Using E-Commerce to Fuel Rural Growth in India

 | October 27,2010 05:24 pm IST

A powerhouse in global IT and process outsourcing, and with a vibrant and growing industrial sector, India is well and truly on the path to economic prosperity. But, is it truly developing itself, is a question one needs to ask and answer.


Close to 70% of India's population resides in villages, and are in the rural segment. With India truly on the path of global IT leadership, it first needs to look into itself and consider that does this progress include rural population or not. With the advent of E-commerce, one area where progress of India is consistently slow is its backbone which is rural India. One reason for the same is that urban businesses have all the advantages of technology, while rural businesses fail in the same. Rural India has not been able to take advantage of ICT (Information and Communication Technology). In this paper, we will discuss the benefits rural population can derive from E-commerce. We will also take up cases in India and other countries where e-commerce has made considerable difference in the way people live. Lastly, we will also discuss steps which need to be taken by India to become a true global powerhouse, wherein progress will be evident even in its remotest part.



E-commerce can be defined in broader terms as not only trade in goods and services across internet but also new ways of conducting business and communicating with customers, suppliers and colleagues. One of the motivators for doing business in urban areas is greater commercial variety and access to technology. Moreover, the hindrance in choosing rural areas for doing business is distance e.g. proximity to the nearest airport or dock which can be necessary for some companies, location constraints e.g. skilled labor, and ready availability of information. One of the assumptions we would be taking in this paper would be the ready availability of infrastructure, especially telecom.


This is something which government is working on, but the process needs to be speeded up. In this paper, we would be covering three main benefits to the rural areas on the use of e-commerce.

  • Businesses in rural areas (e.g., agriculture)
  • Employment generated
  • Services


I will start with why E-commerce is the needed to drive rural growth. Then, I will go into the details of the above benefits and in the process take up relevant cases as and when needed. At the end of it, I would give my recommendations.


Why E-commerce?

Internet is fast becoming the way of life. With the mantra of "anywhere/anytime" and convergence of mobility and intelligence e-commerce happens to be the thing which can provide all this. Moreover, four things are needed to drive rural growth

i) Vision / Policy
ii) Technology
iii) Awareness
iv) Services


From the above four, policy is something which is needed to be formed by the government and some immediate steps need to be taken in that direction, while the other three are something which can be provided by e-commerce.




E-commerce is the technology of the present. It can provide services which is beneficial to both rural community and corporate world. Moreover, it used in a right way, it can also be used to create awareness and teaching people as illustrated in case of ITC's e-choupal below. It is used to make farmers improve the quality of their yield, with better technique and give them more power.



One of the major benefits of e-commerce is that it can provide a cost-effective way to expand into the global arena and run ones own business. It can lower transaction cost by interacting directly with overseas supplier and customers and streamlines ones business.


Not only that, it can help in removing the intermediaries and traders in the supply chain of global giants. This, along with higher responsiveness and speed at which business takes place has helped in reducing transaction cost, and increase profit margins. This is especially true in case of agricultural commodities. A very good example of this would be e-choupal by ITC. The case below will explain it in more details.


ITC's e-Choupal: A Process Worth Looking Into

Agriculture produces 23% of GDP, feeds billions of people and employs 66% of workforce. Farmers, who are the key focal points in this whole cycle, are in most cases illiterate. They have only approximate idea of the price trend and have to accept the price offered to them at auction. As a result, they are exploited by the intermediaries such as traders who buy from them and sell to the customers. Thus a common Indian farmer is still where it was, fighting to earn money which he deserves owing to the system wide inefficiencies. A typical value chain is as shown below: -



                                                                             Conventional Value Chain1


In this conventional value chain, the farmer brings his goods to the mandi where open bidding is taking place. This is government regulated but the bad part is that there are number of intermediaries and with each level the cost to customer goes up. This decreases the margin for the farmer as well as corporate customer like ITC.


(1- Developing a rural market e-hub, B. Bowonder, Vinay Gupta, and Amit Singh)


To change this, ITC has got into the biggest e-venture by corporate world. E-choupal has been devised specifically to remove the intermediaries. A typical value chain with the presence of e-choupal is shown below: -



Farmers selling directly to ITC through e-choupal channel receives higher price for their crops, as compared to that in mandi, on an average of about 2.5% higher. ITC also saves about 2.5% which they would pay as commission to the traders or as transport charges.