gagandsaluja
GAGANDEEP SINGH
58
Trends
The Discovery
of Rural India
As prosperity visits rural India, incomes keep rising
compelling companies to refocus their marketing
strategies. Rakesh Joshi reports on the corporate
initiatives currently apace to seize the rural bait
INTO THE HINTERLAND AND WITHIN AN ARM’S REACH OF DESIRE: Coke’s rural growth outstrips its urban growth
59
For quite some time now, the lure of
rural India been the subject of animated
discussion in corporate
suites. And with good reason too.
With urban markets getting saturated for
several categories of consumer goods and
with rising rural incomes, marketing executives
are fanning out and discovering the
strengths of the large rural markets as they
try to enlarge their markets. Today, the
idea has grown out of its infancy and dominates
discussions in any corporate boardroom
strategy session. Adi Godrej, chairman
of the Godrej group that is in a range
of businesses from real estate and personal
care to agri-foods, has no hesitation proclaiming,
“It is a myth that rural consumers
are not brand and quality conscious.”
A survey by the National Council for
Applied Economic Research, India's premier
economic research entity, recently
confirmed that rise in rural incomes is keeping
pace with urban incomes. From 55 to
58 per cent of the average urban income in
1994-95, the average rural income has
gone up to 63 to 64 per cent by 2001-02
and touched almost 66 per cent in 2004-
05. The rural middle class is growing at 12
per cent against the 13 per cent growth of
its urban counterpart. Even better, the
upper income class — those with household
incomes of over Rs one million
[$22,700] per annum — is projected to go
up to 21 million by 2009-10 from four million
in 2001-02. It will have a 22 to 23 per
cent rural component.
Higher rural incomes have meant larger
markets. Already, the rural tilt is beginning
to show. A study by the Chennai-based
Francis Kanoi Marketing Planning Services
says that the rural market for FMCG is
worth $14.4 billion, far ahead of the market
for tractors and agri-inputs which is
estimated at $10 billion. Rural India also
accounts for sales of $1.7 billion for cars,
scooters and bikes and over one billion dollars
of durables. In total, that represents a
market worth a whopping $27 billion.
It is no wonder that even MNCs have
cottoned on to the idea of a resurgent rural
India waiting to happen. Four years ago,
Coke ventured into the hinterland. Now
Coke's rural growth of 37 per cent far outstrips
its urban growth of 24 per cent.
Coke is not the first MNC to have cottoned
on to the rural lure. Its global rival Pepsico
took a wider approach to the business
when it was given permission to set up
shop in India in the late 1980s and investment
in food processing and farming was a
pre-condition for entry. The company
imported a state-of-the art tomato processing
plant from Italy to Punjab. In five years,
productivity improved from 16 tonnes to
52 tonnes per hectare and there was a
tomato glut in the state. Farmers weren't
complaining because even though prices
fell, their incomes increased because of the
huge jump in productivity. Pepsi is now
heralding a citrus plantation drive in the
state and other parts of the country for its
brand of Tropicana fruit juices, to replace
imported fruit.
Hindustan Lever Ltd, the $2.3 billion
Indian subsidiary of Unilever, the country's
largest FMCG company, has also got on
the bandwagon. It's Project Shakti uses
self-help groups across the country to push
Lever products deeper into the hinterland.
Its four-pronged programme creates
income-generating capabilities for underprivileged
rural women; improves rural
quality of life by spreading awareness of
best practices in health and hygiene;
empowers the rural community by creating
access to relevant information through
community portals and it also works with
NGOs to spread literacy. There are currently
over 15,000 Shakti entrepreneurs, most
of them women, in 61,400 villages across
12 states. By the end of 2010, Shakti aims
to have 100,000 Shakti entrepreneurs covering
500,000 of India’s 640,000 villages,
touching the lives of over 600 million
people.
With such an emphasis on rural marketing,
consumption patterns are changing
and it signals a change in the regulatory
environment. Vertical integration of the
food market from farm to firm to fork
becomes the best way to achieve efficiency
and serve the interest of every stakeholder
in the chain — the farmer, the
processor, the retailer and the consumer.
As Ashok Gulati of the US-based
International Food Policy Research Institute
put its, “The future of Indian agriculture in
general and the farmer in particular
depends on the how soon they can
become globally competitive.”
Indian economic policy realises this.
Between the 8th (1992-97) and the 10th
(2002-07) Five Year Plans, successive
governments have tripled the spending on
rural development from $6.82 billion to
$20.2 billion. The Manmohan Singh-led
60
TRENDS
UPA government plans to enhance rural
credit. Besides, the National Rural
Employment Guarantee Scheme, which
provides 100 days employment to one person
from each rural family, is all set to take
off. With these two steps, more money is
expected to flow into the countryside than
ever before. During the current year, $2.4
billion will flow into rural India on account
of the employment guarantee scheme
alone.
All this potential has got India's big business
houses rushing to enter and
expand rural businesses. Telecom czar
Sunil Mittal, chairman of the $2 billion
mobile telephony major Bharti Tele-
Ventures, is another unabashed flag-bearer
of the 'go rural' strategy. He is confident
that the next 'explosive' phase of demand
for cellular connections is going to come
from the villages. In an interesting business
diversification, he has tied up with the legendary
Rothschilds of Europe for a $51 million
food processing venture and export of
fruits and vegetables. “We can replicate
our pre-eminence in IT outsourcing in agri-
THE IDEA of e-choupal, a rural initiative
by ITC, has been termed path-breaking
by The New York Times, The
Economist, Harvard Business School
and the UN. In 1999, S Sivakumar, head
of the ITC's agri-business division,
approached ITC chairman, Yogesh
Deveshwar, for a $115,000 grant to
test an idea. Sivakumar and his team,
while sourcing soya in Madhya Pradesh,
had watched farmers lug their produce
in trailers to local daily markets, often to
sell the produce even if the price wasn't
attractive. ITC used to buy the soya
from intermediaries and bring it to their
hubs. Not only did ITC end up paying
more but the farmers got less.
Sivakumar felt that there was a need to
re-engineer this supply chain so that
both the farmers and ITC gained. The
solution, he felt, lay in information and
communication technology.
Today, ITC's e-choupal network has
reached over 3.5 million farmers and is
expanding into 30 villages a day, making
it one of rural India's most ambitious
horizon-widening initiatives. Choupal is
the Hindi word for the village square
(normally under a tree), where elders
meet to discuss matters of importance.
'E' stands for a computer with an internet
connection and is the farmer's window
to the world outside his village.
ITC installs a computer with a VSAT
Internet connection in selected villages.
A local educated farmer called sanchalak,
or conductor, operates the computer
on behalf of ITC. He is not paid for his
services but gets a commission on all
transactions.
At the e-choupal, farmers are offered
services like daily weather forecasts and
price of various crops in the local market
free of cost. They can download information
about farming methods specific
to each crop and region through an
arrangement with agriculture universities.
They can buy seeds, fertilisers,
pesticides and even bicycles, tractor
and insurance policies. Over 35 companies
currently sell their products through
the network.
E-CHOUPAL: ITC'S BOLD RURAL BET
RE-ENGINEERING THE SUPPLY CHAIN: Farmers at one of ITC’s e-choupals
61
TRENDS
culture and transform the country into a
global food basket,” he points out. Mittal's
initial investments include an agriculture
research centre and model farm in Punjab.
If the hinterland has caught the attention
of Mittal, among the country's most
recent entrants to the ranks of big business,
it has also not escaped the radar of
the oldest business house, the $17 billion
Tata group, which has consolidated its
rural operations. The group's two companies,
Tata Chemicals and Rallis India, ran
separate rural initiatives till 2003. Tata
Chemicals ran a chain called Tata Kisan
Kendra, which offered farmers a host of
products and services ranging from agriinputs
to financing to advisory services.
Rallis, on the other hand, was partnering
ICICI Bank and Hindustan Lever in offering
deals to farmers that covered operations
from the pre-harvest to post-harvest stage.
In 2004, the two operations were merged
and Tata Kisan Sansar, a network of onestop
shops providing everything from
inputs to know-how to loans, was
launched. Today, the Tata Kisan Sansar
has 421 franchisee-run centres in three
states and reaches out to over 3.6 million
farmers.
Like the Tatas, the $2.6 billion
Mahindra group has successfully established
a synergy between its current businesses
and the planned rural forays. Its
flagship, Mahindra & Mahindra Ltd is
India's largest farm equipment company.
Its subsidiary, Mahindra Shubhlabh
Services, has operations in 11 states, and
leverages the strong Mahindra brand, the
700,000-strong Mahindra tractor customer
base and the 400-plus dealer network, to
provide a complete range of products and
services to improve farm productivity and
establish market linkages to the commodity
market chain.
Its retailing arm, Mahindra Krishi Vihar,
has been instrumental in increasing the
groundnut yield in Rajasthan through a
new seed sourced from the state of
Maharashtra, and it has also introduced a
new variety of grapes in Maharashtra. Says
Vikram Puri, head of Mahindra Shubhlabh
Services, “Almost 80 per cent of the farmers
registered with us have less than five
acres land. We are making farming an
attractive proposition through three basic
guiding steps — growing what the market
requires, improving the crop yield and
decreasing the cost of crop production.”
The activities of Mahindra Shubhlabh
Services have attracted the attention of
the International Finance Corporation, the
financial arm of the World Bank, which
recently picked up a 27 per cent stake in
the company.
Rural India
accounts for a
market worth $27
billion. No wonder
even MNCs have
cottoned on to the
idea of a resurgent
rural India.
THE RURAL THRUST OF CORPORATE INDIA TO ENLARGE MARKETS: Inside a Shriram group’s shopping mall
SHEKHAR GHOSH
62
TRENDS
The $1 billion Godrej group entered
agri-business through a small animal feeds
sub-division 30 years ago. Currently, it is a
$227 million business, spearheaded by
two companies, Godrej Agrovet and
Gulmohar Foods, with a product range
that includes pesticides, animal feed, oil
plant plantlets and farming inputs. The
company has two interesting concepts in
the pipeline. The first is Adhar, through
which it will retail its own products as well
as other brands, apart from offering services
like soil analysis and veterinary care.
The other is Manthan, which will focus on
supplying quality animal feed, so that dairy
produce and poultry get a boost.
The rural bug has even bitten the $16
billion Reliance Industries Ltd, India's
largest private sector company. Starting
with a modest 200-acre medicinal and
herbal plants garden in Navsari, Gujarat,
the group plans to integrate this business
with its bio-tech venture under the brandname
ReliCare. ReliCare has already spun
off brands of plant extracts such as
ReliCare Av (aloe vera), ReliCare Pa
(patchouli oil), ReliCare Ge (geranium oil),
ReliCare Ce (citronella oil) and ReliCare Le
(lemongrass oil). Chairman Mukesh
Ambani, according to reports, is now
readying to get into agribusiness in a major
way — with a reported war chest of $227
million — through largescale contract farming
of fruits and vegetables. He recently
visited the north Indian state of Punjab and
held talks on the subject with the chief
minister.
The rural thrust of corporate India is
not just about providing agriculture inputs
or entering into largescale contract farming.
For many who are already into retail
or consumer finance, the way upstream is
through rural shopping malls. The New
Delhi-based Shriram group, which is in the
consumer finance and insurance businesses,
is one such corporate which feels the
future lies in rural malls. Ten of its malls
are already operational in north India and
more are in the pipeline. Malls are also on
the agenda of ITC, which has its chain of
retail outlets for its apparel line Wills
Lifestyle. It plans to set up almost 200 of
them by 2010 in various formats and with
merchandise assortments designed for
local preferences. These malls will act as
a hub for both branded and locally produced
goods, entertainment options, education,
healthcare and farm advisories.
The malls will also generate rural employment.
ITC's rural malls will be called
Choupal Sagars — an extension of its
famed e-choupal project. By March 2006,
the company hopes to get 30 Choupal
Sagars going, replete with shopping complexes,
petrol pump, healthcare, training
facilities and more.
ITC's zeal reflects the dominant trend in
corporate India to enter every area from
contract farming to rural malls, seed
research to medicinal plants and food processing
to fruit exports. There is a growing
perception that such is the scope of rural
markets that what has been done so far
amounts to scratching the surface. After
all, as they say, India lives in its villages —
638,356 villages, to be precise. It appears
that the fortunes of India's largest corporations,
and several MNCs, are about to be
shaped there.
Trends
The Discovery
of Rural India
As prosperity visits rural India, incomes keep rising
compelling companies to refocus their marketing
strategies. Rakesh Joshi reports on the corporate
initiatives currently apace to seize the rural bait
INTO THE HINTERLAND AND WITHIN AN ARM’S REACH OF DESIRE: Coke’s rural growth outstrips its urban growth
59
For quite some time now, the lure of
rural India been the subject of animated
discussion in corporate
suites. And with good reason too.
With urban markets getting saturated for
several categories of consumer goods and
with rising rural incomes, marketing executives
are fanning out and discovering the
strengths of the large rural markets as they
try to enlarge their markets. Today, the
idea has grown out of its infancy and dominates
discussions in any corporate boardroom
strategy session. Adi Godrej, chairman
of the Godrej group that is in a range
of businesses from real estate and personal
care to agri-foods, has no hesitation proclaiming,
“It is a myth that rural consumers
are not brand and quality conscious.”
A survey by the National Council for
Applied Economic Research, India's premier
economic research entity, recently
confirmed that rise in rural incomes is keeping
pace with urban incomes. From 55 to
58 per cent of the average urban income in
1994-95, the average rural income has
gone up to 63 to 64 per cent by 2001-02
and touched almost 66 per cent in 2004-
05. The rural middle class is growing at 12
per cent against the 13 per cent growth of
its urban counterpart. Even better, the
upper income class — those with household
incomes of over Rs one million
[$22,700] per annum — is projected to go
up to 21 million by 2009-10 from four million
in 2001-02. It will have a 22 to 23 per
cent rural component.
Higher rural incomes have meant larger
markets. Already, the rural tilt is beginning
to show. A study by the Chennai-based
Francis Kanoi Marketing Planning Services
says that the rural market for FMCG is
worth $14.4 billion, far ahead of the market
for tractors and agri-inputs which is
estimated at $10 billion. Rural India also
accounts for sales of $1.7 billion for cars,
scooters and bikes and over one billion dollars
of durables. In total, that represents a
market worth a whopping $27 billion.
It is no wonder that even MNCs have
cottoned on to the idea of a resurgent rural
India waiting to happen. Four years ago,
Coke ventured into the hinterland. Now
Coke's rural growth of 37 per cent far outstrips
its urban growth of 24 per cent.
Coke is not the first MNC to have cottoned
on to the rural lure. Its global rival Pepsico
took a wider approach to the business
when it was given permission to set up
shop in India in the late 1980s and investment
in food processing and farming was a
pre-condition for entry. The company
imported a state-of-the art tomato processing
plant from Italy to Punjab. In five years,
productivity improved from 16 tonnes to
52 tonnes per hectare and there was a
tomato glut in the state. Farmers weren't
complaining because even though prices
fell, their incomes increased because of the
huge jump in productivity. Pepsi is now
heralding a citrus plantation drive in the
state and other parts of the country for its
brand of Tropicana fruit juices, to replace
imported fruit.
Hindustan Lever Ltd, the $2.3 billion
Indian subsidiary of Unilever, the country's
largest FMCG company, has also got on
the bandwagon. It's Project Shakti uses
self-help groups across the country to push
Lever products deeper into the hinterland.
Its four-pronged programme creates
income-generating capabilities for underprivileged
rural women; improves rural
quality of life by spreading awareness of
best practices in health and hygiene;
empowers the rural community by creating
access to relevant information through
community portals and it also works with
NGOs to spread literacy. There are currently
over 15,000 Shakti entrepreneurs, most
of them women, in 61,400 villages across
12 states. By the end of 2010, Shakti aims
to have 100,000 Shakti entrepreneurs covering
500,000 of India’s 640,000 villages,
touching the lives of over 600 million
people.
With such an emphasis on rural marketing,
consumption patterns are changing
and it signals a change in the regulatory
environment. Vertical integration of the
food market from farm to firm to fork
becomes the best way to achieve efficiency
and serve the interest of every stakeholder
in the chain — the farmer, the
processor, the retailer and the consumer.
As Ashok Gulati of the US-based
International Food Policy Research Institute
put its, “The future of Indian agriculture in
general and the farmer in particular
depends on the how soon they can
become globally competitive.”
Indian economic policy realises this.
Between the 8th (1992-97) and the 10th
(2002-07) Five Year Plans, successive
governments have tripled the spending on
rural development from $6.82 billion to
$20.2 billion. The Manmohan Singh-led
60
TRENDS
UPA government plans to enhance rural
credit. Besides, the National Rural
Employment Guarantee Scheme, which
provides 100 days employment to one person
from each rural family, is all set to take
off. With these two steps, more money is
expected to flow into the countryside than
ever before. During the current year, $2.4
billion will flow into rural India on account
of the employment guarantee scheme
alone.
All this potential has got India's big business
houses rushing to enter and
expand rural businesses. Telecom czar
Sunil Mittal, chairman of the $2 billion
mobile telephony major Bharti Tele-
Ventures, is another unabashed flag-bearer
of the 'go rural' strategy. He is confident
that the next 'explosive' phase of demand
for cellular connections is going to come
from the villages. In an interesting business
diversification, he has tied up with the legendary
Rothschilds of Europe for a $51 million
food processing venture and export of
fruits and vegetables. “We can replicate
our pre-eminence in IT outsourcing in agri-
THE IDEA of e-choupal, a rural initiative
by ITC, has been termed path-breaking
by The New York Times, The
Economist, Harvard Business School
and the UN. In 1999, S Sivakumar, head
of the ITC's agri-business division,
approached ITC chairman, Yogesh
Deveshwar, for a $115,000 grant to
test an idea. Sivakumar and his team,
while sourcing soya in Madhya Pradesh,
had watched farmers lug their produce
in trailers to local daily markets, often to
sell the produce even if the price wasn't
attractive. ITC used to buy the soya
from intermediaries and bring it to their
hubs. Not only did ITC end up paying
more but the farmers got less.
Sivakumar felt that there was a need to
re-engineer this supply chain so that
both the farmers and ITC gained. The
solution, he felt, lay in information and
communication technology.
Today, ITC's e-choupal network has
reached over 3.5 million farmers and is
expanding into 30 villages a day, making
it one of rural India's most ambitious
horizon-widening initiatives. Choupal is
the Hindi word for the village square
(normally under a tree), where elders
meet to discuss matters of importance.
'E' stands for a computer with an internet
connection and is the farmer's window
to the world outside his village.
ITC installs a computer with a VSAT
Internet connection in selected villages.
A local educated farmer called sanchalak,
or conductor, operates the computer
on behalf of ITC. He is not paid for his
services but gets a commission on all
transactions.
At the e-choupal, farmers are offered
services like daily weather forecasts and
price of various crops in the local market
free of cost. They can download information
about farming methods specific
to each crop and region through an
arrangement with agriculture universities.
They can buy seeds, fertilisers,
pesticides and even bicycles, tractor
and insurance policies. Over 35 companies
currently sell their products through
the network.
E-CHOUPAL: ITC'S BOLD RURAL BET
RE-ENGINEERING THE SUPPLY CHAIN: Farmers at one of ITC’s e-choupals
61
TRENDS
culture and transform the country into a
global food basket,” he points out. Mittal's
initial investments include an agriculture
research centre and model farm in Punjab.
If the hinterland has caught the attention
of Mittal, among the country's most
recent entrants to the ranks of big business,
it has also not escaped the radar of
the oldest business house, the $17 billion
Tata group, which has consolidated its
rural operations. The group's two companies,
Tata Chemicals and Rallis India, ran
separate rural initiatives till 2003. Tata
Chemicals ran a chain called Tata Kisan
Kendra, which offered farmers a host of
products and services ranging from agriinputs
to financing to advisory services.
Rallis, on the other hand, was partnering
ICICI Bank and Hindustan Lever in offering
deals to farmers that covered operations
from the pre-harvest to post-harvest stage.
In 2004, the two operations were merged
and Tata Kisan Sansar, a network of onestop
shops providing everything from
inputs to know-how to loans, was
launched. Today, the Tata Kisan Sansar
has 421 franchisee-run centres in three
states and reaches out to over 3.6 million
farmers.
Like the Tatas, the $2.6 billion
Mahindra group has successfully established
a synergy between its current businesses
and the planned rural forays. Its
flagship, Mahindra & Mahindra Ltd is
India's largest farm equipment company.
Its subsidiary, Mahindra Shubhlabh
Services, has operations in 11 states, and
leverages the strong Mahindra brand, the
700,000-strong Mahindra tractor customer
base and the 400-plus dealer network, to
provide a complete range of products and
services to improve farm productivity and
establish market linkages to the commodity
market chain.
Its retailing arm, Mahindra Krishi Vihar,
has been instrumental in increasing the
groundnut yield in Rajasthan through a
new seed sourced from the state of
Maharashtra, and it has also introduced a
new variety of grapes in Maharashtra. Says
Vikram Puri, head of Mahindra Shubhlabh
Services, “Almost 80 per cent of the farmers
registered with us have less than five
acres land. We are making farming an
attractive proposition through three basic
guiding steps — growing what the market
requires, improving the crop yield and
decreasing the cost of crop production.”
The activities of Mahindra Shubhlabh
Services have attracted the attention of
the International Finance Corporation, the
financial arm of the World Bank, which
recently picked up a 27 per cent stake in
the company.
Rural India
accounts for a
market worth $27
billion. No wonder
even MNCs have
cottoned on to the
idea of a resurgent
rural India.
THE RURAL THRUST OF CORPORATE INDIA TO ENLARGE MARKETS: Inside a Shriram group’s shopping mall
SHEKHAR GHOSH
62
TRENDS
The $1 billion Godrej group entered
agri-business through a small animal feeds
sub-division 30 years ago. Currently, it is a
$227 million business, spearheaded by
two companies, Godrej Agrovet and
Gulmohar Foods, with a product range
that includes pesticides, animal feed, oil
plant plantlets and farming inputs. The
company has two interesting concepts in
the pipeline. The first is Adhar, through
which it will retail its own products as well
as other brands, apart from offering services
like soil analysis and veterinary care.
The other is Manthan, which will focus on
supplying quality animal feed, so that dairy
produce and poultry get a boost.
The rural bug has even bitten the $16
billion Reliance Industries Ltd, India's
largest private sector company. Starting
with a modest 200-acre medicinal and
herbal plants garden in Navsari, Gujarat,
the group plans to integrate this business
with its bio-tech venture under the brandname
ReliCare. ReliCare has already spun
off brands of plant extracts such as
ReliCare Av (aloe vera), ReliCare Pa
(patchouli oil), ReliCare Ge (geranium oil),
ReliCare Ce (citronella oil) and ReliCare Le
(lemongrass oil). Chairman Mukesh
Ambani, according to reports, is now
readying to get into agribusiness in a major
way — with a reported war chest of $227
million — through largescale contract farming
of fruits and vegetables. He recently
visited the north Indian state of Punjab and
held talks on the subject with the chief
minister.
The rural thrust of corporate India is
not just about providing agriculture inputs
or entering into largescale contract farming.
For many who are already into retail
or consumer finance, the way upstream is
through rural shopping malls. The New
Delhi-based Shriram group, which is in the
consumer finance and insurance businesses,
is one such corporate which feels the
future lies in rural malls. Ten of its malls
are already operational in north India and
more are in the pipeline. Malls are also on
the agenda of ITC, which has its chain of
retail outlets for its apparel line Wills
Lifestyle. It plans to set up almost 200 of
them by 2010 in various formats and with
merchandise assortments designed for
local preferences. These malls will act as
a hub for both branded and locally produced
goods, entertainment options, education,
healthcare and farm advisories.
The malls will also generate rural employment.
ITC's rural malls will be called
Choupal Sagars — an extension of its
famed e-choupal project. By March 2006,
the company hopes to get 30 Choupal
Sagars going, replete with shopping complexes,
petrol pump, healthcare, training
facilities and more.
ITC's zeal reflects the dominant trend in
corporate India to enter every area from
contract farming to rural malls, seed
research to medicinal plants and food processing
to fruit exports. There is a growing
perception that such is the scope of rural
markets that what has been done so far
amounts to scratching the surface. After
all, as they say, India lives in its villages —
638,356 villages, to be precise. It appears
that the fortunes of India's largest corporations,
and several MNCs, are about to be
shaped there.
