ITC’s Rural Hubs and Spokes

ITC is one of the most active companies in rural India. They have set up over 2,500 e-choupals in the villages and expect income from e-choupals to be more than their tobacco business by 2010. “In the next 5-7 years, ITC will have 20,000 choupals. Since each choupal covers around five villages, the company will have access to 100,000 villages. Each choupal currently serves 500-600 farmers.” To complete the picture, India has about 600,000 villages with about 700 million people in all. “[ITC chairman Yogi] Deveshwar explained that the revenue estimated from choupals in the coming years was not unfounded, given the importance of the rural economy. He said at present the propensity to spend was low among villagers because surplus income was low. However, the choupal network would boost farmers’ income and increase their propensity to spend, he said, adding that this would have a multiplier effect on the economy.”

The e-choupals are spokes, and where there are spokes, there is a need for a hub. The Economic Times writes about their plan to set up rural malls:

ITC is setting up 45 shopping malls in the countryside, each the size of Delhi s Khan Market, to retail everything from John Players clothes and ICICI life insurance to Eicher motorbikes. The first five malls, costing more than Rs 20 crore, will be ready for shoppers in 16 weeks.

What ITC gets in return is a dedicated customer base, savings through procurement of cheaper farm produce, and a cut ranging from 3%-40% of sales value from the brands which use its shelf space. The focus at present is Madhya Pradesh, where ITC has already managed to set up an exhaustive network of e-chaupals for procurement of soyabeans and sale of agri-inputs.

Built on 5 acres, each mall would cost ITC anything between Rs 3-5 cr [USD 650K – 1.1 million], depending on the price of real estate. To put that area in perspective, most malls in the large metros are built on just 2-3 acres of land. Each mall will be a self-contained unit, with facilities for storage of goods, warehousing of agricultural produce procured by ITC, shelf display, and parking. Each store will be manned by at least five full-time ITC sales staff, and the number could go up in busy seasons of the year.

This interests us is the context of our RISC ideas. We are working to set up a pilot by mid-2004. RISC’s goals are broader: “Fundamentally, the specific market failure that RISC addresses is that of coordination failure. RISC is designed to coordinate the activities of a host of entitiescommercial, governmental, NGOs. It synchronizes investment decisions so as to reduce risk. It essentially acts as a catalyst that starts off a virtuous cycle of introducing efficient modern technology to improve productivity that increases incomes and thus the ability of users to pay for the services, and so on. It creates a mechanism that reduces transaction costs and therefore improves the functions of markets.”


Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.