It is that time of year; predictions, expert opinions and lofty mission statements abound. Prime Minister Dr. Manmohan Singh is working towards a seven per cent inclusive growth strategy. Heir apparent, Rahul Gandhi, fresh from his 2009 Forbes India Person of the Year award says his aim is to change the process of politics. “We want to take it to the politics of the future,” he stated at a press conference in Lucknow. Moving away from the public sector, India Inc. is gearing up for a decade of solid growth. And, the people of India are amongst the most optimistic about their country’s economic future. Indians, in general, are great problem solvers. Amongst us, we have had inventors, Nobel Prize winners, rocket scientists, politicians, wealth creators and world-class social workers. They have provided answers to some of the biggest challenges the world has posed to them. From engineering to business to political problems, our thought leaders have emerged with pragmatic solutions. Yet, there is one issue that remains unanswered. How do we grow rural India?
“The key thought process was to create a ‘win more and win more’ business model that can enmesh the commercial interest of ITC (growing shareholder value) with the larger societal interest (raising small farmer income).”
Contrary to popular belief, rural India is already a market leader in several categories. Pradeep Kashyap, founder and chief executive of MART, a management consulting firm with specific focus on rural initiatives says: “Rural India now accounts for 50 per cent of the country’s income. It is a half trillion-dollar economy. Today, around 54 per cent of all fast moving consumer goods (FMCG), 59 per cent of durables and 100 per cent of agricultural inputs are sold in rural India. The story is similar across several other sectors including banking, telecom and two-wheelers amongst automobiles.” And all this has happened even before the word got out. The media has not glamourised the rural market yet, but several companies in the FMCG and consumer durables space have made quiet progress. But, more needs to be done.
India, a huge market for most consumer products and services, is on her way to becoming a superpower. Steady urban growth over the last twenty years has laid the foundation. It is no longer just a social effort to uplift rural India. The coming decade should bring us closer to the elusive answer to the question of inclusive growth. There are several other related questions that make an appearance; perhaps growth in rural India will put us on the right path to solving other pressing issues including extreme poverty, low literacy and high unemployment.
In this article, we focus on the opportunities rural India presents for growth. We talk about the success stories, the challenges that need to be met and how technology can play a major role in empowering rural India. From product development to sales and distribution channels, rural India calls for innovation in every manner possible. India Inc. with its ever-ambitious entrepreneurs has finally understood the importance of tapping into this huge market. Entrepreneurs, or social-entrepreneurs as some of them are called, are taking charge and changing the game. The rural consumer is at the forefront of all this. The key to winning this game is to understand his needs, educate him, keep him healthy, all while involving him in the thick of things.
One of the areas where innovation has shown the way has been in sales and distribution strategy. Hindustan Unilever’s Project Shakti (creating women micro-entrepreneurs who sell FMCG products) and ITC’s eChoupal are the most popular. The eChoupal initiative has three dimensions to it- an Internet kiosk within walking distance for a farmer, a hub within drivable distance and a network of companies from around the world that buy from and sell to rural India. Farmers walk to a nearby Internet kiosk to check the best prices they can get for their agricultural produce. “The key thought process was to create a ‘win more and win more’ business model that can enmesh the commercial interest of ITC (growing shareholder value) with the larger societal interest (raising small farmer income),” says S. Sivakumar, chief executive, agri-businesses at ITC. The major advantage of this initiative has been its ability to put more money into the hands of these farmers.
ITC also created Choupal Saagars, organized retail hypermarkets that were co-located with commodity warehouses, which are hubs in the eChoupal architecture. Says Sivakumar: “The two key ingredients of success of a retail business, higher disposable incomes and large number of footfalls are ensured by eChoupals. In any case, rural consumers are used to shopping in the nearby towns, for many of their needs. Choupal Saagars did not need to change that behaviour, we simply had to bring high quality products at relevant price points for rural consumers to see the value proposition.” Today, the eChoupal story is presented as a case study in leading management schools across the globe. With strong support from farmers, the initiative has expanded both in scope and scale. It covers 40,000 villages through 6,500 eChoupals reaching more than four million farmers. In short, it has increased the spending power of four million people.
Product innovation to suit rural India
Over the last 10 years, sachet shampoos and repackaged detergents were sold to the rural masses, but, very few products have been made specifically for them. The story of Ghadi detergent, manufactured by Kanpur Trading Company (KTC) is an apt example here. While Surf, Hindustan Unilever’s flagship brand was busy repackaging for rural markets, Ghadi stayed close to the marketplace. They were analysing the softness and hardness of water in several rural areas across India and modified their detergent depending on the water available in the region. “It is not only about communication and distribution. Region-specific strategies and building customised products for rural India will go a long way,” says Kashyap. Currently, Ghadi is a Rs. 800 crore brand, the third largest detergent brand in the country and they have come this far by staying close to the marketplace.
Another case in point is Godrej & Boyce. The company is all set to launch ‘Chotukool’, a refrigerator for the rural market designed using their inputs. Their interaction with villagers helped in getting a far better understanding of their needs. Dr. Seenu Srinivasan, professor of marketing, Stanford University says, “While designing products for rural India, observing customers and qualitative market research will help a lot. People in rural India are also not very comfortable in communicating their needs. So understanding the need of rural consumers has to be through observation- a process known as ethnography.” (See box, ‘Cooling the hinterland’)
Over the long-term it will be interesting to see if other FMCG companies adopt this strategy of customisation. Kashyap calls this the reverse innovation approach. He says: “This will involve a bottom-up, community embedded process of co-invention and business co-creation. Such an approach will bring the company into close, personal business partnership with BoP (Bottom of the Pyramid) communities. While creating enduring value for the community it will establish a foundation for long-term corporate growth.”
Role of technology
The penetration of mobile phones into rural India has been the story of the last 10 years. ‘Connecting people’ has made the process of doing business in rural India very efficient. Be it a farmer receiving an SMS about fertilizer prices or a Project Shakti micro-entrepreneur communicating with neighbourhood villagers, mobile phones have brought about a complete transformation. Pricing and one-on-one promotions have been the strong points of telecom initiatives in these regions. Telecom operators and mobile phone companies were not just trying to sell a gizmo or a talk-plan to rural India. Instead, they created a platform for value added services, features that will be of use to a person in rural India. As Dr. Ashok Jhunjhunwala, chairman of Rural Technology & Business Incubator (RTBI) at IIT-Madras aptly says: “Technology is only a tool. Do not try to take technology to a rural area- you cannot. Instead solve a problem and if technology can help, make use of it.” Farmers wanted to stay connected with their buyers and suppliers, self-help groups under the realm of several microfinance companies had to communicate and in order to be productive, the mobile phone became a necessity.
Entrepreneurs tapping rural potential
In this day and age, the country is seeing a rise in rural entrepreneurship. These entrepreneurs clearly understand that to have long-term sustainable growth, businesses have to make money, all while trying to create jobs, solve problems and uplift rural India. From companies like Desicrew (rural business process outsourcing unit) to ROPE (supplier of handmade products by rural artisans), each of these start-ups has a clear business model in place. Customers come to them because they provide value. They employ people in rural areas since it makes business sense. But, it all comes together to uplift the BoP segment. (See box: ‘Roping in rural India’)
Entrepreneurs like Vikram Akula, founder and chief executive of India’s largest microfinance enterprise, SKS Microfinance, have created a platform for growth. By creating micro-entrepreneurs they have moved people above the poverty line. It does not stop at just that. Most of the microfinance institutions in India have created communities and self-help groups (SHG) that can be tapped by several industries and companies. It provides a platform that enables easy access to rural India. From Nandan Nilekeni reaching out to rural India for the Unique-ID project to ITC promoting their products in the rural India, the SHG platform has made lives easier.
Next in line
How does the growth of rural India fit into the bigger picture? Yes, a whole new market is established. Jobs are created. More raw materials are produced. More people rise above the poverty line. Says Kashyap: “Traditionally, rural India has been a producer of raw materials. Urban India does the value addition. Rural India produces the potatoes; urban India converts them into chips and sells them for a much higher price. The goal should be to make rural India contribute to the value creation process. That is when we can say rural India has truly arrived.”
For this transition from a producer to a value creator to take place, several things need to fall in place. Infrastructure, education, health and financial service sectors have to work in tandem and aid this transition. These sectors have to be co-created. Lessons learnt from the telecom sector have to be incorporated into other sectors. For instance, in the education sector, the lack of quality teaching poses a problem. But, if Internet connectivity is in place and a technology platform is established, a teacher from anywhere in the world can teach rural India. As both Kashyap and Jhunjhunwala repeatedly say, technology is a vital tool to enable this rural business revolution. People, companies and the government will have to join hands to make this happen. The time has come for us to get our act together.