You are Poor, You are Not !

To a babu, it is something to ponder over,

To a rich man, to mock and laugh about,

To the middle-class, as irrelevant as ever

To the poor, it’s bread and butter about!

The issue of “Poverty Line”, especially as deliberated on the television screen over the past month, has gripped the minds of all strata of people. One could hear discussions on the same issue right from a nukkad-tea-stall to a high-tea event. The public perception that planning commission has made a mockery of poverty has been heightened by the Rs. 32 per day representation of the original affidavit. While this represents the very encouraging argumentative side of the Indian populace, the concept of poverty line still remains elusive to many. Here we will see the poverty line in the light of its objective, definition, calculation and suggested modifications.

“Poverty Line”, in its present form, is an economic indicator among many others, indicating the equitable distribution of a country’s economic progress. First established in 1970s, the poverty line has been updated every decade by taking into account the inflationary pressures and rising consumer expenditure on different goods and services. By checking what exact percentage of people lies below this benchmark, one can see whether economic growth has trickled down to the country’s underprivileged as well. In fact, about 70% of Indians lay below this line in 1970 and 32% remain so even today. Rather than stirring a hue and cry on the definition of poverty line, it is more important to debate and discuss the past practices which led to this fall in percentage and how they could be strengthened to make the reduction even faster.

Talking of the confusion created over the issue; let’s get the picture of the poverty line clearer. As per the affidavit submitted by the planning commission to the Supreme Court, a family of 5 spending less than Rs. 4824 per month in urban areas OR less than Rs. 3905 per month in rural areas is defined to be Below Poverty Line. The affidavit neither makes any reference to the daily expenditure per person, which has been widely exaggerated through various media to be Rs. 32 per day per person, nor does it make a subjective comment that any person even marginally above this line is living a perfect life. The objective of drawing a line is to see how many people have risen above it over a period of time. This objective makes it impossible to move away from the old definition, as any major changes in the mode of calculation will make the poverty line historically incomparable. Govt. of India draws a separate Food Security Bill to which almost 96% of the Social Benefit Schemes are linked and which defines almost 41% of the population as beneficiary. Hence the benefit of these schemes is spread over a much wider target population than as defined by the Poverty Line. Only about 4-5 schemes such as Old Days’ pension, total sanitation campaign, national social benefit scheme, state subsidies for kerosene etc. are linked to Poverty Line, others are not.

Nevertheless, a huge amount of time, energy, manpower and money is invested in calculating the poverty line and hence it is only sensible to have a uniform poverty line which will serve the purpose of both economic monitoring and allotment for social benefit schemes.

As we see in the above graph, India’s GDP has grown exponentially after 1990s and hence benchmarking of India’s economic progress in the post-liberalization era is more logical. Even Tendulkar Committee report, which has been used as the basis for calculation of poverty line by Planning Commission, has documented some preliminary work for re-estimation of poverty lines after 1990s with a modified mode of calculation.

Here some light has to be thrown on the methodology of calculation of poverty lines and the suggested changes in the same. The calculations are based on the nationwide survey conducted by National Sample Survey Organization, which collects the consumer expenditure on various different products and services. Certain basic products and services such as Food, Education, Medical expenses, livelihood expenses, Rent etc. are collected together into a Poverty Line Basket and consumer expenditure on the same is analyzed. The latest poverty line calculation has used the Minimum Daily Dietary Requirements for a person as specified by Food and Agriculture Organization (FAO) in 2008 and NSSO survey of 2004-05 for benchmarking against the existing consumption of Indians. By matching the minimum dietary requirements (1770 calories per person) with the total expenditure on the products in Poverty Line Basket by a family of 5 which meets that requirement, the poverty line has been set.

But there is an anomaly in fixing the minimum dietary requirements (MDR) of a person in the calculation of latest Poverty Line. The MDR used according to the specifications of FAO was originally defined for a sedentary worker whereas the people below poverty line under consideration are mostly involved in heavy work. Even considering the work done under the NREGA scheme as the norm for the amount of work done, the MDR will be much higher for a person and hence the total expenditure of a family of 5 which meets that MDR (3800 calories per man and 2925 calories per woman, as mentioned in the Food and Nutrition Security Bill released by planning commission on its website) will shoot up. The latter MDR is actually used for defining the Food Security Bill (FSB) beneficiaries and the use of the same will benefit in bringing parity in the two measures, i.e. Poverty Line and FSB.

Apart from these technical issues of MDR, there is also a need to relook at the Poverty Line Basket and allot more product categories and services to it. For example, even “Entertainment”, as very broadly defined by the NSSO in its “2007-08 Household Expenditure Survey”, should be considered as a necessary and essential part of personal life, however negligible its share may be in the total expenditure of underprivileged people. Such measures may not drive the poverty line up, but will make it only more comprehensive in its definition.

Having described the poverty line calculations, it is interesting to note how the same concept is used in modern economies. A look at the Poverty Line definitions in US shows similar types of confusion as well, where two main measures of poverty, “Poverty Threshold” defined by Census Bureau and “Administrative guidelines” issued by Dept. of Health and Human Services, do not match. At the same time, US and many other European countries such as France use “Relative Poverty” line concept (For calculating Poverty Threshold). A state of “Relative Poverty” means “having significantly less access to income and wealth than other members of society”. Thus, Relative Poverty encompasses all people below a certain percentage of median consumer expenditure of the country, whether these people lack essential resources or not. The core of poverty line fixation in this case lies in fixing the threshold percentage. This percentage in different European countries and US ranges from 49% to 60% generally. There, the Poverty Threshold is more of an indicator of income inequality than anything else. Also, since poverty threshold is defined as a percentage of median consumer expenditure, an automatic inflationary correction happens. While such a concept in India will surely throw a huge percentage of people below poverty because of the wide rich-poor divide, it will be of little use in gauging economic growth penetration and allotment of beneficiaries for social benefit schemes.

Thus, while India must continue with its policy of defining Poverty Line based on Poverty Line Baskets, the Baskets themselves should be modified as detailed earlier and such a benchmark should be set from the year 1990. Having such a comprehensive poverty line, that too based in the year 1990 after which the liberalization phase set in, will give a clearer picture of economic progress and its benefits to the poor and also cut the doubling of efforts for calculating two separate measures.

While the experiments with living on Rs. 100 per day abound and public insinuations of making a mockery of poor get hurled at the Planning Commission, there is little interest in going behind the apparent facts and finding the objective behind the actions of government officials. Of course, the picture is never black and white and there are bound to be some grey areas of mistakes in deciding who is poor and who is not, but what poverty really needs for eradication is efficient and effective implementation of the development programs, a sense of purpose in each responsible officer to see no hungry face in India and a solidarity shown by all stakeholders, public, government, systems as well as politicians. Defining who is poor is just the first step!

Authors : Prasad Vaidya, Priya Amrute

The authors are PGDM students at S.P. Jain Institute of Management and Research

References –

1. Report of the Expert Group to Review the Methodology for Estimation of Poverty, Govt.  of India, Planning Commission, under chairmanship of Prof. Suresh Tendulkar, November 2009
2. Household Consumer Expenditure in India, 2007-08, National Sample Survey Organization, March 2010

3. Food and Nutritional Security Bill, part of Tenth Five Year Plan 2002-2007

4. Interviews of Mr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, on different News Channels

5. Wikipedia – for GDP growth graph –

http://en.wikipedia.org/wiki/File:India_GDP_without_labels.PNG\

Unleashing the Bharat in India

It was a beautiful morning in the Nainital district of the Kumaon region amidst the hilly paradise of Uttaranchal. Mr. Dungwal, the owner of the guest house where we had parked in for our stay, was describing to us his first brush with the toothbrush, as we sipped the morning tea. The shift from “daatun” to tooth powder to tooth paste had been gradual and Dungwalji liked the change. Colgate was a brand had won his trust and he was thankful for this new experience every single morning. It was later during the day I realized that the family used a Pepsodent toothpaste and not Colgate! Such is the power of power brands that butter means ‘Amul Butter’ and photocopies remain ‘Xerox’for many of us.

India has always been an enticing market for both MNCs and Indian companies. The aggressive moves by these companies since 1990s finally led to the saturation of urban markets. This made the companies look at the greener country side with immense growth potential. With 72.2% of the Indian Population belonging to the rural areas and with fast changing habits, attitudes and preferences of the rural consumer; the players in the consumer goods, healthcare, consumer durables, finance and banking cannot afford to ignore the market which can contribute to a huge share of their profit pie. There comes the need for Rural Marketing.

The rural space:

Using the Census of India definition of the urban areas, we can define rural area as any habitation with a population density of less than 400 per sq. km., where at least 75% of the male working population is engaged in agriculture and where there does not exist any municipality or municipal corporation.

The rural India still brings with itself the dichotomy of poverty, starvation and high purchasing power of consumers. Increasing exposure to national media, expanding telecom connectivity, financial support from organizations like NABARD, infrastructure development, better irrigation and agricultural facilities are indicators of constant improvement in standard of living of the rural populace.

While rural India remained an unexplored pasture for many years due to lack of focus by the marketers, tapping this market has today become the new found focus of many a companies and rural marketing is one way to begin the process of entering this space.

Creating innovative products that would suit the rural segment, making them available to them in a cost effective manner at a reasonable price and influencing the mindset to identify the value that the company wishes to deliver are three major tasks at hand for rural marketers to resolve.

Is it really worth the effort? After a good deal of contemplation on the same issue, I have summarized my arguments for and against the proposition of having a rural marketing venture, as below.

Pros: About 58% of the disposable income comes from the rural markets.

Government initiatives to improve the standard of living in the rural areas has led to virtually free food and shelter; primary education and healthcare. This has led to increased amount of disposable income and has lent a high purchasing power to the rural community.

Government initiatives like MGNREGA have enhanced the livelihood security of the unskilled and manual workforce of rural areas. Besides this, government, NGOs and local cooperatives are constantly working towards promoting the khadi, weaving and handloom industries. By the way of exhibitions and melas, the rural produce is brought to the urban market. Hence, income security for skilled artisans has also considerably increased. 

Cons: Income fluctuations

Majority of the household income in rural areas comes from agriculture. The other income avenues are forestry and fisheries. The farmer may be self funding but most of the workers are paid daily, monthly or weekly wages. Their income levels are greatly dependent on seasonal fluctuations. Heavy rains may kill the crop or a drought may lead to famished conditions. Farmer suicides have been a concern for the government and NGOs for many years now. Financial institutions think twice before lending a sum to a farmer as the risks of default are very high.

Inflation tends to considerably reduce the purchasing power of the consumers in the rural segment. With price rises of the order of 5-25%, the spending is definitely going to shrink while the disposable income remains the same.

Pros: The educated rural consumer

The rural literacy rate has shown a steady increase from 36% in 1981 to 45% (1991) to 59% (2001) and 70.44% in the year 2011. The development brings to the forefront an educated consumer who does not necessarily look for low cost products but is increasingly seeking value for money. In such a scenario, if a company takes the onus of educating the consumer in better understanding its product (highly applicable to saving schemes and insurance products, contraceptives and health supplements), he will be able to appreciate the nuances of the product and the value that he can derive from it.

One such initiative that I would like to mention here is that of SBI bank. SBI, which is a leading public sector bank, tied up with Hindustan Unilever’s Shakti Ammas, a network of self-help groups to educate the rural folks about the importance of savings besides making available to them, monetary capital for enterprising. With HUL’s established network of Shakti Ammas, SBI could penetrate farther into the rural segment. The pilot project has commenced in Maharashtra and Karnataka and will soon spread to other regions of the country.

Hence, by sensible strategies, a company can make good business sense as well as a deep social and economic impact.

Cons: Caste, gender, cultural differences restricting sensible choice making

In a rural family, choices of products are still largely dominated by the male members unlike in an urban family. Independent choice making is limited because opinion leaders like the Sarpanch tend to sway the mind set of communities. Taking independent decisions may at times involve breaking strong social structures, a set of inherited beliefs which the older generation may perceive as attacking the traditional roots. A married woman in a rural setting may have to think hard before finalizing on a pair of jeans for herself if her in-laws and/or husband prefer conservative dressing. A person may also not switch to LPG because of the ingrained misconception that an LPG cylinder may burst automatically. A female member in a family may not even present herself before a male marketer to respond to a market survey. These issues pose serious challenges to the marketing exercises conducted by companies.

Rural areas are characterized by multiple dialects. This requires communication strategies to be customized regionally. Also, what works in one area may not always work elsewhere. This calls for huge spending in creating customized billboards which are appealing to the senses and moods of the consumer. 

Hence communication and marketing strategies need to address these issues intelligently and sensitively.

Pros:Haats and melas to reach out to Rural India

Most consumers like to ‘touch’ and ‘feel’ the objects that they would like to buy. This also applies to rural consumers. Haats, mandis and melas are places where trade and exchange of goods take place. It is one of the easiest and cost-effective ways to gain access to a large rural audience and even study their choices, behavior and sentiment associated with the product. They also serve as the centers for cultural congregation. A single haat can cover 20-50 villages and is visited by over 5000 people at its 300+ contact points.

Also a company like HUL, which entered the rural market before its competitors has a significant advantage in creating its brand monopoly and also its distribution network. Such a brand has greater recognition amongst masses which is not easily replaceable. This loyalty sentiment becomes dominant when a company is seen as someone participating for uplifting the living conditions of the community people like the SBI Tiny deposit scheme, the ITC e-Choupal or HUL’s Project Shakti which focused on giving flexible saving options (as low as Rs. 10 deposits), a better consumer experience and women empowerment respectively.

Cons: Infrastructure issues

Although rural areas offer attractive opportunities over 68% of these markets are still untapped. This is primarily due to the restricted reach that they offer to participating companies. The load and goods have to move large distances to reach the rural areas. This can be done using a hub & spoke model wherein large distributors are supplied at a higher frequency (hub) and from there the goods move at lower frequencies to the designated areas (spokes). This model though cost effective in the long run requires a substantial investment to create an extensive and all-encompassing network.

The supply chain innovation issues become more complex if there is an established network developed by a competitor. In such areas, it is very difficult for a company to be visible and accessible to its potential consumers.

At the same time, direct selling companies like Oriflame and Amway have tasted great success in the north eastern states with their business model. The evolving middle class and women consumers have shown eagerness and intent to be a part of the modern growth story of India. Hence, although the infrastructure remains a worry for the rural India, original thinking on the part of the companies will only find a way out.

Pros: Gives impetus to product innovation

Catering to a heterogeneous rural market demands innovative mix of product, advertising and distribution. It requires a thorough understanding of the consumer requirements which should necessarily match with a company’s vision, mission and long term strategy.  Chotukool is one of the best examples that can be cited here. A compact size refrigerator which does not have a compressor, runs on battery, weighs only 7.8kgs, can stay cool for long hours without power and costs less than half of what conventional refrigerators cost, is a panacea for rural consumers’ electricity and cost troubles.

To gain a stronghold in the rural markets, a company needs to constantly differentiate. This can be done by redesigning the product or changing its packaging to make it more appealing. Coke could create magic with their idea of Thanda going rural.

Having Amir Khan in the villager’s get-up, making available an illustrious beverage like Coke at Rs. 5 garnered instant recognition amongst the consumers. The villagers could relate to Amir Khan who looked like one amongst the masses and felt immensely satisfied because they would have to pay a small amount to drink the Cola that even Amir Khan drinks!

“We want to be the Hindustan Lever Limited (now, Hindustan Unilever Ltd) of the Indian Beverage business”, said Sanjeev Gupta, Deputy President, Coca-Cola, India (May, 2002). This shows that the beverage company had a mission to make it big in the country and to ensure a holistic presence; it could not afford to bypass the rural markets.

Using red and yellow, the festive colors also makes for an effective ad campaign for the rural areas. Hence, the Thanda ad had all the ingredients in it: the perfect price, perfect size and perfect colors. Post this campaign, rural markets accounted for 80% of new coke drinkers and 30% of the sales volumes. The rural market grew 37% against 24% in the urban market in the year 2004-05 over the previous year.

Cons: Fake products and losing brand equity

Low literacy and education levels in many villages have resulted in consumers identifying brands based on their logos or colors. This has given scope for spurious products to flood the markets. The look-alike, spelt-alike and exact replicas are the types of fake products that easily make way into the haats and melas.

The existence of fakes has the potential to topple the entire branding and imaging exercise undertaken by the company. At the end of a huge campaign, it can be more than just disappointing if the cheap fakes sell and not the real goods. A bad experience using a fake product can turn away a potential customer forever. This kind of a sentiment can be particularly strong amongst the rural consumers who tend to be loyalists and judgmental both. Such an occurrence will seriously affect the brand equity.

The company has to take measures to use holograms to secure their products and educate the consumers of the same. This would again increase the advertising spend and increase the selling costs of the company, thereby affecting the bottom line.

Conclusion

The education levels are rising and but the continuous decadal decline in rural population (down 3.5% from 2001) is also a matter of concern. To enter the rural segment, a company invests heavily in R&D to come up with innovative products, in market research to understand the consumer sentiment and to build a sustainable infrastructure to expand its reach, based on its demand forecast. The returns on this initial investment come fairly late when the market matures. Shifting demographics can seriously hamper these forecasts and predicted profits for the company. While this is one side of the story, we have seen that rural marketing has done more good than bad to the industries in the FMCG, automobile and finance sectors.

Coupled with the growth in the rural market, the opening up of doors for FDI in retail is set to change the game for rural business. It will transform the supply chains in India drastically, hopefully increasing the total revenue generated by the producers. The increasing penetration of modern retail in Indian Tier 2 and Tier 3 cities will not only change the retailing scene, but will also increase the number of product categories used by the rural consumers. While the responsibility of educating the consumers about product usage lies with the companies, the increasing modern retail penetration will facilitate the same too.

After considering both sides of venturing into rural markets, it is clear that the growth story of any ambitious company hereon will inevitably contain a specially crafted marketing strategy for the Rural sector.

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Author - Priya Amrute
The author is a PGDM student at SP Jain Institute of Management and Research

References: 

• The Rural Marketing Book by PradeepKashyap&SiddhrathaRaut (biztantra) 
• Marketing Management by Philip Kotler (13^th Edition, Pearson Publication) 
•  Internet website references:

a.       http://articles.timesofindia.indiatimes.com/2011-02-03/india-business/28379619_1_rural-sales-rural-consumers-urban-markets

b.      http://articles.timesofindia.indiatimes.com/2011-04-07/india-business/29392013_1_financial-                     inclusion-bank-accounts-banking-services

c.       http://www.slideshare.net/rajsinghprofessional/cocacola-in-rural-india

d.      http://articles.timesofindia.indiatimes.com/2011-07-26/guwahati/29815992_1_rural-areas-literacy-rate-urban-population

e.       http://nrega.nic.in/netnrega/home.aspx

f.       http://censusindia.gov.in/

first post

Management education has, in the last decade, undergone fundamental changes in terms of the quantum and nature of value that it is expected to create for society – whether it is business and industry which B-schools are meant to serve, or the less privileged sections of society. Societal expectations on management education’s higher responsiveness and responsibility is built against a backdrop of growing economic inequity and the aftermath of an global financial meltdown of mammoth proportions.

The top business schools in the global arena, have been proactive in rethinking and redesigning the inputs, processes and values that an MBA curriculum should contain. S.P. Jain Institute of Management and Research (SPJIMR) has been at the helm of differentiation, social responsiveness and value-additive inputs and processes since the last two decades. Moreover, in the current context, SPJIMR has been closely monitoring these global changes and fine-tuning its pedagogy to keep its participants up to date with the latest ideas and innovations in the domain of management education.

With its initiatives like Abhyudaya, Development of Corporate Citizenship (DOCC) and Assessment and Development of Managerial and Administrative Potential (ADMAP), SPJIMR has instilled in its MBA participants an element of personal and professional growth through a sense of contribution to Society – given the privileges and opportunities that the participants enjoy.

In keeping with this spirit of aspiring for a holistic development of Society, SPJIMR launches this blog portal wherein the faculty and students of the institute talk about the latest innovations and share their experience about this journey of evolving into more passionate, responsible and committed human beings – all great qualities for a professional as well. This portal will serve as a window to ‘life@SPJIMR’ and will depict what makes SPJIMR the distinctive Institute it is.