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Tomorrow’s Rural-Retail Play

Omkar Goswami


There is a major revolution that has begun in our country. It is taking place in large tracts of rural India, especially in the north, west and the south. Except for those who are in the business and the odd perspicacious observer, it is not yet understood by most. And it is set to explode over the next five years.


It is the rural-retail play. Let me take you through the story — starting with what is happening in significant tracts of rural India, and then moving on to what some of the key players are planning in this exciting space. For the last three years, my colleagues at CERG Advisory have been closely focusing on the changing face of, and the opportunities in, different parts of rural India. Here are some nuggets of information.


To start with, rural India accounts for over 50 per cent of India’s GDP. Since agriculture is less than 20 per cent of GDP, it follows that three-fifths of rural India’s income derives from industries and services. There are 739 tehsils that are doing very well: the ownership of assets and amenities of rural households in 239 of them are over  two standard deviations better than the mean; and for the remaining 500 tehsils, it is between one and two standard deviations greater than the average. These are the zones of growth and prosperity in rural India — and, in most parts, belong to Punjab, Himachal, Haryana, Uttaranchal, Western UP, most of Gujarat, parts of Maharashtra, parts of Rajasthan, Goa, all of Kerala, and parts of Tamil Nadu, Karnataka and Andhra Pradesh.


India Inc. has started discovering the potential of these areas. Traditional FMCG players like Hindustan Lever, Dabur and Godrej have considerably strengthened and deepened their distribution channels to leverage higher consumer demand. ITC has been using E-choupals to reduce middlemen, increase rural procurement, create price transparency, cut trading margins and transact directly with farmers. Mahindra Finance has been quietly pushing loans throughout up-country India with great success. Sunil Mittal’s Bharti has organised farmers in Punjab to grow high value products which are then graded, sorted, cold stored and shipped for exports.


But the most audacious play of all seems to be what Mukesh Ambani’s Reliance Retail has in mind. It is in the process of identifying some 1,600-odd rural business hubs (RBHs) throughout India, which it proposes to set-up between 2007 and 2010. These RBHs are expected to cover almost 30% of India’s tehsils and Reliance believes that such scale and width can make these RBHs nodal institutions for rural transformation.


What does Reliance have in mind? Essentially, it is attempting a huge scale two-way play. First, to have each RBH and its close satellites as procurement centres for the fresh food retail outlet formats that Reliance will roll out in India’s metropolises, cities and towns. Second, to use these RBHs as retail outlets for manufactures, consumer goods, agricultural inputs and various types of financial products and services.


As in everything that Reliance gets into, the scales are mind-boggling. Through its 1,600 RBHs, Reliance Retail eventually plans to procure anything between 8 per cent to 10 per cent of the marketable surplus of fresh foods. It also plans to supply something like 8 per cent to 10 per cent of rural India’s consumption of goods and services. And it assumes that by better disintermediation, assured off-take, supply of better seeds and pesticides and major investments in cold storage chains, transport logistics and end-to-end IT, it will be the partner of choice for most farmers located around its RBHs.


It is an incredibly tough act — tougher even than Verghese Kurien and his team pulling off India’s white revolution. But among the very few companies that could possibly execute this huge pan-India play, Reliance is certainly one. And if it does, it will truly transform large tracts of rural India. More power then to Bharti, ITC and Reliance. May they succeed, and create the kind of market-based prosperity that rural India richly deserves after almost 60 years of independence.      


Published: Business World, January 2007


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