs 40,309 per annum in rural ones), the difference in the surplus income (of urban and rural areas) that can be saved or invested is not all that huge in absolute terms.

The average urban household saves nearly double that of a rural household (Rs 26,762 per annum in urban areas versus Rs 11,613 for rural areas). What is the aggregate savings potential among different income groups? Table 2.18 shows the figures. The aggregate savings potential is larger in the income category of Rs 150 k to 300 k in both urban and rural areas. As already observed, lower income categories of the urban population save less than rural households.

Where does the surplus income go? Table 2.19 indicates that most of the savings in urban and rural areas are in the form of cash. The savings in cash are to the tune of Rs 65.2 per annum per household in rural areas. In rural areas, of the surplus income of Rs 11,613 about 34.8 per cent is invested, about 10.3 per cent of it in financial investments and 24.5 per cent in physical investments.

 

Table 2.16 Confidence in Stability of Household Income (% of Households)

Urban Rural
Confident
62.9
50.0
Less confident
15.3
20.9
Least confident
7.9
13.4
Can’t say
13.9
15.7

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.17 Estimate of Average Household Income Consumption and Surplus Income (Figures in Rs/Annum/Household) (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.18 Savings Across Different Income Groups (Rs in million)

Annual income size (Rs) Urban Rural
>1,000 k 1,132,813 445,622
500 to 1,000 k 832,453 526,741
300 k to 500 k 1,094,092 521,032
150 k to 300 k 1,534,758 1,194,467
75 k to 150 k 445,191 989,910
> 75 k 92,050 430,322

Source: Indicus Analytics, available at www.indicus.net.

 

Table 2.19 Estimate of Investment and Savings (Figures in Rs/Annum/Household) (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.20 Motivation to Save for the Future

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

The reasons for savings are similar in both urban and rural areas. Emergencies, education of children, old age and social ceremonies are among the top four reasons in both urban and rural areas. Table 2.20 provides the motives for savings of rural and urban people.

Consumption patterns

The spending patterns are not the same in rural and urban households as indicated in Table 2.21. Routine expenditure is 82.5 per cent of the total expenditure in rural areas as against 85.6 per cent in urban areas. Rural households spend an average of Rs 18,404 on food items in a year whereas urban households spend Rs 26,858. Also in case of non-food routine expenditure, it is lower for rural people being Rs 14,385 compared to Rs 32,272 of urban households.

Table 2.22 shows the distribution of routine expenditure. Food is the major item of expenditure in urban and rural areas. The expenditure on food is more in rural areas (55.4 per cent) compared to 45.4 per cent in urban areas. Another item on which money is spent is clothing. In case of clothing, rural expenditure is slightly higher (7.1 per cent) than the urban one (6.8 per cent). The opposite is true in respect of consumer durables. The expenditure on consumer durables is 4.9 per cent and 5 per cent in rural and urban areas, respectively. The rural expenditure is relatively on the lower side compared to the urban ones on all other items like housing (3.8 per cent), health care (4.7 per cent) transport (10 per cent) education (6.4 per cent), and others (7.7 per cent).

 

Table 2.21 Estimation of Routine and Non-routine Expenditure (Figures in Rs/Annum/Household), (2004–05) (Figures in Parentheses are Percentages)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.22 Distribution of Routine Expenditure (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

Table 2.23 Distribution of Non-routine Expenditure (2004–05)

Source: The MAX-NCAER India Financial Protection Survey, 2008.

 

When it comes to non-routine expenditure, as shown in Table 2.23, ceremonies and medicines make up the large chunk of it. The percentage spent on these two items is larger in rural areas being 55.4 per cent and 28.8 per cent, respectively, as against 44.9 per cent and 25.1 per cent in urban areas. The expenditure on education is more in urban areas (13 per cent) than in rural areas (4.7 per cent). In case of travel, the expenditure by rural people (2.8 per cent) is less than half of the expenditure by urbanites (5.6 per cent).

Rural credit and institutions

Public policy on rural credit in India has been focused on institutionalization as a means of providing cheaper credit to farmers. From the initial steps to provide Takkavi loans by the Government, co-operatives emerged as the first institutional arrangement to provide loans to farmers. Though the Co-operative Act came into effect in 1904, progress in terms of outreach by co-operatives was limited till the 1950s. This led to the nationalization of commercial banks in 1969 and again in 1980 to step up credit supply to rural people. Then came the Regional Rural Banks (RRBs) in the mid-1970s. Thus, the credit architecture consisted basically of co-operatives, commercial banks and regional rural banks. In terms of agency-wise share in rural credit, the progress of institutionalization was impressive.

Non-institutional sources remain significant

The share of private moneylenders had decreased substantially from 93 per cent in the early-1950s to 31 per cent by 1991. The share of institutional agencies in the borrowings of cultivator households increased from a mere 7.3 per cent in 1951 to 66.3 per cent in 1991. During the 1990s, the share of non-institutional agencies increased and reached 38.9 per cent in 2002. This may have been due to the increased role of dealers of various inputs in financing cultivators, diminished interest of commercial banks in rural finance after the financial sector reforms of 1991, deterioration of the health of the co-operative system, among others. Ironically, the states with higher degree of commercialization had higher share of non-institutional sources.4

Decline in the role of commercial banks

As a result of liberalization in branch licensing policy, rural branches dwindled in numbers after 1991, both in the absolute and relative senses. The proportion of rural branches declined from 57 per cent in 1990–91 to 44.5 per cent in 2005–06 (Table 2.24). On an average, the number of rural branches came down by 260 every year. As a result of the reduction in the number of branches and general relaxation in the emphasis on priority-sector lending, the involvement of commercial banks in rural credit declined.

The average population served by a bank branch is 15,000. If one includes rural co-operative banks, the average could be lower still—12,800. The numbers compare favourably with Indonesia and Mexico. The present target is to reach out to all 0.107 million unbanked villages, which have population over 2,000 by 2011.

 

Table 2.24 Decline of Rural Bank Branches (1991–2006)

Year Number of rural branches Percentage of total
1990 to 1991
35,134
56.9
1996 to 1997
32,909
50.5
2000 to 2001
32,640
48.3
2005 to 2006
30,750
44.5
Linear growth rate / year
(−) 260
(−) 0.77

Source: K.J.S. Satyasai and K.U. Viswanathan, “Persistence of Private Moneylenders in Rural Credit Markets,” National Bank News Review, Volume 19, No. 4 (2003): 15–22.

Regional Rural Banks (RRBs) play key role

From a modest beginning of just 6 RRBs with 17 branches covering 12 districts in 1975, the numbers grew to 196 RRBs with 14,446 branches in 518 districts across the country in 2004. However, given the multi-agency shareholding and entailed restrictions, several RRBs failed to sustain viable operations and others merged vertically or horizontally, resulting in the total number of RRBs stabilizing at 91 in 2007, with over 14,000 branches, spread across 585 of the 622 identified districts. With 80% of RRBs in rural India, it serves the larger cause of financial inclusion as well.

Co-operative banks support rural people

Co-operative banks in India are registered under the Co-operative Societies Act. They fall under two categories based on the type of credit.

  • Short-term co-operatives (District Central Co-operative Banks, State Co-operative Banks and Primary Agriculture Credit Co-operative Societies).
  • Long-term co-operatives (State Agriculture and Rural Development Banks, Primary Agriculture and Rural Development Banks, Primary Agricultural Credit Societies (PACSs).

The 29 state co-operative banks and 92,000 primary agricultural credit societies are playing a key role in credit delivery to rural people.

Rural credit flow

Table 2.25 gives the quantum of credit flow to agriculture between the years 2003–2004 and 2007–2008. Total ground-level credit flow increased to 25 per cent annually during this period to peak at Rs 22,939.9 million in 2006–2007. The credit flow from the co-operative system grew at 13 per cent per annum, the lowest among the agencies. As a result, the share of co-operatives in the total credit flow declined from about 31 per cent to a bit below 22 per cent during the same period.

Micro-finance

The Self-help Group (SHG)Bank linkage programme started as a pilot project in 1992 with 500 SHGs. As of 31 March 2008 about 5,009,794 SHGs are credit linked to banks as shown in Table 2.25. For the 2007–2008, the data has been presented under two models of micro-finance involving credit linkage with banks:

  1. SHG-bank linkage model: This model involves the SHGs financed directly by the banking agencies, i.e. commercial banks (public sector and private sector), RRBs and co-operative banks.
  2. MFI-bank linkage model: This model covers financing of Micro-Finance Institutions (MFIs) by banking agencies for lending to SHGs and others small borrowers covered under the micro-finance sector.

 

Table 2.25 Agency-wise Credit Flow to Agriculture (in billion Rs) (Figures Within Brackets are Shares in Percentages)

Source: K.J.S. Satyasai, “Rural Credit Delivery in India: Structural Constraints and Some Corrective Measures,” Agricultural Economics Research Review (2008): 387–394.

 

Table 2.26 Overall Progress Under Micro-finance (2006–08)

 

Credit is a critical factor in the development of the agriculture and rural sectors as it enables investment in capital formation and technological upgradation. Hence, strengthening of rural financial institutions that deliver credit to these sectors has been identified as a thrust area.

Role of NABARD

In order to reinforce credit functions and to make credit more productive, the National Bank for Agriculture and Rural Development (NABARD) was established in 1982 by an Act of Parliament. It has a nationwide network of 28 regional offices in the state capitals, a sub-office at Port Blair and 391 district development offices. NABARD prepares a Potential Linked Credit Plan (PLP) annually for each district of the country by assessing potential of the agriculture and rural sectors. Th is serves as a guide for banks and government agencies to prepare their own investment and credit plans in the district and the state.

It re-finances commercial, co-operative and regional rural banks for lending to on-farm and non-farm activities. Re-finance is provided by NABARD for both long-term investment credit as well as short-term production credit for crop loans and for working capital for non-farm activities.

NABARD has effectively brought in a number of innovations in the rural credit domains as given below:

  • Self-help groups and micro-finance
  • Farmers clubs
  • Rural Infrastructure Development Fund (RIDF)
  • Watershed Development
  • Tribal Development and WADI approach
  • Women and development
  • District Rural Industries Project (DRIP)
  • Rural Entrepreneurship Development Programme (REDP)
  • Rural marketing
  • Revival of the Short-term Rural Co-operative Structure (STCCS)
  • Co-financing

Rural lifestyle indicators

The urban lifestyle is marked by purchases of branded items that offer quality, convenience and comfort. Table 2.27 shows the FMCG consumption in 2008 in rural India. Tea, vanaspati and instant noodles in the food category, toothbrush, toothpowder, toilet soap, shampoo and hair oil in the personal care category, washing powder, blues and washing cakes in the wash category figured as the major items of consumption. They indicate the conservative, price conscious, economy-oriented lifestyle of the rural people.

In the process of development and changing lifestyles, it is evident that the rural market is opening up for durables.

Rural sales potential

What do the demographic and economic factors stated above mean to the rural marketer? The rural population is larger, households are more in number, people are less educated, and occupations are less reliable from the earning point of view, being risk prone due to reliance on farming activities. Incomes are less but attractive in certain categories. Both consumption and savings are balanced to maintain a conservative lifestyle. Purchases of branded and contemporary products in food, personal care, wash and health categories have become common. All this means that rural India is catching upto urban India. Table 2.28 confirms this view. Rural India is as much a potential market as urban India by providing a sizeable market worth Rs 13,170 billion as against the Rs 13,650 billion share of urban India.

 

Table 2.27 FMCG Consumption in Rural India, 2008

Category Item(%)
Food Vanaspati (42.9), Ghee/Desi ghee(19.2), Instant noodles (21), Jam (0.7), Branded soup (0.1) and Tea (88.6)
Personal Care Deodorant (0.6), Toothbrush (49.8), Toothpowder (38.8), Toilet soap (93.6), Shampoo (66.7), Hair oil (66.8), Edible oil as hair oil ( 26.1), and Hair dyes/Hair colour (1.4)
Durables Wrist watch (20.6), TV (36), Refrigerators (5), Washing machine (1) and Air conditioners (1)
Health Chawanprash (1.5), Digestive pills/tablets (16.7), Laxatives (1.6), Antacids (6.9), Cough syrups (2.9), and Health tonics (0.8)
Wash Blues (45.2), Fabric bleaches (0.9), Washing cake/bar (26.1) and Washing powder/liquid (87.8)

Source: The Marketing Whitebook (New Delhi: Businessworld, 2009), pp. 308–19.

 

Ajay Gupta, founder and CEO of www.ruralnaukri.com presents an optimistic view.5 “The purchasing power of rural India is more than half for fast moving consumer goods [USD 17 billion],” he says. “The durables and automobile sectors contribute USD 2.5 billion each, and agri-inputs (including tractors) about USD 1 billion. Some 42 million rural households [use] banking services against 27 million urban households. There are 41 million Kisan credit card holders [credit cards issued to farmers for purchase of agricultural goods] against some 22 million card users in urban markets. Be it automobile, telecom, insurance, retail, real estate or banking, the future drivers of growth are rural.”

However, there seems to be a lot of action across product categories. Even in small villages, people who have seen the urban lifestyle on television seem to want similar goods and services.

Table 2.28 shows the state-wise rural market size. Uttar Pradesh, Andhra Pradesh, Maharashtra and West Bengal are the largest markets among the states in the country.

 

Table 2.28 Size of Market

Area Amount (in billions) %
Rural
13,170
49
Urban
13,650
51
All India
26,820
100

Source: Indicus Analytics, available at www.indicus.net.

 

Table 2.29 State-wise Rural Market Size

Sl No. Market size (Rs in millions) States
1
12 to 15 lakh Uttar Pradesh, Andhra Pradesh, Maharashtra, and West Bengal
2
6 to 8 lakh Gujarat, Karnataka, Rajasthan, Tamil Nadu, Kerala
3
5 to 6 lakh Orissa, Bihar, Haryana, Madhya Pradesh
4
3 to 4 lakh Punjab, Jharkhand, Assam and Chattisgarh
5
1to 2 lakh Himachal Pradesh, Jammu & Kashmir and Uttaranchal
6
0.4 to 0.7 lakh Tripura, Delhi, Goa, Meghalaya, Nagaland and Manipur
7
Below 0.2 lakh Arunachal Pradesh, Sikkim, Pondicherry, Mizoram, Andaman and Nicobar Islands, Daman and Diu, Chandigarh, Dadra and Nagar Haveli and Lakshadweep

Source: Indicus Analytics, available at www.indicus.net

 

Rural retail

Rural retail is witnessing radical changes with marketers tapping every opportunity to reach rural consumers Though traditional kirana shop, co-operative stores, haats, weekly market days, fairs, melas, vans and home-to-home campaigns continue to be attractive, there is a trend to utilize information technology (e-choupal), existing infrastructure (petrol bunks) and people (Shakti groups).

TECHNOLOGICAL ENVIRONMENT AND INNOVATIONS

In this section, let us examine the key infrastructural facilities such as power, IT, telecom, post office and innovative facilitators.

Power and energy

India shines when rural areas shine. As per the recent statistics shown in Table 2.30, about 83.1 per cent of villages in India have electricity.

 

Table 2.30 Villages that Received Electricity by 2009

NA: Not Available.

Note: Andaman and Nicobar Islands stated that out of the 501 total inhabited villages, 81 villages are under encroached forest area and 72 villages were washed out during the tsunami of 2004.

Source: www.powermin.nic.in/, accessed April 2010.

 

The challenges for providing electricity to rural areas are in:

  1. Expanding access of electricity to villages without electricity.
  2. Increasing penetration rates in villages where electricity has been provided.
  3. Strengthening technical and operational performance of the distribution network in villages.
  4. Providing a sustainable model for rural electrification.

The Rural Electrification Corporation (REC), established as a public sector undertaking in July 1969 provided the impetus for the growth in rural electrification. It is the implementing agency of the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). It builds on Kutir Jyoti Programme launched between 1988 and 1989 and the Rural Electricity Technology Mission initiated in 2002. The Kutir Jyoti Scheme, started in 1989, connected nearly 6 million households in 15 years, or approximately 400,000 households per year. With the new Electricity Act of 2003 and the Prime Minister’s Rural Electricity Supply Technology (REST) Mission, the whole face of rural India can change in the coming years. A sustainable energy development programme envisages the following approaches.

  • Production of electricity from biomass and agricultural residues. Box 2.3 describes how this source of energy can lead to rural development.
  • Liquid fuel production from biomass that can be grown in arid regions and on wastelands and saline soils. Besides producing liquid fuels, this will also help in land reclamation.
  • Creation of synergy between corporate sector, national government labs and institutions and NGOs so that energy technologies can be developed and disseminated in rural areas.

India is following the world trend of increasingly relying on liquid fuels. Last year, 75 per cent of all liquid fuels consumed were imported. By 2010, this figure might jump to 85 to 90 per cent. Presently, ethanol production in the country is mostly molasses based. However, with the expanded use of ethanol, both for transportation and as cooking and lighting fuel, there is a need for its production to have a broader biomass base. Thus, the use of alternative feedstock like sweet sorghum, sugar beet, cassava, etc. can help in its increased production. Besides, these crops require less water than sugarcane and some of them can be grown on saline soils. It is estimated that ethanol production itself can bring in about Rs 400 to 500 billion worth of wealth to rural India.

Box 2.3 Land-based Renewable Energy

Biomass power plants can create wealth by producing electrical energy and by providing employment to people. This is the finding of a study done by the Nimbkar Agricultural Research Institute (NARI) in Maharashtra. The institute found that agricultural residue in Phaltan taluka in Western Maharashtra could produce about 10–15 MW of power from biomass. This was sufficient to meet the electricity demands for one taluka.

With an investment of Rs 3 billion, each taluka can produce wealth of Rs 2–2.5 billion per year. About 30,000 people can be given full-time employment. India has 3,340 talukas and this business model promises to generate employment for about 100 million people and wealth of about Rs 700 billion per year.

The implications of this strategy for rural development are staggering and can create a quantum jump in the quality of life for the rural population.

Source: Anil K. Rajvanshi, “With Rural India Shining, India Will Shine!” Project Monitor, 22 October 2009.

 

For the technology missions to succeed, it is necessary that very intensive R&D is carried out in agriculture, materials and renewable energy technologies. The Government of India should substantially increase the level of R&D funding in renewable energy and agricultural crops for liquid fuel production. It is necessary that a strong synergy is developed between the corporate sector, the Central Government R&D establishments and non- governmental organizations for the fruits of extensive R&D to reach the rural areas. Both the corporate sector and national labs can work together to research, produce and commercialize renewable energy technologies that can be disseminated through NGOs in rural areas. Finally, the development of rural India should be taluka-based, for it provides the critical mass for rural development.

Digital revolution

Bridging the digital divide through technology has been the focus of many initiatives worldwide. Some of these are:

  • Farm Net (for agricultural workers in Uganda)
  • Rural Multipurpose Community Telecentres (libraries and online centres in Benin, Mali, Mozambique, Tanzania and Uganda)
  • Mahila Web (for information sharing about women and gender in Nepal)
  • Pakissan (for farmers in Pakistan)
  • Grameen Phone (in Bangladesh)

Malaysia has come up with a number of “demonstration applications” such as Project Cybercare for providing Internet access and educational resources among 26 networked orphanages. A telecentre called e-Bario has also been set up for the Kelabit ethnic community in rural Sarawak.

The initiatives for taking the digital revolution to rural India have assumed urgency because there is a gradual realization that as the world switches to a highly interconnected information-intensive economy, communities left out of the network will suffer economic decline. The Government as such is supporting the development projects of administrative bodies and voluntary organizations. Box 2.4 describes two government projects. Some of the IT projects are listed here.

  • Tarahaat (for e-marketing in rural areas)
  • AkashGanga (for dairy cooperatives in Gujarat)
  • Warna Wired Village Project (for sugarcane farmers in Maharashtra)
  • HoneyBee Network (documenting grassroots innovations for knowledge on sustainable natural resource management)
  • Gyandoot (community centre network in rural Madhya Pradesh)
  • Bhoomi (for land records in Karnataka)
  • “E-governance grid” (services to citizens in Kerala)
  • Information Village Project (MS Swaminathan Research Foundation has set up a project in Pondicherry)

The National Informatics Centre is proposing a “Rural Studio” initiative for developing reusable soft ware components and services for the rural development sector. The Indian Volunteers.org network provides volunteers interested in such initiatives.

There are several projects centred on education. These include Head Start (Madhya Pradesh), AP Schools (Andhra Pradesh), Vidya Vahini (an initiative of the Indian Government) and community learning centres (Azim Premji Foundation). Box 2.5 describes these initiatives.

Box 2.4 Citizen Service Projects

Samadhan Kendra

Village information centres (Samadhan Kendras) were introduced by the Ministry of Information Technology. A pilot project was set up in Ramanathapuram district of Tamil Nadu by a Pondicherry-based NGO—the Centre for Ecology and Rural Development (CERD). Two Samadhan Kendras to cater to around 60 villages were set up with computer facilities in Bogallur and Mudukalattur blocks of the district.

Block-level activists are trained in software for the successful functioning of the project. A True Type Font (TTF) called Bamini is being used for data entry. Data of villages were collected by a network of people and forms were designed involving local people.

A Decision Support System (DSS) has been put in place for facilitating analysis and decision making. Internet facility also has been provided.

E-seva

The credit for starting the first-of-its-kind integrated single-window citizen services system in the country goes to the Government of Andhra Pradesh. It provides a wide spectrum of citizenfriendly services of various departments in one place.

It is a one-stop-shop for G2C and B2C services without any jurisdiction limits. Services offered include the following:

  • Utility bills/Tax payments (e-electricity bills, water and sewerage bills, telephone bills and property taxes), transfer of ownership of non-transport vehicles and reservation of APSRTC tickets.
  • Certificates (registration of birth, issue of birth certificates, registration of death, issue of death certificates and encumbrance certificates.
  • Permits/Licenses (trade licenses (MCH), issue of learners licenses, issue/renewal of driving licenses (non-transport vehicles only) and registration certificates of new vehicles (nontransport vehicles only).

Postal services

India has the largest postal network in the world with 155,618 post offices at the end of 2003 including 139,081 post offices in rural areas. At the time of independence, India had 23,344 post offices that were largely confined to urban areas and selected villages. During the last 50 years it has grown by almost seven times. As of 2008, post offices outnumbered bank branches in rural areas by a factor of four. In 2008, the scheduled commercial bank network in the rural sector was 30,977 branches strong. The number of rural post offices stood at 130,847.6

In the case of India Post, the retailing is limited to the sale of postal products like post cards, letter cards and small saving services like recurring deposits, savings bank deposits, monthly income schemes, etc. Moreover, the platform was predominantly manual. Because of the changing business scenario, the postal business, especially in the rural areas, has been shrinking over a period of time.

Box 2.5 Educational Projects

“We believe that technologically-enabled, modern classrooms have enormous potential to contribute to quality in all government schools, especially in rural India,” said Azim Premji, chairman of Wipro and founder of the Azim Premji Foundation

Driven by the zeal to improve learning opportunities, the Azim Premji Foundation collaborated with Qualcomm and took up a project to provide wireless broadband access to rural and Government-run schools in India. There are 1.3 million Government-run schools in India.

To begin with, about 40 Government-run schools in underserved communities across four states—Gujarat, Karnataka, Orissa and Rajasthan—were selected.

Source: “Indian Rural Schools Get Broadband Connected,” EE Times, 11 September 2009, available at www.eetindia.co.in/ART_8800583890_1800005_NT_804a9ddd.HTM.

 

Increasing penetration of mobile phones have adversely affected the personal mail service while relatively less attractive interest rates have affected the volumes of small scale saving schemes, NSCs, etc. In these circumstances, it is a compulsion for India Post to seek new avenues of business for the rural postal network. Rural retailing of products through vast networks is one of the strategies that will not only improve the viability of this network but also create a situation of profitability for India Post that will match the profitability of the Indian Railways today.

Project arrow

The Department of Posts in India has launched “Project Arrow,” whereby it has adopted a new logo and new infrastructure to widen and innovate operations. Under the project, the Department of Posts has identified 50 post offices in Andhra Pradesh, Jharkhand, Maharashtra, the NorTheast, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and Uttarakhand covering 10 Postal Circles. By the end of the current year, 500 such post offices will be operational in the country.

The post offices are being given a thorough make-over both in terms of physical look and feel and upgrading service delivery through IT enabled procedures. Some new initiatives include e-payment, instant money transfers, daknet, online banking and a new look for rural post offices.7 The post offices will also form an indispensable part of all social and civic initiatives such as the National Rural Employment Guarantee Act (NREGA) and the National Old Age Pension Scheme. Project Arrow is being seen as a significant step towards the realization of India Post’s motto—Dak Seva–Jan Seva.

Telephones and rural connectivity

Promotion of rural telephone and accessibility of telephones in remote areas has been an important thrust area of the Government. Out of the more than 2.271 million Public Call Offices (PCOs) functioning in the country, 0.2 million are in rural areas. Box 2.5 discusses a project undertaken by the Azim Premji foundation to provide broadband access to government schools. The Mobile Grameen Sanchar Sewak Scheme, which provides telephones at the doorstep of villagers in about 12,000 villages, has also been put in place. More than 0.564 million villages have been covered by Village Public Telephones (VPTs) to provide universal access to telecom facilities in the rural areas. Under Bharat Nirman, a target of providing Village Public Telephones (VPTs) in 66,822 uncovered villages was visualized. Out of this, 52,342 VPTs have been provided till December 2007 and the remaining VPTs were scheduled to be provided by June 2008 in a phased manner. A scheme of Rural Community Phones (RCPs) has been launched under the Universal Service Obligation Fund (USOF) to create infrastructure in rural and remote areas. Box 2.6 shows how BSNL is partnering with HCL to promote rural connectivity.

It is envisaged to provide support for setting up and managing 7,871 infrastructure sites spread over 500 districts in 27 states of the country for the provision of wireless phone services. The infrastructure so created will be used in the provision of wireless phone services in the specified rural and remote areas where there is no existing fixed wireless or mobile coverage. Wireless phone services through these shared towers were targeted to be made operational in a phased manner by May 2008.

By implementing the above efforts, the Eleventh Plan target of achieving rural tele-density of 25% by means of 200 million rural connections, seems feasible. Rural penetration has gone up from a mere 0.29% in 1995–96 to 9.43% in 2007–08 as shown in Table 2.31.

Mobiles have become a necessity in rural India today. According to the latest report of the Telecom Regulatory Authority of India (TRAI), 48 million rural consumers took a new mobile connection in the first six months of the calendar year 2009 when compared with just 32 million in the cities. There are now a total of 136 million mobile users residing in villages against the 329 million mobile consumers in the urban areas. It is predicted that the next 500 million mobile subscribers will come mostly from the hinterland.8

 

Table 2.31 Tele-density (Number of Telephones per 100 Population) (in %)

Source: Department of Telecommunications, Annual Report, 2007–08.

 

Box 2.6 BSNL and HCL Partner for Broadband Connectivity in Rural India

National Broadband Penetration Program (NBPP) is an initiative of the Government of India and USOF that aims at accelerating IT proliferation in rural India for inclusive growth. Korea, Singapore and Sweden attribute their inclusive economic growth to this model. In India, BSNL and HCL Infosystems have partnered together to power a million personal computers and broadband connections in India through its existing 27,789 rural and remote telephone exchanges of BSNL.

USOF will be providing a subsidy of Rs 4,500 per broadband connection. The programme is strengthened by the support provided by the “HCL Touch” network. The network has 14 remote support centres, 505 service offices, 390 warehouses and 150 repair centres. It reaches out to over 4,000 towns and delivers services in 11 regional languages.

Source: “BSNL, HCL to Bring Broadband Connectivity to Rural India,” 22 September 2009, available at www.ectindia.co.in.

 

With the rural mobile market growing, there is a huge market for mobile Value Added Services (VAS). A few of the service providers have already taken the initiative for rural VAS.

  • Thomson Reuters has been updating over 0.1 million farmers in the country with the latest market trends, weather forecast, and crop information via its SMS-based service.
  • Tata Indicom launched a project in a district in Gujarat that allows farmers to operate their irrigation pumps from remote locations without them having to travel to the farm.
  • Nokia on the other hand, launched their Life Tools Services, to offer agricultural information, educational information and more to people in both rural and urban areas.

The Government has decided to extend broadband connectivity in all villages in India by 2012. So far, the usage of VAS in rural areas is just 1% despite the huge network roll-out in rural areas and the intense low-tariff war among operators. Significant growth in the number of users in a rural market could facilitate players to plan services that can help both parties. Bharti Airtel, Reliance Communications, Vodafone and Idea Cellular have plans to increase their average revenue per user.9

Promotion of appropriate technologies

There is a need for creating appropriate technologies for rural people. Measures are being initiated by the Government and voluntary organizations to encourage creative thinking for problem solving and generating innovations.

Council for Advancement of People’s Action and Rural Technology (CAPART )

The Council for Advancement of People’s Action and Rural Technology (CAPART) was set up in September 1986 by the amalgamation of the People’s Action for Development India (PADI) and Council for Advancement of Rural Technology (CART). It is a society registered under the Societies’ Registration Act, 1980 and operates as an autonomous body under the aegis of the Ministry of Rural Development, Government of India, with headquarters in New Delhi. Today, this agency is a major promoter of rural development in India, assisting over 12,000 voluntary organizations across the country in implementing a wide range of sustainable development initiatives.

Rural Innovation Fund

In association with the Swiss Agency for Development and Cooperation (SDC), NABARD has constituted the “NABARD SDC Rural Innovation Fund (RIF)” to support innovative projects in farm, non-farm and micro-finance sectors leading to the creation of livelihood opportunities for the poor. Government and non-government institutions, corporate bodies, financial institutions and individuals can avail funding support for activities involved in development of new products, processes, prototypes, technology, etc. that have the poor as their focus.

Voluntary organizations

In the rural hinterland many voluntary organizations are engaged in native innovations to find appropriate solutions to nagging problems. For example, the Appropriate Rural Technology Institute (ARTI) in Pune has developed a biogas plant that uses food waste rather than manure as feedstock and supplies biogas for cooking. The plant is sufficiently compact even to be used by urban households, and over 700 are currently in use.

POLITICAL ENVIRONMENT AND DEVELOPMENT INITIATIVES

Since the dawn of independence, concerted efforts have been made to improve the living standard of the rural masses. So, rural development as an integrated concept of growth and poverty elimination has been of paramount concern in all the consequent five year plans. The Government of India has set up the following departments to undertake rural development activities:

  • Department of Drinking Water Supply (DDWS)
  • Department of Land Resources (DLR)
  • Department of Rural Development (DRD)

    In addition to the departments, the following autonomous bodies have also been established.

  • Council for Advancement of People’s Action and Rural Technology (CAPART)
  • National Institute of Rural Development (NIRD)

    Rural Development (RD) programmes comprise the following:

  • Provision of basic infrastructure facilities in rural areas, for example, schools, health facilities, roads, drinking water, electrification, etc.
  • Improving agricultural productivity in the rural areas.
  • Provision of social services like health and education for socio-economic development.
  • Implementing schemes for the promotion of rural industry to increase agriculture productivity, providing rural employment, etc.
  • Assistance to individual families and their Self-Help Groups (SHG) who are living below the poverty line by providing productive resources through credit and subsidy.

The increase in the allocation of resources for the implementation of poverty alleviation programmes indicates the renewed emphasis on rural development. The allocation of funds for rural development programmes in the Tenth Five Year Plan has been enhanced to Rs 767.74 billion as against the Rs 428.74 billion allocated in the Ninth Plan.

Addressing the challenge of unemployment in the rural areas of the country is central to the development of the rural sector for ameliorating the economic condition of the people. Wage employment is provided in rural areas under the National Rural Employment Guarantee Act (NREGA).

Role of DDWS

Providing water supply, sanitation and hygiene education in schools and anganwadis are the important concerns of the Government of India. The Department of Drinking Water Supply (DDWS) is implementing programmes involving many cross-cutting issues such as water supply and sanitation, heath and family welfare, Panchayati Raj and rural development, public health engineering, women and child development, education, tribal welfare, social justice, etc.

School and anganwadi sanitation programmes have been initiated and DDWS has taken several initiatives to ensure a strong coordination. It has also initiated Secretary and Joint Secretary level meetings with the concerned departments to ensure priority of this programme and its overall implementation. A Central Coordination Panel has been constituted under the Chairmanship of the Secretary, DDWS.

To ensure inter-sectoral coordination at all the levels—from the centre, state, district, block and village to school level—the department has taken several initiatives to ensure a strong coordination between the concerned departments.

  • Coordination with the Ministry of Water Resources
  • Coordination with the Department of Elementary Education and Literacy, MoHRD, Government of India
  • Coordination with the Department of Women and Child Development, MoHFW, Government of India
  • Coordination with the Ministry of Tribal Affairs

Role of the Department of Land Resources

Starting as the National Wasteland Development Board in 1985 in the Ministry of Environment and Forests, a separate Department of Wasteland Development was created in the Ministry of Rural Development in 1992 and renamed the Department of Land Resources in 1999. A separate Secretary was posted in the Department for the first time in January 2008. The major programmes of the department are:

  • Integrated Watershed Management Programme (IWMP)
  • National Land Records Modernization Programme (NLRMP)
  • Bio-diesel programme
  • Agrarian reforms
  • Technology Development Extension and Training

Role of the Department of Rural Development

The department is implementing a number of programmes in rural areas through the state governments for poverty reduction, employment generation, rural infrastructure habitat development, provision of basic minimum services, etc. The important programmes presently being implemented by the department are:

  1. Pradhan Mantri Gram Sadak Yojana (PMGSY)
  2. Swarnjayanti Gram Swarozgar Yojana (SGSY)
  3. Sampoorna Gramin Rozgar Yojana (SGRY)
  4. Rural Housing (Indira Awaas Yojana)
  5. Training Schemes
  6. Promotion of Voluntary Schemes and Social Action Programme, organization of beneficiaries, advancement and dissemination of rural technology through CAPART.

Pradhan Mantri Gram Sadak Yojana (PMGSY)

The Government of India launched the Pradhan Mantri Gram Sadak Yojana (PMGSY) on 25 December 2000 to provide all-weather access to unconnected habitations. The programme sought to provide connectivity to all unconnected habitations in rural areas with a population of more than 500 persons through good all-weather roads by the end of the Tenth Plan Period. In respect to the hill states (the North-East, Sikkim, Himachal Pradesh, Jammu and Kashmir and Uttaranchal) and the desert areas, the objective was to connect habitations with a population of 250 persons and above.

Swarnjayanti Gram Swarozgar Yojana (SGSY)

This is the only self-employment programme for the rural poor. The Yojana, which came in to effect from April 1999, was conceived as a holistic programme covering all aspects of self-employment like organization of the rural poor into self help groups (SHGs) and their capacity building, training, planning of activity clusters, infrastructure development, financial assistance through bank credit and subsidy and marketing support, etc.

Sampoorna Gramin Rozgar Yojana (SGRY) scheme

The scheme was launched with effect from 25 September 2001 after merging the Employment Assurance Scheme and the Jawahar Gram Smridhi Yojana. This is being implemented as a centrally sponsored scheme on cost sharing basis between the Centre and the States. The cash component of the programme is shared between the Centre and State in the ratio of 75:25. Food grains are provided free of cost to the States/Union Territories. The cost of transportation of the food grains is borne by the concerned States/UTs. The special component of SGRY aims at augmenting food security through additional wage employment in calamity affected rural areas after due notification by the State governments and its acceptance by the Ministry of Agriculture.

Indira Awaas Yojana (IAY)

Construction of houses was included as one of the major activities under the National Rural Employment Programme that began in 1980. Rural Landless Employment Guarantee Programme (RLEGP) began in 1983. Indira Awaas Yojana (IAY) was launched during 1985–1986 as a sub-scheme of RLEGP and thereafter it continued as a sub-scheme of Jawahar Rozgar Yojana (JRY). From 1 January 1986, IAY was delinked from JRY and made an independent scheme. In 1998, the Government of India announced a National Housing and Habitat policy that aims at providing “housing for all” and facilitating the construction of 2 million additional housing units (1.3 million in rural areas and 0.7 million in urban areas), with emphasis on standing benefits to the poor and the deprived. The intention is to end shelterlessness and ensure the conversion of all unserviceable kuchcha houses into pucca houses by the end of the Eleventh Plan Period. The Action Plan is being implemented through various programmes such as Indira Awaas Yojana (IAY), Credit cum Subsidy Scheme for Rural Housing, Innovative Scheme for Rural Housing and Habitat Development, through rural building centres, equity contribution by the Ministry of Rural Development to HUDCO and the National Mission for Rural Housing and Habitat.

Administration and monitoring

The overall monitoring of the programmes at the national level is carried out by the monitoring division of the ministry. The programme divisions monitor the respective programmes implemented by them. The programmes of the ministry are implemented by the state implementing agencies. At the State level, the Secretary/Commissioner dealing with the programme monitors its implementation. The actual execution of the programmes take place at the district/village level through DRDAs, Panchayati Raj Institutions (PRIs) and other implementing agencies, which monitor the execution of the programmes at the grassroots level.

The Panchayati Raj Institutions are considered to be an important tool for the implementation of the programmes of the ministry. They make sure that the programme implementation reflects the needs and aspirations of the local people. As a step toward decentralization of the planning process and implementation of the programmes, strengthening of the Panchayati Raj Institutions has been envisaged through the Constitutional (73rd) Amendment Act, 1992. Constitutional Status has been provided to the Panchayati Raj Institutions (PRIs) with the passing of this Act. Therefore, in most of the rural development programmes, a crucial role has been assigned to PRIs for programme implementation. Sustained efforts are being made to strengthen local governance, institutionalize people’s participation and empower women through PRIs.

Autonomous bodies

There are three autonomous bodies under the department of rural development—the Council of Advancement of People’s Action and Rural Technology (CAPART), the National Institute of Rural Development (NIRD) and the National Rural Road Development Agency (NRRDA).

  • The Council of Advancement of People’s Action and Rural Technology (CAPART) has been set up to encourage participation of voluntary agencies in rural development and also to provide financial assistance to them in their rural development projects. CAPART directly deals with voluntary agencies and their projects.
  • The National Institute of Rural Development (NIRD) is engaged in planning and coordination of national level training. For state and district level training, assistance is given to State Institutes of Rural Development (SIRD) and Extension Training Centres (ETC), respectively.
  • The National Rural Road Development Agency (NRRDA) registered under the Societies Registration Act, 1860 extends support to the Pradhan Mantri Gram Sadak Yojana (PMGSY). It provides advice on technical specifications, project appraisal, appointment of part-time quality control monitors, management of monitoring systems. It also submits periodic reports to the ministry.
IMPLICATIONS ON RURAL MARKETERS

The growing rural economy presents a wide range of opportunities to consumer and industrial marketers. Table 2.32 presents the opportunities and limitations that these marketers face.

In this kind of scenario, what kind of marketing opportunities are there and for whom? The TV industry can look to sell colour TVs; financial institutions can think of new savings scheme; agri-input sellers can try innovations in farming practices and input products. The following specific examples will drive the point home.

  • Low-incomes, small savings and low literacy levels in villages prompted the State Bank of India (SBI) to start a zero-balance bank account programme for villagers. Called the SBI Tiny account, there are no physical branches or officials for this, just a paid volunteer who is equipped with a small box and a cell phone. The box enables biometric measurements (fingerprints) at the time of opening the account to confirm the account holder’s identity. The cell phone enables communication with the zonal office to check on the available balance. Payments under programmes such as the NREGA and pensions are made directly to these accounts. The advantage for the villagers in this system is that they can withdraw money from their accounts at any time of the day or night. SBI hopes to cover 100,000 villages under this scheme by 2012.
  • “GoldPlus” is an interesting example of a brand addressing the non-metro jewellery culture by giving an ethnic touch to the designs and retailing of ornaments. In rural areas, gold jewellery is not used for ornamentation alone; it is also regarded as a safety net for emergency situations. Keeping this in mind, the Tatas have introduced their mass-market jewellery brand—GoldPlus. The Tatas train unemployed youth and send them to the villages as brand ambassadors.

 

Table 2.32 Marketing Environment and Challenges

Summary

Rural marketing requires an understanding of the environment in which companies have to operate to deliver products and services. Various environmental factors impact marketing decisions related to demand estimation, segmentation and targeting, and also the design of the marketing mix of the 4 P’s.

When we examine the social environment, we find 732 million people living in 144.5 million households, most with 5–6 members, with 1.43 earning members per household, in rural areas. More than half the population (493 million) is in low-income states with per capita income below Rs 10,000 per annum. Males form 51.8 per cent of the total population and females, 48.2 per cent. However, in south India, males and females are almost equal in number. In fact, the female population is larger in Kerala. The percentage of illiterate heads of households is about 37.2. Among the 62.8 per cent educated population, only 7 per cent are graduates. Media-reach analysis indicates that television has a low reach at 38 per cent. The radio has a reach of 18 per cent, print of 15 per cent and cinema of 5 per cent. There are 3.3 million active Internet users.

Self-employed in agriculture (41.3 per cent) and labour (34.6 per cent) constitute the majority of earners in rural areas. About 70 per cent of workers are farmers, fishermen, hunters, loggers and related workers. About 40 per cent of households are landless with family size of 4.68 persons and per capita income of Rs 8,000. At the bottom of the pyramid, in the income bracket of less than Rs 75,000 per annum, we find 428 million people. Educated rural people have larger incomes but their urban counterparts are much better off indicating that opportunities play a bigger role in this regard. Rural people spend 75 per cent of their income and save the remaining. Savings are larger among those whose annual earrings are in the range of 75 k to 150 k. Rural expenditure on food is 55.4 per cent and the remaining is distributed among various items like housing, transport, etc. In non-routine expenditure, the lion’s share goes to ceremonies. Rural credit is institutionalized but non-institutional sources showed an increase in popularity aft er the economic reforms. In providing credit, co-operatives played a big role. NABARD has a significant role in financing rural projects. Lifestyle analysis shows that a large segment of rural people exhibit the conservative, price conscious, economy-oriented lifestyle of mid- and low-income segments of urban people. Rural sales show potential to the tune of Rs 13,170 billion. Rural retail is now characterized by e-models and PPP approaches.

When technological progress is examined, we find about 81 per cent of villages have electricity. Rural Electrification Corporation (REC), Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), Kutir Jyoti Programme, Electricity Act 2003 and Rural Electricity Supply Technology (REST) Mission have changed the power scenario in the rural hinterlands. The use of land-based renewable energy and liquid fuels are gaining popularity. The ICT revolution is benefiting rural people as the Government is keen on citizen-services projects. NGOs are also supporting the projects by their involvement and enterprise. There are about 139,081 post offices in rural areas. Project Arrow was launched to modernize post offices and make them capable of handling multiple products and services. The Eleventh Plan target of achieving rural teledensity of 25% by means of 200 million rural connections seems feasible. Rural penetration has gone up from a mere 0.29 in per cent in1995–1996 to 9.43 per cent in 2007– 2008. With the rural mobile market growing, there is a huge market for mobile Value Added Services (VAS). A few service providers have already taken the initiative for rural VAS. Rural people are encouraged by government and voluntary organizations to come up with solutions that are cost effective in resolving problems. The Government of India has taken various steps for rural development. Various administrative bodies such as the Department of Drinking Water Supply (DDWS), Department of Land Resources (DLR) and Department of Rural Development (DRD) have been created. NABARD has been set up to ensure credit flows and give support to rural development projects. Multiple schemes are devised and implemented to bring about over all development in rural areas.

Discussion Questions

  1. “Rural India is a less developed countryside where the infrastructure is primitive, houses are of mud or brick but rarely painted well, the primary source of livelihood is agriculture, employment opportunities in the organized sector are negligible, eating choices are restricted to home-cooked, simple food, schools are far away, health facilities are rudimentary and—importantly—the youth, while energetic and ambitious, are to be seen playing cards the whole day,” says Ajit Gupta of www.ruralnaukri.com. Do you agree?
  2. “While mobile phones are widely seen merely as a communications medium, they should really be seen as a new and essential form of infrastructure that will transform a host of other service sectors in rural economies around the world,” Discuss.

Short Answer Questions

  1. Discuss the impact of environmental variables on the selection of markets by a firm.
  2. Briefly describe the changes in the economic scenario of rural areas.
  3. Examine the improvements in rural lifestyle and media habits.
  4. Elucidate the role of technology in the development of rural areas.
  5. Explain how the urban–rural divide is challenged by ICT projects in rural areas.
  6. What do you understand by appropriate technology for rural people? Give examples.
  7. What is micro-financing? How does it help improve the lot of women in rural areas?
  8. Generate a list of rural development schemes and identify their key achievements.

Essay Questions

  1. Explain the relationship between environment and marketing decision-making. Identify the major trends in environmental factors.
  2. Explain the social factors and examine their implications on promotion decisions of (a) TV companies (b) Postal services and (c) Mobile phones.
  3. Discuss the changes in the economic scenario of rural areas. Is the market attractive for food and non-food items?
  4. Explain the developments in communication facilities in rural areas with focus on (i) Telephones (ii) Post offices and (iii) Internet services.
  5. Explain the rural development initiatives of the Government in brief.
  6. Discuss the role of NABARD in promoting rural development with special reference to minorities and women.

Internet Exercise

Surf the Internet and collect data relating to a of company of your choice and examine the impact environmental variables on its rural marketing decisions.

Mini Project

Prepare a marketing environment audit questionnaire to identify environmental forces impinging on firms selling (i) consumer durables (ii) convenience products and (iii) industrial products. Prepare a report and present it in the classroom.

Case 2.1 Dakseva, Janaseva

Winds of change are sweeping the countryside. India Post is an organization that symbolizes the mod ernization trend in the field of services. It has been given a new name and a new look. In line with the new retailing developments, it is emerging as the one stop solution for consumer needs. You could soon walk into a rural post office and initiate the process for buying a variety of products and services ranging from a car to ayurvedic products with as much ease as availing information services and insurance policies.

Project Arrow

Project Arrow was launched to modernize post offices. According to the Ministry of Communications and Information Technology, the major features of the project include identity branding (a new logo and a new slogan), designing of exteriors and interiors of offices, upgradation of computer hardware and software, improvements in the delivery of services and spread in connectivity. These new age post offices would serve as a window to the world for the common man—“Aam Aadmi”—by focusing on their diverse needs.

New Logo

The new logo, unveiled in September 2008, aims to give the postal service a corporate look and reflects its new approach towards business—an approach that shall aim to leverage technology to connect the nation better. The new logo depicts a bird in flight, done in bold colors like red and yellow. Launching the new logo, the Minister of Communications and Information Technology, A. Raja said, “The bold strokes convey free flight. The choice of colours is red and yellow. Red has been chosen for its traditional association with the postal service. It embodies passion, power and commitment.”

New Organization

The (postal) department is committed to transform itself into a viable and sustainable social organization. As part of the process, it is also modernizing its offices. About Rs 2.5 billion has been allotted to modernize 5,000 post offices in the country in the third phase of the process.

The New Age Post Man

The role of the post man has also changed quite a lot. Traditionally, he was considered a part of the rural family. He cannot assume such familiarity now. What he now delivers is very different from what he usually delivered in the past. Communication today is oral, via e-mail or SMS or through telephones. Written communication instruments such as the post card and cover are outdated. The postman delivers official statements and bills of banks, insurance papers and telephone bills or printed promotion materials of products.

Spread

The Department of Post (DoP) has 0.15 million points of presence and about 25,000 direct departmental offices across the country. “While post offices are present in the most backward areas of the country, many other organizations, including banks, have coverage only in urban and semi-urban localities,” said M.S. Ramanujan, postmaster general, Chennai city region. Thus, the post office continues to be an organization that has rural presence and the post master is a valued opinion leader.

Tie-ups in Progress

The DoP announced its tie up with telecom player Sistema Shyam Tele Services (the MTS brand) to offer recharge facilities at 50 post offices in Chennai. The partnership will expand to cover the whole of Tamil Nadu. The postal department in Chennai is in talks with companies, including Maruti Suzuki, to help them sell cars in rural areas. Maruti Suzuki has evinced interest to expand its reach to rural areas. Post offices will act as points of sale to sell and collect application forms that will then be submitted to the nearest Maruti dealer. Maruti is planning to sell its low-end as well as mid-size cars through the plan. With this objective of utilizing the rural network, Uttarakhand Post has entered into an agreement with Divya Pharmacy at Haridwar for retailing its health products through a network of 2,716 post offices (about 2,500 of them are rural). The agreement came into effect in July 2007 and by now has done business of Rs 2,259,039 in 2007–2008 and Rs 13,523,293 in 2008–2009, earning a net commission of Rs 462,388 in 2007–2008 and Rs 2,713,158 in 2008–2009 (till December 2008) for the circle.

The department has initiated steps to participate in the Unique ID Project. The DoP will act as a registrar of information dealing with citizens’ details. It will be an enrolling body along with other departments, including petroleum, income tax and civil supplies. It will be the only organization in the country to collect and maintain an address database as part of the project.

For discussion

  1. Critically evaluate the plans of the Department of Posts (DoP) in modernizing and diversification. Is the DoP trying to gulp down more than what it can chew? Has it subverted its service goal to commercial goals?

  2. Suggest suitable business ideas for rural post offices.

Source: Shyamala Seetharamanan, “Rural Post Offices May Sell Cars, Join MTS,” 15 October 2009, available at www.mydigitalfc.com; “New Look for Rural Post Offices in India,” 18 August 2009, available at in.www.igovernment.in.

Case 2.2 Rural Outsourcing—The Case of ROPE

ROPE is a social enterprise that provides global customers with access to rural artisans who manufacture diverse products. Mr Sreejith, CEO of Rural Opportunities Production Enterprises (ROPE), says the mission of the organization is “to integrate domestic and international markets with the informal sectors of rural India and generate value for the skills and resources available in these sectors through production outsourcing.” He further explains, “We are a part of the TeNeT group of Indian Institute of Technology, Madras, which is the premier engineering institution of India. We focus on combining rural artisans and craftsmen with modern Information and Communication Technology (ICT) applications, to manufacture quality products. It was set up in 2007 with a capital of Rs 7.7 million. Seed funding of Rs 0.5 million was obtained from the Rural Tech and Business Incubator, the Indian Institute of Technology, Madras.

Customers

ROPE has so far supplied its products to more than 30 big and small clients both within and outside India. Some of the prominent names in its client list include IKEA, Chennai, Industree Crafts, Bangalore, CwithCo, New York, TiE, etc.

Production Centres

ROPE Production Centres (RPCs) in villages use local skills and materials to manufacture high quality items ordered by global customers. Currently, there are seven production centre managers who oversee the work of the artisans. They are chosen from areas based on the belief that the talent available in villages can play a critical role in manufacturing quality products. These local managers have access to local skills and readily available raw materials. Also their indigenous knowledge, organizing skills and acceptance within the local communities help in establishing and running the production centre efficiently and effectively.

Products

Currently, RPCs offer production of hand woven and knitted products that include items like natural fibre-based home furnishings such as mats, carpets and window shades, bags, folders, paper bags, prayer mats, wallets and pouches. In the future, ROPE plans to expand into cotton and silk fabrics and apparels.

Competition

Its key competitors are Industree Crafts, and companies that are into corporate gifts and furnishings. Competition in the current products category is from organized factory model manufacturers like big mills, NGO-model producers who are working with artisans from different parts of the country and traditional middlemen or commission agents who buy products from rural producers and sell them to exporters.

The CEO observes, “Factory-model producers cannot compete with us in price as their fixed-cost investments are high in real estate and building and they also cannot offer customization to clients as we do, even at shorter lead times. NGO model producers again, cannot achieve our efficiency in delivery and cost. The middlemen or agents on the other hand cannot actively work with clients to assure quality standards, standard and ethical production processes. Also their scale is limited.”

Social Impact

“The money that you spend on buying quality ROPE products is also an investment in a better future for thousands of poor people in rural areas,” says the CEO. Currently, ROPE provides work to 200 people (80% of them women). ROPE plans to employ 1,500 people within two years and plans to increase that number to 4,000 people within five years. ROPE artisans have regular work and their average annualized income increased from USD 270 to USD 720. Increased incomes lead to increased savings and investments for the future such as housing, health and education. Apart from financial security, belonging to a larger network of producers and also the sense of catering to global customers increases pride in their work.

Promising Future

Sreejith is aiming for Rs 0.1 billion in revenue by 2012, and 10 times as much by 2020. That customers are appreciative of ROPE’s products is evident from the comments of Shilpa Sharma, Head, Product Development and Buying, FabIndia Overseas.

“Given the unique array of natural fibre products that they offer, I feel there is significant potential to develop a whole range of lifestyle accessories with ROPE,” she says.

FabIndia placed its first order for floor coverings, table mats and runners with ROPE. The product range and pricing of ROPE reflect its leaning towards fair trade and ethical production. In particular, it is well placed to supply to companies that are committed to the growing global demand for environment friendly products with eco-compliant packaging. ROPE is ready for IKEA’s I-Way audit, which calls for worker-friendly human resource practices, and has applied for the well-recognized Craftmark certification for artisanal products.

Knotty Problems

However, despite these calculations, maintaining supply lines has proved difficult. ROPE’s first major order was to provide 100,000 bags priced at the rate of Rs 16 to Tuticorin-based Ramesh Flowers, an IKEA supplier and India’s leading player in the natural botanicals sector. “The IKEA sub-supplier order is our first major order,” says S. Giridharan, Senior Manager, Production, ROPE. “We needed to scale up by about 10 times in terms of raw material sourcing alone.” If the order is successfully executed, Ramesh Flowers has evinced interest in procuring 500,000 bags annually. Scaling up is essential, but order driven. Earlier, ROPE’s lower volumes enabled it to outsource work and procure raw material from rural entrepreneurs. Even as he races to expand overnight, Sreejith nurtures other plans to diversify into textiles and apparel using the same model.

The Model

ROPE’s model is unique for several reasons, says Mr Sreejith.

  • First of all, the approach is customer driven as it works according to customers’ orders. Customized production is offered as per clients’ needs.
  • Secondly, the approach competes with modern manufacturers on price and quality. The model is also vastly scalable as there is a large rural need, a vast number of outsourced products, and the production centres require low capital and overheads.
  • Furthermore, the use of ICT enables ROPE to carry out efficient operations. In financial terms, the model achieves sustainability through cost coverage and in terms of human resource development, it emphasizes entrepreneurship at every level.

For discussion

  1. Critically examine the views of ROPE’s CEO on the sustainability of the model.

  2. The CEO said, “In the future, we plan to expand into cotton and silk fabrics and apparels.” Do you find the idea feasible? What suggestions do you have?

Source: Lalitha Sridhar, “Spinning Rural Profits,” Business-world, 20 March 2009, available at www.businessworld.in/index.php/Corporate/Spinning-Rural-Profits.html.