1

Role of Organized Retail Trading in Rural Development of India

Dr. Deepa Rawat*,
Deepti**
The Indian economy is basically an agrarian economy. Although, the share of
agriculture and allied services in the GDP has come down to 14.6 in 2009-10,the
dependence of nearly two third of the population directly on agriculture makes this
sector important in terms of employment and income generation. Agricultural
activities are mostly rural based, as such the overall development of rural areas is
crucial for the development of agriculture, in particular and GDP in general.
Government of India, along with state governments, has taken various initiatives since
the First Five Year Plan, for rural development. Various community development
projects,like Jawahar Rojgar Yojana, NREP, SGRY, and NREGA etc. have given a
new meaning to rural development from time to time. Currently Bharat Nirman, an
ambitious programme of Government of India, having six components viz (i)
irrigation (ii) rural roads (iii) rural housing (iv) rural electrification (v) rural
telecommunication and (vi) rural water supply is playing an important role in rural
development.
Although, the overall average annual growth rate of agriculture and allied
activities has remained about 2.9 per cent during 1991-2009, non-farm activities like
rural services, rural industries, agro processing, handloom and handicraft
manufacturing, mining and quarrying, transportation and storage, social services,
retailing and trading etc. have expanded many folds in rural areas.
Retailing is an important non-farm activity that is expected to increase at a very
fast pace in the coming years due to continuous surge in the demand in agriculture in –
puts and consumer products. It is one of the sunrise sectors of the economy and is
expected to yield high returns and provide employment to a large number of people in
the future in both urban and rural areas. Indian companies as well as some major
multinationals have established themselves in urban areas and some are penetrating
into rural areas to tap the high potential in terms of sales in the market.

**
Associate Professor & Head, Department of Economics Agra College, Agra.
****
Research Scholar, Department of Economics Agra College, Agra.
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Indian retail market is the fifth largest retail destination globally. It is estimated
to grow from $427 billion in 2010 to $637 billion in 2015. The share of retail trade in
the country’s gross domestic product is 12 percent and is expected to grow to 22
percent by 2012. Though organized retail sector is restricted to urban and semi- urban
regions, companies like ITC, Tata Chemicals, DSCL, Mahindra and Mahindra, Godrej
etc. are looking at rural markets for expansion.
In the backdrop of growing interest of corporate sector in rural marketing, the
present paper focuses on the role of organized retail trading in the rural development
of the country. The paper is divided in five sections viz (i) Evolution of organized
retail trading in rural India, (ii) Growth of organized retail trading in rural India. (iii)
Impact of organized retail trading. (iv) Challenges before organized retail trading and
(v) Conclusion.
Section I
Evolution of Organized Retail Trading in India
Two – thirds of country’s consumers live in rural areas and almost half of the
national income is generated here, 15 percent of rural population lives in 20,000 large
“non –urban” areas with population of more than 5000 people, 63 percent of rural
population lives in villages of 1000 to 5000 people, the remaining 390,000 villages
have fewer than 1000 people accounting for 22 percent of the population (Neha
Singhal, 2008). As such rural retail contributes a major chunk of the total retail market
in the country.
Rural retail is mostly agro-based and unorganized, leaving lot of scope and
opportunities for the organized retail companies to establish themselves. There have
been encouraging trends in different parameters that are important for rural retail in
recent years such as literacy, accessibility, degree of penetration, increase in income
levels, distance from major commercial and business hubs etc. High income levels,
brand awareness, and concept of quality have led to increasing consumerism among
the nouveau rich middle class in rural areas. There are numerous factors that are
contributing to the evolution of the organized rural retail market, the important among
than are:
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Rural Prosperity
Our country is now seeing a dramatic shift towards prosperity in rural
households. As per the National Council for Applied Economic Research (NCAER)
study, there are as many ‘middle income and above’ households in the rural areas as
there are in the urban areas. There are almost twice as many ‘lower middle income’
households in rural areas as in the urban areas.
Table 1: Distribution of People Income-Wise
Income 2001-02 2006-07
groups Total Rural No. % Total Rural No. %
High 1.48 0.41 27.7 2.96 0.7 23.6
Middle 69.18 4.83 64.8 90.25 59.85 66.3
Low 32.29 29.52 91.42 20.41 21.04 95.7
Total 102.95 74.76 72.6 113.62 80.96 70.7
Source: NSSO, Fifth Round, Government of India, New Delhi.

It is evident from Table 1 that the number and percentile of middle income
groups in rural areas has increased significantly during 2001-07.According to NCAER
projections, the lowest income class (i.e. ` 2500 and below) is shrinking, while the
higher income classes are likely to double by 2011. This apparently is the result of
development works carried out by the government since independence (Mano Raj, S.
John & all, 2007).
Effective Communication
An important method to reach out to the rural consumers is through effective
communication. The rural consumers have matured enough to understand the
communication system developed for the urban markets. In recent times television has
been a major effective communication system for rural masses. Rural tele density,
which was about 1.2 per cent in 2002, increased to 9.5 per cent in March 2008 and
further to 15.1 per cent in March 2009 and 21.2 per cent at the end of December,
2009(Economic Survey, 2009-10).
Growth in Market
The purchasing power in rural India is steadily rising and has resulted in the
growth of the rural market. The market has been growing at 3-4 per cent per annum,
adding more than one million new consumers every year. In product categories like
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toilet soaps, talcum powder, cooking oil, vanaspati ghee, tea, cigarettes and hair oil,
the share of rural market is very high.
IT Penetration in Rural India
Today there are over 15 million villagers in India who are aware of the Internet
and over 300,000 villagers have used it sometime or the other. Although this number
is still very low, but it denotes the start of a quiet revolution. Also the mobile phone
usage is growing very fast and it is bound to bring a change in the rural ethos.
Globalization
Globalization has affected rural India as much as urban, although the impact
has been slow. Farmers, today try to keep in touch with the latest information and
maximize both ends. However a lot still depends on the socio-economic aspects.
As a result of the fast changing rural scenario in the country, many companies
have set up organised retail outlets in rural areas and more and more national and
international players are coming in the field. A number of outlets that have been
established are Tata Kisan Kendra, Godrej’s Aadhar, DSCL Hariyali Kisan Bazaar,
Mahindra’s Subhlabh, and ITC’s Choupal Sagar, E- Choupal, HULs I-shakti, Kisan
Seva Kendra etc. All these outlets have one thing in common, i.e. they are attempting
to integrate the chain by removing the inefficiencies in the rural areas and also trying
to regularise the agricultural supply chain. This in turn will bring about overall
development in rural India. Presently Indian farmer gets only about a third of the
consumer price, compared with two –thirds being realised by farmers in countries
having a higher share of organised retail. The absence of an efficient supply chain
connecting the farmers, and the consumers has been put into sharp focus over the past
year by the raging ‘agflation’. Currently,` 1 trillion worth of farm produce gets wasted
every year in India because of the lack of supply chain infrastructure (S.D. Naik,
2010).
Section II
Growth of Organised Retail Trading in Rural India
According to NCAER study 2007, 17 per cent of the total villages account for
50 present of the rural population as well as 60 per cent of rural wealth almost 627000
villages are home to 740 million people. This implies that reaching out to just 100,000
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plus villages will ensure access to most of the rural opportunity. The urban market
continues to grow, but is fast getting saturated. The rate of growth of the urban market
is less than the growth of the rural market as such most of the big retail companies
have started targeting the rural areas to enhance their growth. The growth of the
organised retail trading in rural areas can be augmented by an analysis of some the
major retail players in the rural areas.
Hariyali Kisan Bazaar
The roots of rural retail trading can be traced back to 1997, when DCM
Shriram Consolidated Ltd (DSCL) initiated an agricultural extension programme –
Shriram Krishi Vikas Guide in northern India. As an offshoot of this programme, the
first Hariyali Kisan Bazaar was established in July 2003. Hariyali Kisan Bazaar was
the first micro- level effort in India to tap the rural retail market.
At present there are about 300 Hariyali Kisan Bazaars spread across eight
states, Uttar Pradesh, Punjab, Haryana, Andhra Pradesh, Madhya Pradesh, Rajasthan,
Maharashtra and Uttarkhand. Each HKB centre operates in a catchment area of about
20 km. A centre caters to agricultural land of about 50,000 – 70,000 areas and
influences the life of about 15,000 farmers. The store offers rural household goods, all
farming and consumer products and related services along with financial services
under one roof. The stores also provide farmers with expert advice of agronomists.
The HKB has also launched credit services in 2007-08 in collaboration with HDFC
bank.
Project Shakti
Hindustan Unilever launched (HUL) Project Shakti in the year 2001, in
keeping with the purpose of integrating business interest with national interests. The
model was piloted in Nalgonda district of Andhra Pradesh in 50 villages in the year
2000. Groups of rural women set out for their development and self-employment.
Most SHG women view project Shakti as a powerful business proposition and are
keen participants in it. It has since been extended to Bihar, Chhattisgarh, Gujarat,
Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Punjab,
Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal with the total strength of over
39,880 Shakti Entrepreneurs.
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A Shakti entrepreneur conducts a steady business which gives her an income of

more than `1,000 per month on a sustainable basis. In addition to money, there is a
marked change in the women’s status within the household, with a much greater say
in decision making. This results in better health and hygiene, education of the
children, especially the girl child, and an overall betterment in living standards.
HUL envisions the creation of 100000 Shakti Entrepreneurs covering 500000
villages, and touching the lives of 600 million rural people by the year 2011(Roman
Lvasyshyn & all, 2010). “I–Shakti” and IT –based rural information service has also
been developed to provide information and services to meet rural needs in agriculture,
education, vocational training, health and hygiene. “I –Shakti” has been set up in 400
villages in Andhra Pradesh, and have been functional since August 2003.Through I –
Shakti kiosks, ICICI bank and HUL are working together to provide a new delivery
channel for rural India. In the first phase, Life and General Insurance will also be
offered through this channel in the future.
Tata Kisan Kendra/ Sansar
Tata Kisan Kendra (TKK) provides the farmers with trusted agro inputs like
seeds, fertilizers, pesticides, irrigation and farm implements. In addition to being a one
stop point for agrochemical products, the centres also provide world class technical
services like soil, water and plant testing. Specialists, such as faculty members from
agriculture universities and government institutions visit the centres to conduct
extensive training for farmers on improved farming practices. Presently five main
TKKs operate through a network of franchises (FTKKs), which aim to win over the
confidence of the farmer’s community and fulfil farming needs under one roof.
Generally, one TKK caters to the needs of 20 FTKKs. Each FTKK caters
roughly to 50-60 neighbouring villages. The FTKKs are also provided with
infrastructure like crop clinics, soil testing labs, R & D, godowns and other utilities.
The company plans to have 40 TKKs in Uttar Pradesh, Punjab and Haryana in the
next few years. A TKK member farmer is selected on the basis of literacy, land
owned, age and progressiveness of thought. They participate in crop competitions and
get awards for healthy farming practices, have several credit and insurance facilities,
which include a personal accident insurance of ` 1 Lac.
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“Tata Kisan Sansar”, a chain of one stop resource centres was launched in
2004. This unique initiative for farmers, benefits then by offering end to end agri
solutions including the latest in agro services and specialised input products. Spanning
three highly productive agricultural states, Punjab, Uttar Pradesh and Haryana, TKS is
providing solutions to over 14,000 villages in Northern India in its first phase.
E –Choupal & Chaupal Sagar
Started in 2000 and 2004 respectively, E –Chaupal and Chaupal Sagar are the
rural networking initiatives of ITC Ltd. E –Choupal provides computers with internet
access in rural areas to directly link the farmers with the company for sourcing farm
produce and providing farmers up-to-date agricultural information. E–Choupal starts
with a computer, generally housed in the residence of the farmer who has agreed to
become a host and is called a “Sanchalak”, the computer is linked to the internet via
phone lines or, increasingly, by a VAST connection, and serves an average of 600
farmers in 10 surrounding villages within a five kilometre radius.
E –Choupal has reached out to over 4 million farmers in over 40,000 villages
through 6500 kiosks across 10 Indian states since its inception (Basu Indrajit, 2010).
Chaupal Sagar is the first rural hypermarket or a rural mall, and provides multiple
services under one roof, like selling produces, buying quality products for farm and
household consumption (Neha Singhal, 2008).Choupal Sagar are built near Samyojak,
so that when farmers come to sell their produce to Samyojak and receive cash money
then they can shop in Choupal Sagars. They function as ITC’s agri –sourcing centres
providing farmers a transparent best price sales window shopping centre. The number
of Choupal Sagars grew from 20 in year 2007-08 to the present number of 35 outlets
in 2008-09. ITC projects a total number of 100 outlets by 2010 (Indian Retail Report,
2009).
Section III
Impact of Organised Retail Trading
The rural retail held a share of 59 per cent out of the total retail in 2008. As a
result, rapid growth in organised rural retail in the last five years has had important
effects not only on agri business but also on rural development in general. The impact
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of organised retail trading on all round rural development can be analysed under the
following heads.
Employment Generation
According to Roopa Purushothaman (Purushothaman Roopa & all,2007),
between 2000 and 2005, rural agricultural employment growth was as low as 1 per
cent, , in contrast, during the same period, non-farm jobs have gone up by 20 per cent.
In a situation where agricultural capacity is limited and the urban economy is not fully
able to absorb a growing labour force, the rural non –farm sector could act as an outlet
for surplus semi –skilled labour. The unemployed or underemployed rural agro -based
population can be effectively engaged in rural retailing with a little training and skill
development.
Agricultural Productivity
The various rural retail outlets that have successfully established themselves in
the rural market have one thing in common: they are all attempting to increase
agricultural productivity by empowering the farmers, and integrating the supply chain.
All these outlets provide total farm solutions to the Indian farmers. Various agri
inputs, fertilizers, agro advisory services, marketing of agricultural output, water
management, technological support, weather forecasts etc are all provided by retail
outlets to increase agricultural productivity, which in turn increases the purchasing
power of farmers thereby laying the foundation for further expansion of rural
organised retailing and rural development.
Quality Guarantee
When the retail outlets were first established, they were a completely new
concept for rural India, hence there was a lot of speculation regarding their utility, and
acceptance, however there was a latent demand for quality goods which gradually
started coming to the forefront and the farmers started adopting the organised retail
format.
Now almost all stores are based on a campus of four to five acres, with a fuel
station, banking facilities, farm demonstration area, green recreation zones, and the
retail store. From the one site, farmers can obtain farm inputs and financial and
agricultural advisory services at reasonable prices with quality assurance.
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Consumer satisfaction
There is a basic difference between the rural and urban market. Any company
wishing to enter the rural market must understand the psychology of rural consumers,
their tastes, preferences, life styles, availability of resources etc. in general and the
purchasing power of rural masses in particular. The way of thinking of the rural
consumers is simple as compared to their urban counterparts. Further there are vast
differences in the rural areas which severely limit the retailer’s ability to segment,
target and position his goods and services (S. John, Mano Raj & all, 2007). The rural
consumers expect a very strong bonding with his retailer, as such it is very important
for rural retailers to understand the consumer expectations.
Catalyst for Social Change
Two studies have highlighted the rural retail model as a catalyst for social
change. The studies concluded that organised retail trading could leverage the agri
value chain, have a transformational impact and improve the quality of life in rural
India. This approach of organised rural retailing has already initiated a quiet
revolution in rural areas and gradually it will bring about a change not only in the
economic situation of the farmers, but also in the rural society.
Though, small in size, organised retailing in rural India, has increased its
acceptance among rural masses. Organised retailing not only provides manufactured
goods under one roof, but also provides opportunities to farmers to sell their products
to these stores at remunerative prices. Ultimately, it will result into higher incomes
and a higher standard of living of the rural people, thereby enabling rural
development.
Section IV
Challenges of Rural Retailing
Although there are vast opportunities in the Indian rural retail market with
numerous areas of untapped potential and resources, it is full of challenges and poses
difficulties for the retailer. Rural marketing is a time consuming long-term exercise
that requires massive investments in relation to strategy, vision, patience and a deep
understanding of the rural psychology. According to the NCAER study the major
problems facing retailers in rural areas are: inadequate infrastructure, low income
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levels, and an entirely different lifestyle. Besides these, there are many other
challenges that hinder rural market penetration like illiteracy, ignorance, technological
backwardness, poor agricultural productivity, seasonal or and disguised
unemployment which in turn leads to uncertain and unstable purchasing power, large
number of daily wage earners, power problems, lack of transportation system which
makes many areas inaccessible especially during monsoons, language barrier which
poses a serious threat to retail expansion as there are hundreds of local dialects
spoken, cultural diversities, completely dispersed, scattered and heterogeneous
unorganized market, differences in seasonal demands, low per capita income with
millions of BPL families, lack of communication network in many areas which makes
advertising ineffective and last but not the least large availability of low cost spurious
products, which are the variants of popular brands generally. The entirely different life
style and way of thinking of rural people make expansion of rural retailing very
difficult.
Nevertheless despite so many hurdles and challenges that rural retailing faces,
it is certain that in the present scenario the major corporate organizations are trying to
create a place for themselves in the vast untapped rural market. This is simply because
rural India forms a major chunk of the total retail market, 46 percent of all soft drinks,
49 percent of all motorcycles and 59 percent of cigarettes are bought by rural people.
This trend is not limited to only utilitarian product, as a result no consumer goods
company can afford to ignore the rural market. Companies mainly FMCG, two
wheeler manufactures, etc. are adopting various techniques like free demonstration,
small packaging etc. to reach out to the rural consumers. Multinational companies like
Hindustan Unilever, Philips, Nestle, Coca Cola, and PepsiCo etc. have long made
their reach in rural areas. Coca Cola is growing 37 percent in rural markets as
compared to 24 percent in urban areas (Athey, 2009). The rural market is not an
extension of the urban market, as such to overcome the challenges of this segment
retailers have to adopt specific strategies to make a place for themselves.
The first step to overcome the challenges is to reach out to the rural consumers
i.e., availability of goods in remote and backward areas should be a priority of the
retailing company for a successful retail network. Secondly the pricing of products
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should be such that it is within the reach of rural consumers. Since disposable incomes
are low with prevalent mass poverty and the social structure permits the purchase of
only the barest minimum products, it is essential for companies to bring out small
packagings for price affordability. Also it is essential that there is widespread
acceptability of products in the rural market, for this the retailers must customize their
products according to the needs of the rural consumers.
Another strategy of overcoming the rural retail challenges is to make the
consumers aware of the products. Since mass media has limited reach in villages and
electricity supply is not regular, the retailers have to adopt region specific strategies to
influence the rural consumers. Promotional events like rural trade fairs and festivals,
village’s road shows, haats, melas, posters, stickers on mobile vans, etc. have to be
used to introduce new products and services to the people.
Section V
Conclusion
Retailing is emerging as a sunrise industry in India and is presently the largest
employer after agriculture. Although the share of organised retailing is only 4 to 5
percent with the rest 94-95 percent in the unorganised sector, the organized sector is
expected to grow at the rate of 25 percent per annum and is estimated to reach
`100000 crore in 2010(Tamoghna Das Sharma, 2008).
The share of organized retail in the total retail is expected to rise to 9-10
percent by 2015, due to the FDI clearances given by government in retailing, the
changing consumer needs, rise in young population, increase in working women
population and increase in nuclear families etc. Besides the changing scenario in
urban areas, the rural landscape in also changing fast. The rural population dominates
the Indian market with over 742 million consumers spread across 0.63 million
villages. 53 percent FMCG and 59 percent durables sales come from rural India.
Moreover there has been an increase in the rural income in the last few years due to
higher agricultural production, agricultural loan waiver scheme, NREGA, Bharat
Nirman etc.,all these add up to great opportunity for the organized retailers in rural
markets.
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Rural development depends not only on the programme and projects of the
government, but also on the willingness of the people to participate in various
developmental activities like literacy programmes, health care, infrastructure building
projects etc. Rural retailing can act as a catalyst for rural development because
through it, the farmers would have more purchasing power in their hands. Also the
presence of big retailers will bring about the much needed infrastructure development
of rural areas. Further, it will reduce the number of middle men and bring about
efficient management of farm, produce this in turn would again hasten rural
development.
All the rural retailing initiatives are not only being developed as consumer
markets but they are also being developed as a cost effective supply chain to bring
down the transaction costs. The expansion of organised rural retailing will benefit
both the retailers as well as the farmers, as it will bring about a change in the rural
environment. Improvement in rural infrastructure, better roads and an efficient
transport system, technological up gradation, increase in literacy, awareness of rural
people, development of communication system through phones, internet etc., increase
in agricultural productivity, more disposable incomes etc. are some of the positive
changes that will occur in unison with expansion of rural retailing. This is turn will
lead to all round rural development. Thus it can be concluded that there is immense
scope for increase in rural retail which in turn will bring about a quiet and peaceful
social and economic revolution thereby enabling all round development in rural India.
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6. India Retail Report- 2009,pp-292-293.
7. Naik, S.D. (2010): FDI in Retail, Indian Style, The Hindu Business Line, July 17,
New Delhi, pp -7.
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8. National Council of Applied Economic Research (NCAER), “A Study of Rural

Retailing in India”, 2007.
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