E Choupal and Project Shakti Assignment

E Choupal and Project Shakti Assignment Words: 3020

About E-Choupal [pic] ITC’s International Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability – low investment – low productivity – weak market orientation – low value addition – low margin – low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory. The Status of Execution: Launched in June 2000, ‘e-Choupal’, has already become the largest initiative among all Internet-based interventions in rural India. ‘e-Choupal’ services today reach out to more than 3. 5 million farmers growing a range of crops – soyabean, coffee, wheat, rice, pulses, shrimp – in over 31,000 villages through 5200 kiosks across six states (Madhya Pradesh, Karnataka, Andhra

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Pradesh, Uttar Pradesh, Maharashtra and Rajasthan) The Model in Action: Appreciating the imperative of intermediaries in the Indian context, ‘e-Choupal’ leverages Information Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical integration does in mature agricultural economies like the USA. ‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing –while disintermediating them from the chain of information flow and market signals.

With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – themselves, enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices & risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers’ doorsteps (decision making is now information-based).

Real-time information and customized knowledge provided by ‘e-Choupal’ enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. e-Choupal’ ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. VISION AND PLANNING BEHIND THE E-CHOUPALS Implementing and managing e-Choupals is a significant departure from commodities trading.

Through its tobacco business, ITC has worked in Indian agriculture for decades, from research to procurement to distribution. ITC’s translation of the tactical and strategic challenges it faced and its social commitment into a business model demonstrates a deep understanding of both agrarian systems and modern management. Some of the guiding management principles are: Re-engineer, Not Reconstruct The conventional view of transforming established business systems begins with the failures of the current system and develops means to change it.

ITC took a different approach by looking at the successes of the current system and identifying what they could build on. ITC not only retained the efficient providers within the mandi system but also created roles for some inefficient providers. This philosophy has two benefits. First, it avoids “reinventing the wheel” in areas where ITC would not be able to add value through its presence. Second, it recruits and engages members of the rural landscape thereby making their expertise available to ITC while preventing their expertise from being shared with ITC’s competition.

A good example of this in action is the role created for the commission agents as discussed later. Address the Whole, Not Just One Part The farmers’ various activities range from procuring inputs to selling produce. Currently, the village trader services the spectrum of farmers’ needs. He is a centralized provider of cash, seed, fertilizer, pesticides, and also the only marketing channel. As a result, the trader enjoys two competitive benefits. First, his intimate knowledge of the farmer and village dynamics allow him to accurately assess and manage risk.

Second, he reduces overall transaction costs by aggregating services. The linked transactions reduce the farmers’ overall cost in the short term, but create a cycle of exploitative dependency in the long-term. Rural development efforts thus far have focused only on individual pieces rather than what the entire community needs. Cooperatives have tried to provide agricultural inputs, rural banks have tried to provide credit, and mandis have tried to create a better marketing channel. These efforts cannot compete against the trader’s bundled offer.

Functioning as a viable procurement alternative, therefore, must eventually address a range of needs, not just the marketing channel. An IT-Driven Solution From the conception of the model, an IT-based solution was recognized as fundamental to optimizing effectiveness, scalability, and cost. Information technology is 20% of all the effort of ITC’s e-Choupal business model, but is considered the most crucial 20%. The two goals envisioned for IT are: • Delivery of real-time information, independent of the transaction. In the mandi system, delivery, pricing, and sales happen simultaneously, thus binding the farmer to an agent.

E-Choupal was seen as a medium of delivering critical market information independent of the mandi, thus allowing the farmer an empowered choice of where and when to sell his crop. • Facilitate collaboration between the many parties required to fulfill the spectrum of farmer needs. As a communication mechanism, this goal is related to the commitment to address the whole system, not just a part of the system. It should be noted that ITC did not hesitate to install expensive IT infrastructure in places where most people would be wary of visiting overnight.

It is a manifestation of the integrity of rural value systems that not a single case of theft, misappropriation, or misuse has been reported among the almost 2,000 e-Choupals. Modularity of Investments, in Size and Scope ITC managed its investments modularly along the scope and scale axes in what it terms “rollout-fixit scale up” and “pilot-critical mass-saturation. ” This incremental control of investment levels along with the clarity of revenue streams and the social import were critical in getting board approval for the initiative. Risk Assessment and Mitigation

ITC identified the following risks as it designed the business model: • Radical shifts in computing access will break community-based business models. • The sanchalaks are ITC’s partners in the community, and as their power and numbers increase, there is a threat of unionization and rent extraction. • The scope of the operation: the diversity of activities required of every operative and the speed of expansion create real threats to efficient management. Managing Bureaucracy When the e-Choupals were conceived, they faced a fundamental regulatory obstacle.

The Agricultural Produce Marketing Act, under whose aegis mandis were established, prohibits procurements outside the mandi. ITC convinced the government that e-Choupals would operate according to the spirit of the Act and thus e-Choupal procurement was in line with its goals. Since ITC would not be using the mandi infrastructure for its procurement, and would have to incur its own costs with the e-Choupal infrastructure, the government offered to waive the mandi tax on the produce procured through the eChoupal.

However, ITC recognized that the tax was a major source of revenue for the government and local mandis and, as ITC’s competition was also subject to the tax, the tax itself was not making ITC uncompetitive. ITC therefore chose to continue paying the tax rather than risking the relationships with the government and the mandis. Additional Services: Credit and Insurance Many financial institutions are hesitant to serve rural India due to lack of credit history, high delivery, transaction, and administration costs, and a erception of high risk that leads to high borrowing costs imposed on farmers. ITC proposes to address these problems through e-Choupals and partnerships with financial institutions to capture needed information and offer new products: • Capturing Credit History: Farmers in rural India borrow money from local moneylenders, through government incentives, friends, relatives, or traders. Local moneylenders and intermediates are aware of farmers’ creditworthiness and are therefore willing to loan money, albeit at a high interest rate.

Through e-Choupal, ITC now has the capability to manage credit risk through its sanchalak network which can be used not only to verify creditworthiness of individual farmers but also to continuously monitor credit risk. ITC will be able to create a consolidated farmers’ database with information pertaining to their holdings and transactions that can be used as a source of credit report profiles. • Transaction and Administration Costs: For major financial institutions, transaction costs involved in servicing the rural market have been high because of the difficulty in reaching the market.

E-Choupal can help overcome this problem by leveraging the IT infrastructure and the sanchalak network, thereby lowering administrative costs. ITC plans to partner with larger banks such as ICICI to design products for rural India. Some of the products being designed include: • Non-cash loans for farm inputs: Instead of giving cash to the farmer directly, the financial institutions will purchase farm inputs on behalf of the farmer. Farmers are expected to pay back loans for the purchase price to the financial institution. Loans to sanchalaks: Instead of giving loans directly to farmers, loans will be given to sanchalaks who, in turn, will loan money to farmers. Sanchalaks can manage credit risk better than financial institution because they have better access to the farmer, and therefore more accurate information. • Direct loans to farmers based on sanchalak recommendations: In this case, sanchalaks’ commissions are based on the loan recovery and therefore the have incentive to monitor the risk on a continuous basis. • Insurance and Risk Management Services: Insurance products have been designed to deal with rural cash-cycles.

There is recognition that in bad years, farmers may not be able to pay the insurance premium. Rather than penalize the farmer when his policy, ITC allows for catch-up payments in later years or, as an alternative, the reduction of the final payout. ITC uses the eChoupal Web infrastructure to set up and issue electronic reminders for premium payments. This addresses a major weakness of the current insurance system. The agents currently selling insurance have little incentive to encourage renewals and the lapse rate among policy is high.

A system of interlocking instruments has been set up so that insurance premiums can be credited with quality bonus points from the farmer’s soy sale. The sanchalak is assisted in making the sales pitch by informational Web-casts and video presentations. The e-Choupal model shows that a large corporation can combine a social mission and an ambitious commercial venture; that it can play a major role in rationalizing markets and increasing the efficiency of an agricultural system, and do so in ways that benefit farmers and rural communities as well as company shareholders.

ITC’s example also shows the key role of information technology—in this case provided and maintained by a corporation, but used by local farmers—in helping to bring about transparency, to increase access to information, and to catalyze rural transformation, while enabling efficiencies and low cost distribution that make the system profitable and sustainable.

Critical factors in the apparent success of the venture are ITC’s extensive knowledge of agriculture, the effort ITC has made to retain many aspects of the existing production system, including retaining the integral importance of local partners, the company’s commitment to transparency, and the respect and fairness with which both farmers and local partners are treated. Project Shakti [pic] Shakti: The Vision HLL envisions the creation of 1,00,000 Shakti Entrepreneurs covering 5,00,000 villages, and touching the lives of 600 million rural people by the year 2010.

Why Shakti? EMPOWERING WOMEN IN RURAL INDIA The objective of Project Shakti is to create income-generating capabilities for underprivileged rural women, by providing a sustainable micro enterprise opportunity, and to improve rural living standards through health and hygiene awareness. Following the pioneering work carried out by Grameen Bank of Bangladesh, several institutions, NGOs and government bodies have been working closely, for nearly five years, to establish Self Help Groups (SHGs) of rural women in villages across India.

Their experiments clearly indicate that micro-credit, when carefully targeted and well administered can alleviate poverty significantly. A crucial lesson learnt was that rural upliftment depended not on successful infusion of credit, but on its guided usage for better investment opportunities This is where HLL’s Project Shakti is playing a role in creating such profitable micro enterprise opportunities for rural women. CATALYSING PROSPERITY IN INDIAN VILLAGES Under the project, HLL offers a range of mass-market products to the SHGs, which are relevant to rural customers.

HLL is investing significantly in resources who work with the women on the field and provide them with on-the-job training and support. This is a key factor in ensuring the stabilization of their fledgling businesses. HLL imparts the necessary training to these groups on the basics of enterprise management, which the women need to manage their enterprises. For the SHG women, this translates into a much-needed, sustainable income contributing towards better living and prosperity. Armed with micro-credit, women from SHGs become direct-to-home distributors in rural markets.

RISK-FREE MICRO ENTERPRISE THAT YIELDS HIGH RETURNS A typical Shakti entrepreneur conducts a steady business which gives her an income in excess of Rs. 1,000 per month on a sustainable basis. As most of these women live below the poverty line, and hail from extremely small villages (with populations of less than 2000), this earning is very significant, and almost twice the amount of their previous household income. For most of these families, Project Shakti is enabling families to live with dignity, with real freedom from want.

In addition to money, there is a marked change in the woman’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. The most powerful aspect about this model is that it creates a win-win partnership between HLL and the consumers, some of whom will depend on the organization for their livelihood, and builds a self-sustaining cycle of growth for all. Shakti: Where we are today?

The model was piloted in Nalgonda district of Andhra Pradesh in 50 villages in the year 2000. The Government of Andhra Pradesh took the pioneering step of supporting the initiative by enabling linkages with the network of DWACRA Groups of rural women set up 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 in Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Uttar Pradesh, Tamilnadu, Chattisgarh and Orissa. [pic] OTHER ACTIVITIES:

To improve the business skills of the SHG women, extensive training programmes are being held. Such workshops have already covered a large number of Shakti Entrepreneurs in Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Uttar Pradesh, Tamilnadu, Chattisgarh and Orissa. [pic] As part of their training programme, all HLL Management Trainees spend about 4 weeks on Project Shakti in rural areas with NGOs or SHGs. Assignments include business process consulting for nascent enterprises engaged in the manufacture of products such as spices and hosiery items. The future of Shakti

Having perfected the model in Nalgonda, in 2003 HLL plans to extend Shakti to a 100 districts in Madhya Pradesh, Gujarat and UP. There are other plans brewing. One is to allow other companies which do not compete with HLL to get onto the Shakti network to sell their products. Talks are on with battery companies like Nippo, TVS Motor for mopeds, insurance companies for LIC policies. “We wanted to first stabilise the project before we can look at other companies. It requires somebody with scale and size to build a platform and then invite other companies onto this platform,” elaborates Sehgal.

The most powerful aspect about this model, emphasises Sehgal, is that it creates a win-win partnership between HLL and its consumers, some of whom will also draw on the organisation for their livelihood, and it builds a self-sutaining virtuous cycle of growth for all. The next stage of Project Shakti is even more ambitious. HLL is now in the process of piloting `I-Shakti’, an IT-based rural information service that will provide solutions to key rural needs in the areas of agriculture, education, vocational training, health and hygiene. The project will be piloted in Nalgonda district again.

Based on a palm pilot, HLL is looking at sourcing appropriate low-cost hardware from Hewlett-Packard while Unilever Research out of London is developing the consumer interactivity software. As Sehgal puts it, women in the rural areas are the catalyst of change and that is why its whole programme keeps women in focus. “It’s like popcorn in a machine; one bursts at first and then everything begins popping; here too, one woman as an agent of change bursts into a movement,” he says. Clearly, it’s the rural women who give Shakti its strength.

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