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IMS ENGINEERING COLLEGE IMSEC/QF/49

FORMATS

Page 1 of 1

Issue No: 02

II- Sessional Question Paper, 2012-13 Issue Date: 1, May 2010

Prepared by: MR

Approved by: Director

Subject Name Rural Management Subject Code MBAOP-04

Roll No. of Student Max Marks 100 Marks

Max Time 3 Hours

This Question Paper contains three parts:-

Part A: - 10 Questions each of two marks. All Questions are compulsory.

Part B: - The candidate has to answer 3 out of 5 questions. Each Question carries 10 marks.

Part C: - This section contains 5 questions with internal choice. Each question is of 10 marks.

PART A

Q1. Rural

Answer: A Rural area is one, which fulfills the following criteria:

a) Does not have municipality, corporation, and cantonment board or notified town area.

b) All other places, which fulfill the following criteria:

i. population of less than 5,000;

ii. More than 25% of males population is engaged in agricultural activities;

iii. Density of population is less than 400 sq. km.

Q2. Pradhan Mantri Gramodaya Yojana (PMGY):

Answer: This scheme was launched to make provisions for providing shelter to the rural poor. It is

similar to IAY, and is supposed to assist in speedy construction of houses for the rural people

living below poverty line.

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Q3. National Old Age Pension Scheme (NOAPS)

Answer: National Old Age Pension Scheme (NOAPS) is a national Old Age Pension Scheme in

India. It was launched by Ministry of Rural Development. All persons of 65 years (and above) and

belonging to below the poverty line category according to the criteria prescribed by the

Government of India time to time, are eligible to be a beneficiary of the scheme. The pension

amount, as in Union Budget 2012-13 is INR 400 per month per person and states are supposed to

contribute an equal amount vis-a-vis the scheme.

Q4. Mid-Day Meals

Answer:It is a school-meal scheme in India, under which school going children are given free

lunch on all school days. Besides providing nutrition to the school children, this programme aims

at increasing admissions and lifting the daily attendance. Other benefits of this scheme include

enhanced inter-caste interaction between children, and more employment opportunities for rural

women.

Q5. Haats & Mandis

Answer: Haats-better known as the mobile supermarket of rural India-is the oldest marketing

channel in the country. It is a place for exchanging rural surplus for buying daily necessities as

well as farm supplies and equipment, and a place for socio-political and cultural contact.

Mandis: Mandis are oftern considered as a communication platform for the marketers. These

provide an opportunity to interact with about 200 farmers a day during harvest season.

Q6. Thompson Rural Market index

Answer: The first real and highly successful attempt at assessing the potential of Indian rural

markets was made by Hindustan Thompson Associate (HTA) Pvt. Ltd. in the year 1972. The

Thompson Rural Market Index, which it came up with, was the first guide to the market index.

HTA collected data for 334 districts of the country. For establishing accurate market potential, 11

most important factors were identified.

Q7. E-chaupals

Answer: E-Choupal is an initiative ofITC Limited, a large multi business conglomerate in India, to

link directly with rural farmers via the Internet for procurement ofagricultural and aquaculture

products like soybeans, wheat, coffee, and prawns. E-Choupal was conceived to tackle the

http://en.wikipedia.org/wiki/ITC_Limitedhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Farmershttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Aquaculturehttp://en.wikipedia.org/wiki/Aquaculturehttp://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Farmershttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/ITC_Limited

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challenges posed by the unique features ofIndian agriculture, characterized by fragmented

farms, weak infrastructure and the involvement of numerous intermediaries. The programme

involves the installation of computers with Internet access in rural areas of India to offer farmers

up-to-date marketing and agricultural information.

Q8. Agricultural Input

Answer: It refers to all those products and services that directly or indirectly assist in the

conversion process, resulting in some kind of agricultural output. Some major input are seeds,

fertilizers, pesticides, farm implements, veterinary products, medicines, transportation

equipments, farm animals, human labor, credit etc.

Q9. Village Adoption Scheme

Answer: To improve the condition of the countrys rural population, the bank has come up with

the Village Development Plans (VDPs). Under this plan/scheme, villages are selected and their

holistic development (economy, education, healthcare, infrastructure, communication, creditaccess) is taken care of. For this purpose, bank can appoint any Government Organization, NGO,

Village development committee, Corporative Societies, Post Offices etc as Nodal Agencies. These

agencies are responsible for the implementation of development plans for the adopted villages.

Q10. NABCONS

Answer: NABARD Consultancy Services (Nabcons) is a wholly owned subsidiary promoted by

National Bank for Agriculture and Rural Development (NABARD) and is engaged in providing

consultancy in all spheres of agriculture, rural development and allied areas. Nabcons leverages

on the core competence of the NABARD in the areas of agricultural and rural development,

especially multidisciplinary projects, banking, institutional development, infrastructure, training,

etc., internalized for more than two decades. The Company is registered under the Company's

Act, 1956, with an authorized capital of Rs 250 million (US $5.75 million) and paid up capital of Rs

50 million (US $1.15 million). In tune with NABARD's mission to bring about rural prosperity,

Nabcons has more than just commercial interest in the assignments it undertakes.

http://en.wikipedia.org/wiki/Agriculture_in_Indiahttp://www.nabcons.com/aboutnabard.aspxhttp://www.nabcons.com/aboutnabard.aspxhttp://en.wikipedia.org/wiki/Agriculture_in_India

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PART B.

Q1. Is the future of rural India bright?

According to the census of India village with clear surveyed boundaries not having a municipality,

corporation or board, with density of population not more than 400 Sq.km and with at least 75%

of the male working population engaged in agriculture activities would quality as rural. According

to this definition there are 6,38,000 villages in the country of these 0.5% has a population about

10,000 and 2% have population between 5,000 and 10,000 around 50% has a population less

than 200. Interestingly, the FMCG and consumer durable companies, any territory that has more

than 20,000 &50,000 population respectively in rural market so for them it is not rural India

which is rural. According to the census of India 2001, there are more than 4000 towns in the

country. It has classified them into 6 categories around 400 class-I to towns with 1,00,000 andabove population, 498 class-II towns with 50,000-99,999 population, 1368 class-III towns with

20,000-50,000 population, 1560 class IV towns with 10,000-19,999 population. It is mainly the

class-II & class-III towns that markets term as rural. The problems of rural marketing are

continuing in spite of efforts to improve in a 9th five year plan. The position is improving but

slowly the rural marketer has many challenges. But the vast & expanding markets call for good

marketing strangers to create win situations to all parties in the chain of rural marketing. The

Indian rural market with its vast size and demand base offers great opportunities to marketers.

Two thirds of countries consumers live in rural areas and almost half of the national income is

generated here. It is only natural that rural markets form an important part of the total market of

India. Our nation is classified in around 450 districts, and approximately 630000 villages, which

can be sorted in different parameters such as literacy levels, accessibility, income levels,

penetration, distances from nearest towns, etc. Rural marketing and urban marketing are

identical as regards basic marketing structure. However, rural markets and rural marketing have

special features and dilemmas as compared to urban markets. The rural markets offer a great

scope for a concentrated marketing effort because of the recent increase in the rural incomes

and the likelihood that such incomes will increase faster because of better production and higher

prices for agricultural commodities. The rural markets dominate Indian marketing scene and need

special attention for the expansion of marketing activities and also for providing better life and

welfare to the rural people.

Given the development, which has taken place in the rural areas under the five- year plans and

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other special programmes, today the rural market offers a vast untapped potential. Development

programs in the field of agriculture and allied activities, health education, communication, rural

electrification, etc have improved the lifestyles of poor and the illiterate and some market

agencies forecast the rural demand will supercede the urban demand in the near future.

Profile of Rural Marketing

1. Fast changing pattern and demand

During the last decade the rural consumers were in need for low end products which would

meet their basic demands and necesities. But of lately due to change in technology rather

advancement in technology the demand for people have also changed and the buying

pattern which initially comprised of basic products have now shifted to luxiorous products.

2. Large and scattered market

In the 1st place, in terms of number of consumers, the rural market of India is a very largemarket; it consists of more the 600 million consumers. The second aspect is that

geographically, it is a vast market. Practically the role of India, barring the metropolitan cities

and towns constitute the market. It is also highly scattered market: the consumers are

scattered over 5,70,000 villages spread through the length and breadth of the country. In

terms of business generated too, it is a big market; 22000 crore rupees worth of non-food

consumer goods are being sold per year in the market at present.

3. Heterogeneous market

It is not as if the whole of rural India can be taken as one homogenous entity. There is a great

deal of difference among the various states in this regard. A study conducted by IMRB

provides some clue to the relative status of the rural areas of different states. The study

provides development index points for each state in the country collected village level data

on various parameters such as availability of health and education facilities, the nature of

facilities, availability of public transport, electricity transmission, banks, post offices, water

supply and so on. A weight was decided upon for each facility, by type, based on the relative

importance of that facility in industry to the extent of development reached by that village.

The study has demonstrated that while the average village in India has 33 development index

points, Keralas average 88; Bihars is just 22; MP, Rajasthan and UP are close to Bihar; and

states like Maharashtra, Haryana, Karnataka range between 40 and 50.

4. Demand, Seasonal and Agriculture Dependent

Regarding the nature of demand for various products, it can be seen that the demand is heavily

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dependent on agriculture. And as a natural corollary, it is seasonal in character. It is irregular as

well, since agriculture in many parts of India still depends on the vagaries of the monsoon. Rural

demand is not only harvest linked but also festival linked the festivals often coinciding with the

harvest.

Characterised by Great DiversityThe rural consumer of India is also vastly diverse in terms of religious social, cultural and

linguistic factors.

Steady Growth Despite Inhibiting FactorsDespite several inhibiting factors, the rural market of India has grown steadily through the years.

This is evident from the data presented earlier. Not only has the market grown in quantitative

terms, but qualitatively too, it has undergone a significant change. Many new products have

made their entry in to their rural market basket. The upper segment in particular have startedbuying and using a variety consumer products which were till recently unknown in the rural. In

fact the impression that the rural market is confined to certain traditional consumer product and

agri-inputs have totally lost its validity in todays context.

Q2. Discuss the fundamentals of pricing in rural markets:

Economists defines price as the exchange value of a product or service always expressed in terms

of money. In simple terms price is the amount charged for the product or service. To the buyer

price is a package of expectations and satisfaction. To the seller price is a source of revenue and

main determinant of profit.

Kinds of pricing:-

A firm may choose various kinds of pricing for their products:-

1) Odd pricing: - odd price may be a price ending in odd number or a price just under a round

number. Such a pricing is adopted generally by the seller of specialty or convenience goods.

E.g. Bata shoes are priced at 399.95. Odd price may bring more sales. Under odd pricing, buyers

may feel that it is a mark down price.

2) Psychological pricing: - it is stated that there are certain critical points at prices such as

1,2,4,5,10 are psychologically appearing to consumers.

E.g.. Products such as shampoo, chocolates and biscuits are sold at certain price to attract

customers.

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3) Prestige pricing: - Prestige pricing is one that is fixed at a higher price, when the producers

near perfect substitute. Prestige pricing is adopted because many customers feel that high price

means high quality. Moreover the customer heels a high status at a high price.

4) Consumers expectations: - Such prices are fixed by consumers. Consumers are familiar with

the rates and market condition and expect a particular price to be charged for certain products.

5) Geographical pricing: - the distance between the seller and the buyer is considered on

Geographical pricing. When there is lot of distance between production center and consumption

centre, the producer or marketer can adopt different prices in each area without creating any

ill/will among customers.

There are two ways of charging transit cost.

a) F.O.B pricing (free on board): - F.O.B may be of two types

i) F.O.B origin and F.O.B destination: - In the first case, the buyers will have to incur the cost oftransit a part from the price quoted and in the latter the price quoted is inclusive of transit

charges.

6) Zone pricing: - Price is equal in the same zone. Market for a product is divided into various

zones. South zone, north zone etc. In other words price are uniform with in a zone.

7) Price lining: - price lining is formed more commonly among retailers than among wholesaler or

producers. This system consists of selecting a limited number of prices at which the store will sell

it goods. E.g. A buyer of shirt can go into a shop where shirts are retailed between 250/- t 500/-, it

also helps the shopkeeper to plan his purchases.

8) Dual pricing: - when a manufacturer sells the same product at two different prices, it is dual

pricing. Under the dual pricing a producer is required compulsory to sell a part of production to

the govt or its authorized agency at substantially low price. The rest of the product may be sold in

the open market at a price fixed by the producers. Eg. Sugar.

9) Negotiated pricing: - it is also known as variable pricing. This method is invaluably adopted by

industrial suppliers. In certain cases, the product may be prepared on the basis of specification or

designed by the buyer. In such cases the pricing has to be negotiated and then fixed.

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Q3. Explain in detail the rural retail environment

Today Indian consumers are becoming very unpredictable. The consumer today, is richer,

younger, eager to accept changes and more aspiration in his/her needs than ever before. This

Statement is not confined to urban India but also applicable to rural India. A range of modernretailers are attempting to cater to the needs of the new Indian consumer. The last few years

have witnessed an explosion of organized retail formats like supermarkets and hypermarkets in

an otherwise fragmented retail market in India. At present 85% of the organized retailing takes

place in Indias urban areas. A very little part of rural market is covered by organised retailers like

Hindustan Uni Levers Shakti, Indian Tobacco Companys e-Choupal and DCM Shriram

Consolidated Ltd.s Hariyali. During the boom years, as the urban middle class was growing,

marketers spared little thought for the rural consumers. Now, when the urban market is near

saturation in the face of stiff competition from global players, the marketers are targeting the

rural markets as this seems to be the only way to maintain their market share. Now the focus is

at bottom of the pyramid, what Prof. C.K. Prahalad has called tier III of Indian societythe

bottomdown, 600 million people living in 6 million odd villages comprising 12% of worlds

population, which is now attracting not only Indian corporate houses but also global retail

leaders. Overall, there is a huge market which is waiting to be served, ready to splurge, willing to

explore new products, brands and services. Organised retailers can tap on their wallets given

they do their homework well. According to India Retail Report 2009 by Images, - India's rural

markets offer a sea of opportunity for the retail sector. The urban-retail split in consumer

spending stands at 9:11, with rural India accounting for 55 percent of private retail consumption.

Now the questions arise, what is the model of retailing in rural India? Is the present model being

used in rural India sufficient or do we need some different models? What are the preferences of

rural customers? What are the factors affecting the purchase decisions of rural customers? What

is the satisfaction level of rural customers with the existing retail market? In this paper we have

attempted to explore the above mentioned issues.

India like most other countries has a very large network of local stores spread all across

India. It is not really a network since each store is individual or family owned and has no

connection with the other. It does however represent a network since large consumer product

companies like Unilever, Procter & Gamble, Colgate-Palmolive, Cadbury, Coca-Cola, Pepsi and ITC

uses them as their final point of retail to the consumer. These small stores are very personal and

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have built strong relationship with the local population. They are points of news and connection.

They offer credit to the local population and help out in times of crisis. They also have a very good

understanding of requirement of the local population and have very low overheads enabling

them to offer the best price for their products. However, it is believed that the new retail chains

will drive these small stores out of business (Gill 2007).

Demographic profile of rural Indian market

No. of Villages 638,691

Rural

Population

741

Million

There are total 3,697,527 retail outlets in rural India

Rural literacy rate( 7 year and above) is 45% The no of middle income and higher income household expected to grow up to 111 million Rural market is growing up to 5 times than urban market Investment in formal saving instruments: 6.6 million household in rural 6.7 million in urban 145,98 villages with population less than 200 and 13,113 Villages with population over 5000 7271 Villages with railway station 1,38,000 villages with post offices 15039 Villages with hospital 12 million rediff signup out of total 20 million are from rural area FMCG segment with an estimated annual size of 50,000 cr. 32000 rural bank branches # Sources census of India 2001 Global Retail development index

2010

Major Retailers In Rural India

Now we analyze the existing rural retail penetrations in India. There are many players

which are directly or indirectly involved in rural markets. Some big ones are ITC, HUL, DSCL and

Gillette. Almost all telecom companies have penetration and retailing in rural markets.

ITC e-Choupal & Chaupal Sagar

e-Choupal is termed as one of the most innovative concepts of independent INDIA. e-

Choupal is an initiative of ITC Limited, a large multi business conglomerate in India, to link directly

with rural farmers via the Internet for procurement of agricultural and aquaculture products.

Following the success of the e-Choupal, the Company launched Choupal Saagar, a physical

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infrastructure hub that comprises collection and storage facilities and a unique rural hypermarket

that offers multiple services under one roof. This landmark infrastructure, which has set new

benchmarks for rural consumers also incorporates farmer facilitation centres with services such

as sourcing, training, soil testing, health clinic, cafeteria, banking, investment services, fuel station

etc. 24 'Choupal Saagars' have commenced operations in the states of Madhya Pradesh,

Maharashtra and Uttar Pradesh. ITC is engaged in scaling up the rural retailing initiative to

establish a chain of 100 Choupal Saagars in the near future.

Hindustan Unilever Limited (HUL) - Shakti

Shakti was initiated to reach the massive un-served and under-served markets that

cannot be economically and effectively serviced through traditional methods. HUL identifies

underprivileged women in villages and these women are trained to become Shakti Entrepreneurs

(SEs) i.e. distributors of HUL products in villages to earn a sustainable income through thisbusiness. HUL invests resources in training these village women to become entrepreneurs by

helping them become confident and independent. They are also a source of inspiration for the

other women in the community. Hence, besides being a sale, distribution and communication

initiative, Shakti is a micro-enterprise initiative that creates livelihoods and improves the

standard of life. The Shakti initiative also enables rural consumers to access world class products,

thereby reducing the menace of spurious products. Today, it benefits business by significantly

enhancing HUL's direct rural reach and enabling communication of HUL's brands effectively in

media-dark regions. The products distributed through project Shakti are some of the country's

most trusted brands of consumer goods which are specifically relevant to rural consumers. From

17 SEs in 1 state in 2001 to more than 45,000 SEs in 2008, Shakti has indeed come a long way in

impacting lives in rural India. For HLL greater penetration in rural areas is also an imperative -

presently over 50 per cent of its incomes for several of its product categories like soaps and

detergents come from rural India. The challenge for HLL now is to take its products to towns with

a smaller population - under 2,000 people. As Sehgal points out, HLL's conventional hub-and-

spoke distribution model which it uses to great effect in both urban and semi-urban markets

wouldn't be cost-effective in penetrating the smaller villages. Now, with this new distribution

model, the smaller markets are now being referred to as `Shakti markets'.

DSCL-Hariyali Kisaan Bazaar

"Hariyali Kisaan Bazaar" - a rural business centre, is a pioneering micro level effort, which

is creating a far-reaching positive impact in bringing a qualitative change and revolutionizing the

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farming sector in India. It is also an example of how well meaning corporate can contribute to

development of agriculture by building sustainable business models. Each "Hariyali Kisaan

Bazaar" centre operates in a catchment of about 20 kms. A typical centre caters to agricultural

land of about 50000-70000 acres and impacts the life of approx. 15000 farmers.

Q4. Discuss the process of developing the effective rural communication.

Rural communication is an interactive process in which information, knowledge and skills, relevant for

development are exchanged between farmers, extension/advisory services, information providers and

research either personally or through media such as radio, print and more recently the new

Information and Communication Technologies (ICTs). In this process all actors may be innovators,

intermediaries and receivers of information and knowledge. The aim is to put rural people in a

position to have the necessary information for informed decision-making and the relevant skills to

improve their livelihoods. Communication in this context is therefore a non-linear process with the

content of data or information.

The situation concerning communication in rural areas of developing countries is characterized

by:

1 A dearth of information (absence of providers and of local communication content);

2 Conflicting messages (difficult to know what is relevant/correct information);

3 A fragmented market for information with many individual clients or client groups;

4 Relatively few clients scattered over a large area;

5 Structural transformations leading to constantly changing channels and content and a lack of

the necessary skills for communication; and

6 A lack of well developed ICT infrastructure and low levels of ICT skills.

In rural areas, communication needs and available channels are facing tremendous changes

through structural transformations: subsistence oriented farming remains the basis for food

security especially in disadvantaged areas, while there is a general shift to move intermediate

farmers into market-oriented production. Market-oriented farmers need to stay competitive in

an increasingly global business environment. While agriculture remains the mainstay for rural

people, information and skills for alternative livelihoods gain in importance, not only as an exit

strategy, but also for the increasing division of labour. Each of these groups of farmers has

specific communication needs and capacities for innovation, management and finance. However,

client/demand-oriented service provision for innovation, information, qualification and local

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organizational development remains the key driver. Ongoing decentralisation of government

functions and services improve the prospects of local political decision making. These reform

processes and their opportunities and consequences need to be communicated properly to rural

people. Lobbying by organized groups, as a form of communication to politicians, becomes a

necessary activity to voice rural interests. On the other side, efforts to close the information gap

and, in particular, the digital divide in rural areas, have been supported by the wider availability

and accessibility of communication technologies and infrastructures, like internet, rural radio and

mobile phones.

Q5. Elaborate the rural financing institutions.

Co-operatives

In post-independence India, the foundation for building a broad base for the agricultural

credit structure was laid by the Report of the All-India Rural Credit Survey (AIRCS) of 1954. As

1 Policy

Policies enabling effective

communication betweenresearch, advisory services,

and farmers organizations in

rural areas

3. Monitoring & Evaluation

Systematic learning from

experiences in

communication approaches

4. Farmers Organization

Representative Farmers

organizations as partners in

communication

5. Participatory Methods

Use of participatory methods for

active involvement of all partners

in communication6 Media Strategy

Integration of a media-mix to

achieve the desired

communication objectives

2 Capacities

Service providers are skilled in communication and have a

positive attitude to communicate with clients

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noted above, the provision of cultivator credit through cooperatives remained meagre, at just

over three per cent in 1951/52, and less than one per cent for the commercial banks.

Furthermore, in the Committees view, funds supplied by moneylenders were subject to

usurious interest rates and other malpractices. The Committee observed that agricultural

credit fell short of the right quantity, was not of the right type, did not fit the right purpose

and often failed to go to the right people. It was observed that the performance of the

cooperatives was deficient in many ways but, given their spatial spread, their vital role in

channeling credit to farmers was recognised. This was summed up in the Committees famous

dictum that: cooperation has failed but itmust succeed . Much debate occurred regarding

the optimum size of cooperatives, the services to be provided, relations with government

schemes, their role in poverty reduction, and their viability. The partnership with the State to

enhance cooperatives lending capacity through provision of equity capital soon resulted in

increased State involvement in the running and control of these organizations. With the

Reserve Bank of India (RBI) providing re-finance capital, little attempt was made to look at

cooperatives as financial intermediaries, and instead, they largely became windows through

which re-finance was channeled. By the mid-1960s, disenchantment with the cooperatives

had set in. Successive committees identified problems of mounting overdues, politicisation,

weak governance and management, and failure to achieve effective lending to the poor.Attention therefore shifted to the commercial banks as an additional, and later the primary,

institutional channel for the provision of rural credit.

Commercial Banks

In 1954, The All-India Rural Credit Survey Committee, in addition to conceiving of the

cooperatives as the main agency for providing credit to agriculture, had also urged a well

defined role for the commercial banks in delivering credit to this sector in specialized areas

such as marketing, processing, storage and warehousing. Towards achieving bank

involvement in rural credit provision, it recommended the establishment of the State Bank of

India (SBI), through the nationalization of the then Imperial Bank of India, and, through the

SBI, extension of commercial bank facilities to rural and semi-urban areas. Against this

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background, weaknesses in the cooperative system became increasingly apparent; the

pressures to find institutions complementary to the cooperatives became greater. In 1969 the

major commercial banks were nationalized, beginning a huge expansion of the rural banking

infrastructure and the second phase of institutional rural credit provision. The focus shifted

from cooperatives as the sole providers of rural credit to a multi-agency approach. The Lead

Bank Scheme was devised, under which a lead bank in each district took responsibility to plan,

monitor and coordinate credit provision, identifying development needs and how these could

be shared by the banks. The aggregation of district plans led to the State Credit Plan which

was monitored by the State Level Banking Committee. During the 1980s, problems became

apparent with this top-down planning mechanism. Little credit was flowing to the agricultural

sector and the banking system had yet to adjust itself to the rural sector. In contradistinction

to the top-down planning process under the lead bank scheme, it was felt necessary by the

RBI in 1989 to design a bottom-up planning approach, termed the Service Area Approach.

Under this approach specific geographical areas were defined for each bank branch. The

branch was required to conduct village-level surveys, to identify credit requirements, to

conduct inventories of assets held, and to make plans to meet any resource gaps. The village

level plans were then aggregated into block, district and State plans. The rural branch

manager was to be the friend, philosopher and guide to the rural population. However, onceagain, the suitability and capacity of a particular institutional form to reach the rural poor

came to be questioned.

Regional Rural Banks

Even after nationalization of the major commercial banks, and the development of the lead

bank and service area approaches, a large proportion of the rural population still remained

outside the banking fold. In the mid-1970s it was recognized that, though the commercial

banks had done well in terms of branch expansion, they were tending to reach only the

middle-income and rich farmers. Moreover, as a group of institutions, banks were felt to be

out of touch with local requirements. The cooperatives continued to be dogged by insufficient

resources, and organizational and governance weaknesses. A Committee was appointed in

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1975, chaired by M. Narsimham, to examine whether another type of institution could target

the unbanked - one that combined the local knowledge and feel of cooperatives with the

professionalism and resources of the banks. This resulted in the establishment of a new kind

of bank, the Regional Rural Bank (RRB), mandated to reach the poorest in credit-deficient

areas of the country. The number of RRBs expanded rapidly: from just five in 1975, to 121 in

1980 (with 5,400 branches) to 196 in 2003 (with 14,522 branches). The RRBs were

sponsored by commercial banks which held 35 per cent of the equity, the balance being

held by the Government of India (50%) and the respective State Government (15%). The RRBs

were to be low cost institutions, at least compared to the commercial banks, and staff salaries

were to be on par with those pertaining in state governments. The sponsor commercial banks

were to provide management and training, in addition to credit support. However, the design

structure of the RRBs was flawed. They had high co-variance of risk and were specially

mandated only to lend to weaker sections of society at concessional rates of interest.

Furthermore, the staff soon gained pay-scale parity with their commercial bank counterparts,

thus defeating the objective of developing a low-cost alternative to the commercial banks.

With weaknesses steadily developing in the system, the RRBs made substantial losses, which

on the eve of the reform process aggregated toRs10 million per day.

PART C

Question 1.

Define rural India and rural markets also identify few common rural myths

Profile of Rural Consumer

1. Size of rural consumer population:

Now 76% of Indias total population is rural. If we consider the state level picture, in several

states like Uttar Pradesh, Madhya Pradesh, Rajasthan and Kerela, the rural population constitutes

more than 80% of the total population. And there are also states like Bihar and Orissa where as

much as 90% of the total population is rural.

2. Significant Aspects of Rural Consumer Profile

Coming to consumer characteristics, it can be seen that in general sense, low purchasing power,

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low standard of living, low per capita income, low literacy level and overall low economic and

social position are the traits of the rural consumers. By and large, the rural consumers of India are

a tradition bound community; religion, culture and even superstition strongly influence their

consumption habits. Colgate Herbals priced at Rs.12 for a 50 gm, Rs.22 for a 100gm and Rs.41 for

a 200gms tube is an attempt to sell value added toothpaste at the lower end, where the Indian

brands are hoping to shut the multinationals. This is a variant for the boring white Colgate cream,

which is used over the years by the rural people. Also, since the literacy level is low its

advertising campaign never gave emphasis to the same old calcium content rather this time more

over giving importance to the latest technology and the natural qualities that are well defined by

the character Billoo in the advertisement.

3. Location Pattern of Rural Consumers

Whereas the urban population of India is concentrated in 3,200 cities and towns, the rural

population is scattered over 5,70,000 villages. Statistics show that out of 5, 70,000 villages only

6,300 have a population of more than 5,000 people each. More than 3 lakh villages or more than

55% of the total number of villages are in the category of 500 people or less and more than 1.5

lakh villages or 25% of the total are in the category of 200 people or less. The inference is clear;

rural demand is scattered over a large area, unlike the urban demand, which is highly

concentrated. Take the case of Colgate again. Why is it the leader in the dental care products? It

did not even leave the rural area with minimal of 200 people per village as compared to the

heavily populated area with an average population of 5000 people per village. Now, it has

established itself in such a way that people accept Colgate as the tube with red and white box.

Hence, they havent changed the color of the box for say a decade and a half.

4. Literacy level

It is estimated that rural India has a 23% literacy rate compared with 36% of the total country.

The adult literacy program launched by the government in the rural areas are bound to enhance

the rural literacy rate in the years to come. Two aspects need to be specially emphasized: (1) In

absolute numbers, there are 11.5 crore of literate people in rural India compared with 12 crore in

urban India, and (2). Every year 60 lakh is getting added to the literate population of Rural India.

Looking at the second point theres something for the company for the taking. Coco Care had a

brilliant strategy to market itself in different Indian villages, depending on the most spoken

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language over there. Say in Maharashtra it had flyer distribution done in Marathi as a medium of

communication.

5. Rural Income

An analysis of the rural income pattern reveals that nearly 60% of the rural income is from

agriculture. Evidently, rural prosperity and the discretionary income with the rural consumer is

directly tied up with agricultural prosperity. Anything that contributes to agricultural prosperity

will directly result in increase income for the rural population and the consequent increase in

their spending capacity. The pre dominance of agriculture in the income pattern has one more

significance ie- rural demand is more seasonal.

6. Rural Savings

Statistics reveal that in recent years, rural consumers have been drawn into the saving habit in a

big way. The commercial banks and the co-operative have been marketing the saving habits inrural areas for quite some years. Today, as much as 70% of the rural house hold are saving a part

of their income. The habit is particularly widespread among salary owners and self employed

non-farmers. Since the major income in the rural areas is from agriculture the demands turns out

to be seasonal. Take the example of Hero Honda Splendor; it had a major promotion done in the

crop-cutting season, as this being that golden season for the farmers.

Potential and Changing Pattern of Rural Marketing

Consumer products where rural consumption is more than urban consumption are

Bicycles 80% Rural 20%

Urban

Safety razor blades 67% Rural 33%

Urban

Silk Clothing 59% Rural 41%

Urban

Books & Stationery 55% Rural 45%

Urban

Woolen Clothing 53% Rural 47%

UrbanOther Consumables 53% Rural 47%

Urban

Generators 95% Rural 05%

Urban

Products where rural consumption growth rates are higher as compared to urban markets

are as follows:

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Packed Tea Alcoholic Beverages

Tobacco Products

Medicines Detergent Powder Soap Cake/Bar Detergent Cake/Bar

Due to television the rural consumer is aware of international products. Literacy has

brought about a change with respect to the rural outlook. New employment

opportunities due to change in government policies has resulted in round the year

income for at least a certain section of the rural population. Green Revolution and

after the Indian farmer has become prosperous. The savings pattern of rural India has

resulted in better buying power for the rural consumer.

OR

Understand the rural infrastructure, government support and its relevance for marketing.

The infrastructure facilities like roads, rural electrification, public distribution system, cinema,

television coverage and the like have also received considerable attention in rural areas.

Rural electrification Rural electrification has gone on in a big way. The main aim is to provide

electricity for agricultural operations and for rural and cottage industries, in addition to lighting. The

central government created an organization called Rural Electrification Corporation with the sole

objective of financing the rural electrification projects. Due to these efforts, the number of villages

with electricity supply stood at about 4.92 lakh in 1993-94, which accounts for a coverage of nearly 85

per cent of the villages. Probably by the end of ninth five year plan almost all the villages would have

got electricity. This apart, the electricity tariff charged in rural areas is very low, compared to urban

areas. In some states like Tamil Nadu, Andhra Pradesh, Punjab and Karnataka the supply of electricity

is almost free for agricultural purposes. In certain other states, a fixed charge is levied, which is

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irrespective of the quantum of consumption. These factors have increased the demand for electric

motors and pump sets and also for other electrically operated agricultural machinery like threshers

and winnowers.

RURAL COMMUNICATION

Efforts have been made to connect the villages with all weather proof roads, so that they are

accessible throughout the year. It has been estimated that about 46 per cent of the villages were

connected with all weather roads, while 54 per cent remained inaccessible during rainy seasons. There

are states where all the villages are connected by roads and also a public transport system, which

touches the village at least once a day. The railways network runs through rural areas, connecting

atleast a few thousands of villages. It has been estimated that during 1992-93, the total rail length was

62,500 kilometers. This means that there was 19.01 km rail length per 1000 sq. km. Area or 7.39 kmrail length per lakh population. At least a part of this should be running through the rural areas. The

increase in rail length has not been significant in the recent years and hence the possibility of all the

villages getting rail transport is remote. The road length position appears to be more encouraging

when compared to railways. The total road length in the country was about 1.491 million kms in 1980-

81, which increased to 2.037 million kms in 1990-91. The surfaced roads proportion also increased

from 46 per cent to 49 per cent during the corresponding period. In other words, the road length

which was 218 km per one lakh population in 1980-81 increased to 241 km per one lakh population in

1990-91. Now golden quadrangle road scheme is under progress which will connect entire India from

east to west and from north to south. It would be another feather in the cap of the rural development

and the rural economy and development will be on fast track.

Cinema houses The number of cinema houses have been increasing moderately. It is hoped that most

of the cinema houses will come up in semi-urban and rural areas, since the urban areas are covered

not only by Television but also by Cable TV and VCRs. The access to TV in rural areas being

unsatisfactory, the cinema houses will have better prospects of surviving in rural areas than urban

areas. The cinema viewing habit in rural areas is quite encouraging also.

Television

The television broadcast covers 93 per cent of the population, accounting for 26 per cent urban

population, who are totally covered by telecast, the balance 67 per cent should be the rural populace.

In fact, in any area, the rural population covered by broadcasting kendras, is more than the urban

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population covered. As per a survey conducted by IMRB (Indian Market Research Bureau), 77 per cent

of villages are covered by TV network. The percentage of villages covered in South India is about 83

per cent, which is more than the other regions. It is also interesting to note that among the villages

covered by TV transmission, 94 per cent had electricity supply. In such villages, a single community

television set can work wonders. This medium may prove to be a boon for marketing personnel for

promotion and communication, if effectively used. The country is well linked by postal network.

Presently there is a move to see that every village has atleast one telephone for communication with

the outside world.

Rural credit institutions For a long time, the cooperative societies were the only organized agencies for

disbursing credit in rural areas, apart from a host of private sources like money lenders, traders,

commission agents and others. After nationalization of banks in 1969, a number of branches have

been opened in rural areas to provide credit for agricultural operations. While the number of Primary

Agricultural Credit Cooperative Societies (PACS) in the country is about one lakh, nearly 70 to 75 per

cent of the 60,000 odd branches of commercial banks are located in rural areas. In addition, there are

also 196 regional rural banks, which function with one or two districts as their jurisdiction. These

agencies have enabled the farmers to obtain credit at affordable interest rates, for purchases of all

agricultural inputs. In fact, nearly 90 per cent of tractor purchases in rural areas are out of the loans

provided by Land Development Banks and nationalized and non-nationalised commercial banks

refinanced through NABARD. Coupled with technology diffusion in rural areas, the improvement in

infrastructure facilities has created demand for not only agricultural inputs in rural areas, but also for

other products like mopeds, electrical goods, toilet soaps, washing soaps, services like banking,

education, health, etc. Thus, today the rural areas also demand a number of products which can be

classified under various categories. The requirement of rural areas have considerably expanded both

in width and depth. In fact the rural market demand outstrips the urban demand in states like Punjab,

Haryana, Western Uttar Pradesh, Tamil Nadu, Andhra Pradesh and Maharashtra. With the various

development programmes under implementation, the rural demand is likely to be equal to urban

demand.

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Question 2.

Describe the customer buying behavior model in rural India in terms of cultural, social, personal and

psychological factors.

Consumer behavior in the rural market is even more perplexing because of a singular lack of

consistency in groups which are homogeneous in parameters of demographics- Age, occupation,

education and income. Most marketers realize that India is on the cusp of momentous change. The

economy is vibrant, incomes are rising & the habits, preferences & attitude are changing rapidly. But

no where is it more evident than in rural India. There is, thus an emerging need to build expertise in

rural marketing. There are three challenges that rural marketers must overcome. The first of this is the

challenges of reach-markets in the rural India that are small & scattered making them inaccessible &

unreliable or both. But this problem is not new & many companies let it hamper them unduly even asothers overcome it with innovation. The next challenge is to ensure that the consumers are aware of

your brand and want it. The third challenge in RM is influence. It is an old saying that customer is the

king because he is the person whose decision have affect on the demand of any product or service.

The attitude of consumer or buyer decides how demand will emerge for a new product & service &

how existing goods and services would survive in future and in which manner. Consumers pass

through five stages while making a purchases decision. In low involvement rural and urban consumers

may skip some of these stages. A woman buying her regular brands of daily use, groceries will identify

the need and purchases from the shop, skipping two stages. It is in the purchase of high-involvement

products that a rural consumer display different motives relating to the problem recognition, source

of information, Evaluation procedures, collective decision and different post purchase behavior. This

creates need to treat each stage of the marketing process differently for rural and urban consumers.

Stages in the buying process

Problem Recognition

Information search

Evaluation of alternatives

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Purchase decision

Post-purchase behavior

In competitive environment one cannot thrust a product on consumer. He has to produce what is

demanded or what can be demanded. Some of the advantage of study of consumer behavior is as under-

Saves from disaster.

Helps in formulating right marketing strategy.

Helps in sales promotion.

Helps in development of new products.

Helps in product orientation.

Helps consumer to study their behavior.

UNDERSTANDING RURAL CONSUMER

In the initial years the focus was on the easily accessible well developed urban market. Soon there was

proliferation of brands and intense competition resulting in the near saturation of the urban market. This

forced companies to go for greener a pasture that is new markets. All eyes turned to the world most

promising potential market of 742 million rural consumers, who had yet to taste the fruit of modernity. A

promise that seemed ready to be fulfilled because of explosion in the buying capacity in the rural sector.

SEVERAL MYTH ABOUT THE RURAL SECTOR

The belief that rural people do not buy brands.

The belief that rural customer buy cheap products. In reality they seek value for money.

The belief that the rural market is homogenous mass. In fact it is fascinatingly heterogeneous.

The census of India defines rural as any habitation with a population density of less than 400 per square

kilometers where at least 75% of male working population is engaged in agriculture & where there exists

no municipality or board leaning aside Hindustan Uniliver Limited & ITC, most companies in the FMCG

sector would define rural as any place with the population up to 20,000. Rural consumers are

fundamentally different from their urban counterparts & different rural geographies display considerable

heterogeneity calling for rural specific & region specific strategies e.g. a farmer in rural Punjab is much

more progressive than his counterpart in Bihar. A farmer in Karnataka is far more educated than one in

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Rajasthan & so on. An urban individual is free to take independent purchase decision. In a village, because

of strong social structure, including caste consideration and low literacy level, community decision

making is quite common. Companies face many challenges in tackling the rural markets. Marketing is all

about Getting to know your customer. But having largely ignored this cardinal principle, most corporate

in rural markets find that success has eluded them. The rural market account for market worth of 27$

billion. About 285 millions live in urban India whereas 792 million resides in rural areas. 72% of Indias

population resides in its 600000 villages. Many companies like Colgate-Palmolive, HCL & Godrej etc. have

already furrows into rural households but still capturing the market is a different dream. For quite

sometime now, the life of the rural India has been the subject of animated discussions in the corporate

suites, with the urban markets getting saturated for several categories of consumer goods and with rising

rural income. For example, Tata chemicals ran a chain called Tata Kisan Kendra which offered services

ranging from agriculture input to financing to advisory services. Hindustan Levers is offering deals tofarmers to cover operation from the pre harvest to post harvest stage. Mahindra & Mahindra limited,

Indias largest farm equipment company & its subsidiary Mahindra Shubhlabh service has operated in

eleven states with 7 lacs strong Mahindra tractor customer base& 400+ dealers provide a complete range

of products and services to improve farm productivity and establish market linkages to the commodity

market chain. The objective of this article is therefore threefold. The first objective is to develop a

framework used to study consumer behavior in rural market. The second objective is to apply this frame

work to examine and understand consumer behavior in rural areas. The last objective is to prefer

generalization and recommendation to those wishing to market their product\services in the rural

market.

OR

Discuss the marketing research process and its application in rural areas.

Answer: The rural marketing research process consists broadly of eight stepsdefining business

and research objectives, determining the research budget, designing the research (decision on

research approachexploratory, descriptive/causal qualitative/quantitative; primary/secondary

research), sampling method and size, designing the research instrument

(questionnaire/discussion guide), collecting Information from the field, collating and analysing the

data, presenting the findings to make the right decision.

After the business and research objectives have been clearly defined and the budget finalized for

the same, the researcher must decide on the research approach. Based on the nature of the data

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to be captured, the researcher can decide whether they want to go with the qualitative (PRA,

focus group discussion, in-depth interview, dyads, slice of life observation, photo ethnography) or

quantitative (face-to-face survey using structured questionnaires) approach. Most often in rural

areas the research starts with the qualitative approach, and is followed by the quantitative

approach to validate the findings and capture variations among respondents.

Further, the sampling plan is designed. Generally, in rural qualitative research purposive and

snowball sampling methods are used, and the sample size is dynamic rather than static, that is,

the researcher continues to collect data from the field till they are saturated with information. In

the case of quantitative sampling, more exhaustive techniques are used. Some of the sampling

methods used are multi-stage area sampling, probability proportion to size method for village

selection, household selection through the listing exercise, respondent selection through the Kish

grid, etc.Data collection in rural areas is generally done through face- to-face interviews with the

respondent in their natural setting, that Is, home or workplace. The researcher should be well-

versed in the pros and cons of conducting research in rural areas, and should be comfortable with

the same. Briefing, training and handholding sessions are crucial in quantitative data collection.

Lastly, data collation, analysis and report writing are done to complete the process.

Special tools used in rural marketing research:

Participatory rural appraisal Scaling tools for rural quantitative research Satisfaction scale Agreement scale Ranking Ladder

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Question 3.

Describe the concepts of segmentation, target marketing and market positioning, stressing the

need to recognize heterogeneity amongst rural consumers.

The practice of marketing one undifferentiated product to an undifferentiated rural market died

long ago. Marketers today have realized that the rural markets are heterogeneous and need to be

segmented thoughtfully. Segmenting markets and attracting customers involves three key

decisionssegmentation, targeting and positioning.

Defining Business andresearch objectives

Deterining theResearch Budget

Designing theresearch

Sampling Researchand size

Designing theresearch instruement

Fieldwork

Data Collection

Reporting thefindings

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Segmentation involves the identification of various bases for segmenting markets, and then

developing profiles of market segments by dividing the heterogeneous market into several

submarkets. However, the degree of segmentation varies from mass marketing to micro

marketing. Further, the consumer segments are evaluated for their attractiveness, and suitable

coverage strategy for targeting is chosen. The third key decision involves indentifying, selecting

and communicating the right USP that provides a competitive advantage to the rural brand.

Rural markets are heterogenous in nature. There are number of factors indicative of

heterogeneity of rural markets:

Social-cultural differences across regions (caste-based hamlets) Variations in population size and population density of villages Differences in the levels of infrastructural development (developed versus developing

states) Media exposure levels (media dark, media grey, & media green regions) Variations in literacy level (Bihar versus Kerala) Differences in income level and patterns of income flow (Farmers versus daily wage

earners)

Family structure (Large joint families, individualized joint families, and nuclear families)As there can be various parameters for positioning the product, the marketer has to select the

best and most effective alternatives. A marketer has to select a positioning concept that serves asa bridge between the products and the target market.

Some of the critical factors that should be considered while positioning a brand are:

Attractive. Does it provide value to the customer?

Distinctive. Is it different from the products of its competitors?

Pre-emptive. Is it very difficult for competitors to copy it?

Affordable. Can buyers pay for it?

Communicable. Can the difference be clearly expressed? Is it visible? Is it understandable?

Attributes that can offer a competitive advantage should be identified (for example, quality

service, and technology). Once the positioning strategy has been selected, the marketer needs to

develop the concept in an effective manner so that it can be properly addressed to the target

market. Then he has to select the appropriate media vehicle to reach the target market

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effectively. Marketers should strive towards linking the positioning platform closer to the target

customer to ensure that it appeals to them.

Communicating the Concept

An effective communication is one that clarifies the target market, value proposition, and the

supporting product differentiation.

How many ideas? Differences to promote? There could be one idea, two ideas, or three ideas

that could be promoted. Positioning two to three ideas would be better, as rural people would

think that they were getting better value for money. The statements positioned should be

consistent (should not be changed frequently). Otherwise, in the case of multiple statements

positioning, there is a risk of buyers having a confused Image of the brand, resulting from

companies making too many claims.

Which positioning to promote? For rural areas, the positioning statement should be the genericbenefit of the product. Sprite Bujhaye Only Pyaas Baki Sab Bakwas and Thanda Matlab Coca-Cola

are some of the suitable lines for rural markets.

OR

Discuss the concept, levels and classification of products in rural markets.

The product is the most vital element in the market offering. The acceptance of a product in rural

markets is determined not only by consumer needs and wants, but also by the physical and social

environment. The product has to satisfy rural needs and should offer value for money a marketer,

while taking his products to rural markets, must keep in mind that the product should be

appropriate for the rural environment, be simple to operate, visually identifiable and affordable.

Based on the value proposition, marketers need to think about the five levels of product offering,

namely core benefit, basic product, expected product, augmented product, and finally, potential

product. Each of these levels adds more customer value. The real competition today in the rural

market is at the product augmentation level. This leads marketers to look at the physic al and

socio-economic environment of consumers and understand their consumption pattern and the

way they use the product. At the same time, rural marketers have to ensure that augmentation

doesnt increase the cost significantly.

Rural products can be classified into four broad categories FMCGs (fast moving consumer

goods), consumer durables, services and agricultural goods. Rural markets account for more than

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50 per cent of the total FMCG and durables, and 100 per cent of the agricultural goods

consumption in the country.

Based on the value proposition, marketers need to think of five levels of product offering core

benefit, basic product, expected product, augmented product and finally potential product.

Each level adds more customer value and five levels constitute a customer value hierarchy. For

example the core benefit of connectivity or the experience of being in touch is translated into a

mobile phone as a basic product. At the third level marketer prepares an expected product, a set of

attributes, a condition buyer normally expects when he purposes a product. Product differentiation

starts appearing for this level onwards. A mobile buyer in rural India expects voice clarity, good

battery life, ease of operation and durability. At the fourth level marketer prepared an augmented

product that meets customers desires beyond expectation and fulfills their latent needs such as

mobile phones with built-in radios, camera, flash lights etc. Finally the potent product comes at the

fifth level, which encompasses all augmentations and transformation that the product might

ultimately undergo in the future.

Question 4.

Understand the marketing of financial services in rural India, including the banking and insurance sector.

RBT was established in the year 1935, under the Reserve Bank of India, Act, 1934. it is the apex body that

supervises the financial functions of the country, especially regulating the working of the banking sector.

Its contribution to the cause of rural development has been commendable. It refinances the rural

development schemes of the Cooperative societies, and the incentive to these societies is the lower

Rural Products

FMCGs Durables Services Agricultural Goods

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lending rate as compared to the bank rate. The bank was mainly set up to regulate the issuance of

currency notes in the country. Following are some of the important agriculture related functions carried

out by it:

D.I.I Provisions for Finance: It does not directly provide credit to farmers. However, it helps them through

the refinance that it provides to the Commercial Banks, Cooperatives and Regional Rural Banks. It acts as

the bankers bank. Being at the top of the banking system, it ensures smooth functioning of inter-bank

operations. Even state governments are entitled to long-term loans, provided they use the loan amount

to contribute towards the share capital of the Cooperatives. There are a number of departments in RiM,

which are responsible for carrying out the supervisory and regulatory functions of the bank. For instance,

Rural Planning and Credit Department (RPCD) is responsible for regulating the working of Regional Rural

banks (RRBs) and Rural Cooperative Banks. As the lender of last resort, it can rescue a bank that is on the

verge of collapse due to some temporary liquidity problems. This kind of arrangement ensures thesecurity of depositors money. It is for this reason that people have immense faith in National Banks.

D.l.2 Developmental Activities: RBI has been actively involved in a large number of diverse

developmental activities in the country. It ensures a continuous financial support to the productive

sectors. It also makes available a variety of financial services throughout the country, including rural

areas.

Features

It has given a new thrust to the concept of better customer service in the banking sector.

Ensuring timely and sufficient credit to the rural people has been one of the important functions of the

bank.

Since the year 1967, it has been involved in Priority Sector Lending, whereby, it makes provisions for

easy and uninterrupted supply of funds to the small and neglected sectors of the economy.

D.13 Regulatory Functions: RHI has full authority to monitor and control the working of Commercial

Banks and Cooperatives. It exercises its control in the following ways:

In order to provide credit beyond the limit laid down as per the Credit Authorisation Scheme, 1976,

Cooperatives have to seek permission from RBI.

Credit limits are fixed by RBI.

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Setting up of the Cash Liquidity Ratio (CLR) and Cash Reserve Ratio (CRR) for the Cooperatives, RRBs and

ARDBs, is done by RB1. But it always keeps these limits at a lower level than it sets up for the Commercial

Banks.

RBI allows them to pay one and a half per cent more interest on their deposits.

D.2 Cooperatives

The cooperative movement started in India way back in 1904. It could be divided into two distinct phases;

Pre-independence era and Post-independence era.

Pre-independence Era: During the early parts of the twentieth century, Indian farmers arid peasants were

exploited by the wealthy moneylenders and zamindars, who used to charge hefty interest on the

borrowed sum. This led to a large scale unrest and revolt in many parts of the country. To help improve

the credit structure, and get rid of LIC existing exploitative system, the Cooperative Societies Act was

formulated in 1904. A significant feature of the Act was the demarcation between rural and urbansocieties. But still, there were many issues that had to be addressed. To get rid of the existing lacunas of

the Act, The Cooperative Societies Act of 1912 was formulated. There was a provision in the Act to grant

legal protection to all the Cooperatives, financing institutionS, and unions. But there was a discrepancy; in

the sense that liability was unlimited for central societies, but limited for primary societies.

This act gave a free hand to all the Cooperative Societies to get registered. leading to an emergence of a

large number of such societies of both credit and non credit type. But theii uneven growth led to an

enquiry into their performance. The Mac Lagan Committee

formed for this purpose submitted its report in 1915. The Cooperative Societies Act, 1912, and the Mac

Lagan Committee Report initiated the Cooperative planning process in India. Between 1919-1929, the

Cooperative movement developed at a pretty fast pace. The Montague-Chelmsford Act, 1919, which

stressed on the need for cooperation, gave impetus to the movement. Land Mortgage Banks were set up

in Punjab. Madras and Mumbai. The Cooperative movement was almost destroyed during early thirties,

due to the economic recession and the sudden fall in the prices of agricultural commodities. To identify

ways to restructure the Cooperative Societies, various committees were set up. This low phase lasted

until the Second World War. Thereafter, agricultural commodities prices went high, leading to cash

inflow because now the societies could recover their dues from those who had earlier borrowed money.

Post-independence Era: The first five year plan that was chalked out in the year 1951, laid a lot of

emphasis on the development of Cooperatives. It was proposed that they be involved in the rural

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development pmgramme, and their domain extended to other areas like marketing, housing, industry,

etc. Various committees were set up for reorganising the Cooperative system.

Following are the various types of Cooperative Societies working at various levels:

D.2.1State Cooperathe Banks (SCBs): These represent the Cooperative credit organisarions at the state

level. They keep a watch on the activities of the member banks, and judiciously distribute financial

resources among them. They act as important links between the RBI and Primary Agriculture Coops

(PACS). Kisson Zone 14.2 swnrnarises sonic important functions of SCBs:

0.2.2 District Central Cooperative Banks (DCCBs): They act as important links between the State

Cooperative Banks and PACS. Any credit requirement on the part of PACS is looked after by DCCBs. Theymostly operate at the taluk level, and also perform normal banking activities like accepting cash deposits,

bill payment, preparing drafts, cheques, etc. Kissan Zone 14.3 summarises some important functions of

the DCCBs.

D.2.3 Primary Agricultural Co-operative Societies (PACS): These were formed after the enactment of the

Cooperative Societies Act of 1904. The best thing about PACS is that being at the village level, these

Societies look after the short and mid-term credit needs of the farmers. Kissan Zone 14.4 summarises

some important functions of the PACS.

D.2.4 Central Land Development Banks (CLDBs): The major task of CLDBs is to provide long-term finance

to the Primary land Development Banks (PLDBs), and to their associated branches that are operating at

the state level.

256 I Rural MANAGEMENT

PLDBs are provided all the necessary guidance and supervision by CLDBs.

Members are granted loans for activities like purchasing farm machinery, developing their land, paying

off old debts, etc.

CLDBs motivate people to save and mobilise their savings for Construction purposes.

D.2.5 Primary Land Development Banks

(PLDBs): These were established to provide long- term loans to farmers, so that they could increase the

prductivjty of their land, and their overaJj agricultural production. Their objective is to promote

agricu1tura activities, thereby resulting in increased production. They provide loans for minor irrigation

purposes, purchase of land, and paying off old debts. Even if farmers need finance for buying tractors,

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equipments, etc., they can rake help from PLDBs. Just like CLDB5, they also motivate people to save and

mobiise their savings for construction purposes, Besides, there aiso exist some more societies that are

engaged in similar activities, as discussed below:

D.3 Large Sized Adivasi Multipurpose Cooperative Societies (LAMPS)

The Bawa committee appointed by the Government of India, made certain recommendations, based on

which, LAMPS were introduced in December, 1971. LAMPS are supposed to provide all types of credit to

the tribal societies.

The main aim of these societies is to modernjse the tribal agriculruraj system, and i mprove the

marketuig of commodities in these areas.

The membership of LAMPS is voluntary for all the tribes. Generally, the area covered by a single society

falling under LAMPS is a block or raluk.

Their capital is formed through a variety of sources like deposits collected from members, share capitalof government and members, entrance fee, loans taken by Cooperatives and governmen, etc.

These societies are managed by a Board of Directors, comprising 11 members. CLDBs projects are

refinanced by NABARD.

D.4 Farmers Service Societies (FSS)

As compared to other societies, FSS are very well organised and focused on the objective of development

through mutual cooperation. Because Cooperatives were somehow ignoring the credit needs of the

weaker sections of the society, NationaL Commission on Agriculture recommended the formation of

societies that would focus on the needs of weaker sections of the rural society.

FSS are supposed to provide all types of loans to economically weak individuals so that t hey can take

care of various activities like buying agricultural input, machines, equipments, etc.

Just Like CLDBs and PLDBs, they mobilise savings from rural areas.

They take necessary steps in improving the conditions of the rural markets.

They encourage non-farm activities like fishery, agro-forestiy, poultry, etc.

D.5 Regional Rural Banks (RRBs)

The history of RRBs is almost as old as the establishment of a proper banking sector in India. Brought in to

the mainstream banking in the year 1975, these banks were established with the main objective of

ensuriiig sufficient financial assistance to the rural sector, especially agriculture. They are provided

various kinds of concessions by the RBI, like lower interest rates, lower statutory liquidity ratio, lower

cash ratio, etc. As a matter of rule, an RRB is sponsored by a Nationalised Bank. All the important aspects

of the RRB, right from recruitment, selection and Training, to subscribing to their share capital, are

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handled by these National Banks. RRBs are managed by a Board of Directors, consisting of eight

members, headed by a chairman. SBI has thirty RRBs spread across thirteen states. Some of the major

objectives of setting up these RRBs are:

Assist other financial institutions/agencics in the cause of rural development.

Identil those fronts where Commercial Banks and Cooperative Societies are lagging behind, and try to

get rid of such loopholes.

Assist mainly the small and middle level farmers, artisans, landless labourers, peasants, small

entrepreneurs, etc.

To extend forward banking services to the illiterate people residing in rural India.

To provide loan at a low and affordable rate of interest, so that people can easiiy repay their

borrowings.

To make the loan disbursement process easy and free of hassles. To save the poor from the clutches of money -lenders. By providing cheaper loans, even the poorest

sections of the society are encouraged to apply for bank loans rather than approaching the landlords and

money lenders who charge heavy rate of interest.

To motivate small entrepreneurs to come up with new ventures.

To generate new employment opportunities in the rural sector.

D.6 Commercial Banks

They have proved to be the biggest failure among the institutions that were established for the sustained

growth and development of the rural sector. It was clearly stated that at least 40 per cent of their total

lending would go to the priority sector activities, with 18 per cent going to the agriculture sector. But they

have fallen well short of that target, and are always unwilling to lend credit to the rural sector.

Uncertainty is a part of the rural sector, and most of the financing institutions are willing to take only

calculated risks.

Commercial Banks are mostly interested in financing cultivation activities that involve a Low and

predictable level of risk.

More than direct financing, they finance rural activities indirectly through money lenders, merchants,

banks, traders, etc.

They also lend a small portion of their finances to Cooperative Banks and Societies.

They help finance marketing activities related to agricultural products; transporting, selling, etc.

They are also involved in collecting deposits from the rural population. In fact, collecting deposits has

turned Out to be more important for them than financing rural activities.

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Kissan Credit cards have helped in lending further credit to the farmers.

D.6.1 Reasons for the failure of Commercial Banks

i. Reluctance to Lend: Despite the fact that these banks were established mainly for the development of

rural sector, they contribute only a small amount of credit to this sector, with the majority of it going to

the urban areas. Even the benefits coming out of the collections made from the rural population fail to

reach them.

ii. Defasdiers: In the absence of good credit recovery machinery, there are numerous cases of defaulting

individuals, most of whom are willful defaulters, taking advantage of the loopholes, to avoid repayment.

iii. Branches:When it comes to opening banks branches in the urban and rural sectors, there has been a

lack of proper coordination.

iv. High Administrative Costs: The problem with rural loans is that there are a large number of cases

involving very smaU loans. But the administrative cost is high for both small and large loans. This resultsin total administrative costs being higher for the overall loan, thereby making it expensive for the banks.

v. Lack of Good Staff:- To ensure that credit reaches only to those who really deserve it, and that

profitable ventures are funded, skilled personnel are required, Banks lack such people who have a sound

knowledge of the banking sector, coupled with a thorough understanding of the rural sector. Commercial

Banks have been bit hard in the past with untrained people taking wrong financing decisions.

OR

How does the government exercise legislative control over the agricultural sector?

India is a federal state, and legislative powers and jurisdiction between the Central and StateGovernments are demarcated under the Constitution of India. Agriculture is a state subject (i.e., the

jurisdiction to enact laws and regulations in relation to agriculture has been vested with the state

government). Laws and regulations at the level of each state play a key role in the regulation of this

sector.

Marketing of agricultural products in India is governed by the state level statutory bodies the

Agricultural Produce Marketing Committees (APMC) established under the Agricultural Produce

Marketing Acts (hereinafter referred to as APMA) which has been enacted by a majority of states in India.

Agricultural procurement systems in India is governed under the framework of the Food Corporation of

India (FCI) which was established in 1965 under the FCI Act as the public-sector agency responsible for

implementing government price policy through procurement and public distribution operations. The FCI

is the sole agent of the Central Government in food-grain procurement. It uses the services of stategovernment agencies and cooperatives in its operations.

This paper seeks to examine competition issues in agricultural markets in India at two levels: (i) at the

stage of sale and purchase of agricultural produce (broadly called as agricultural marketing), which is

governed by the state level APMCs ; and (ii) at the stage of procurement of food-grains by the FCI.

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The Competition Commission of India Act in India was enacted in 2002, but after several legal and

legislative hurdles, it was finally notified and has been effective since May 2009. It seeks to put in

place a framework that largely draws on competition law principles from advanced jurisdictions such

as the U.S., EU, Canada and Australia. The CCI which has been established under the Act has as its

objectives preventing practices having adverse effect on competition, promoting and sustaining

competition in markets, protecting the interests of consumers and ensuring freedom of t rade carried on

by other participants in markets in India.

The APMA vests the state government with the authority to notify areas within which the purchase

and sale of agricultural produce, livestock or products of livestock can occur. Most states have notifiedeither the entire state or all the main agriculture areas within a state.

The APMA provides for the constitution of the Agriculture Produce Marketing Committee. An APMC

usually comprises of about 12-14 members. In some states all of the members of the APMC arenominated by the State Government2 while in some of the states a majority of the members are electedfrom the notified market areas3, with the remaining members being nominated by the stategovernment.

2.2 Powers and Functions of the APMCAPMCs are vested with wide powers and functions to regulate the sale, storage and marketing ofagricultural produce within the state. The general scope of powers and functions vested with APMCs

include the following:a) to construct, maintain and manage the market yards and sub-market yards and promote

development of bazaars/markets in the notified areas;

b) provide the necessary facilities for the marketing of agricultural produce in the market yard;

c) grant or refuse licences to the market functionaries and renew, suspend or cancel such licences;

d) supervise the conduct of the market functionaries;

e) regulate the opening, closing and suspending of trading in the market yards;f) enforce the conditions of the licences;

g) regulate the making, carrying, out and enforcement or cancellation of agreement of sales, theweighment, delivery, payment and all other matters relating to the marketing of notified agricultural

produce;

h) provide for the settlement of all disputes between the seller and the buyer arising out of any kind of

transaction connected with the marketing of notified agricultural produce and all matters ancillarythereto.

i) power to levy market fees at such rates as may be approved by the State Government - (i) on the saleof notified agricultural produce whether brought from within the State or from outside the State into

the market area; and (ii) on the notified agricultural produce whether brought from within the State orfrom outside the State into the market areas and used for processing;

j) power to order production of accounts and powers of entry, inspection and seizure;k) power to remove encroachment in market yard and the expenses of such removal shall be paid bythe person who has caused the said encroachment;

l) power to stop vehicles: it has power to seize any notified agricultural produce brought into or taken

out or proposed to be taken out of the market area in any vehicle, vessel or other conveyance, if such

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person has reason to believe that any fee or other amount due under this Act or the value payable tothe seller in respect of such produce has not been paid;

m) power to borrow: A market committee with the previous sanction of the state government, borrow

money from the Board or Bank or any other public financial institution, required for carrying out thepurposes of the Act.

Anti-Competitive Practices of APMCsTo understand the impact of competition in the agricultural marketing sector, it would first be useful to

have an overview of which aspects in the agricultural chain are currently regulated by state controlunder the APMC Act and which are not. The chain in the marketing of agricultural produce that existsis as follows:

Farmer (unregulated) Pre-Harvest Contractor (unregulated) Commission Agent/Broker (APMC

regulated) Wholesaler (APMC regulated) Retailer (unregulated) Consumer.As seen in the outline of the APMCs powers and functions above, they have been statutorily vestedwith the power to regulate both the creation of markets as well as the entities that can participate in

such markets for agricultural produce. This range of exercise of powers by APMCs has resulted in a

hardening of the existing chain of agricultural marketing and closed any venues for the farmer to othermeans of selling his/her produce. APMCs have therefore become bottlenecks as they regulate who thefarmer can sell