Digitizing Rural Distribution

With Covid 19, the digital and contactless retail percentage in India has increased even more, especially in urban India.
Digitizing Rural Distribution

With more than 600 million registered internet users in 2021, India climbs the charts as one of the largest and fastest-growing markets for digital consumers. 

The Penetration

With Covid 19, the digital and contactless retail percentage in India has increased even more, especially in urban India. Since March 2020, urban India has leapfrogged the credit-card stage to digital retail payment, with a whooping 94 percent relying on digital payments. The semi-urban cities of India, i.e. Tier II and Tier III cities are also fast catching up on the digital transaction front. Digital payments in certain Tier II, III cities have grown 2.5x faster as compared to urban areas. Some urban and semi-urban cities, those with populations <1 million, in India, are expected to be the sharpest-growing in terms of digital payments in the coming few years and are capable of constituting about one-third of total consumer spending by 2025. However, the urban-rural India divide in terms of digital payment adoption continues to exist in India.

Rural India’s Contribution to the Economy

Rural India which is an important part of the country’s economy, contributes about 46 percent of the national income. It is estimated that about 66 percent of India’s population is rural and despite the rapid rise of urbanization, rural India will continue to account for a significant portion of India’s population in the next decade. Although there exists a rural-urban economic gap, digital innovation undoubtedly carries the promise to bridge that gap.

In India, agriculture contributes to about 14 percent of the GDP; and the aspiration to become a $5-trillion economy by 2024 needs roughly 20 percent contribution from agriculture. To achieve this, we must ensure digitization in the sector. With the government’s push toward financial inclusion, rural India has started embracing the digital economy.

While the majority of the population in India depends on agriculture for their livelihood, it is essential that the rural economy is supported at various levels of interventions and digitization through agri-tech. Emerging agri-tech businesses have been addressing the agricultural sector's obvious inadequacies, which has sparked technological innovation through structural intervention as well.

Role of the Agri-tech Start-Up

Broadly agri-tech solutions are classified under five categories:

-    Factory to Farms - Where agri-inputs like seeds, animal feed, agrochemicals, and fertilizers are directly sourced from manufacturers and delivered at farmers' door-step through phygital model.
-    Farm to Fork - Where producers of food are directly connected with retailers, restaurants, and service providers driving end-to-end operations. 

-    Agri-Fintech - Where farmers have access to finance and insurance products and services available at their fingertips.

-     Agro-based Advisory - Services collecting and organizing climate/weather, soil, and crop information, and amalgamating them with the weather forecasts to assist farmers in taking management decisions. 

-    Precision Agriculture and Farm Management – It uses information technology (IT) to ensure that crops and soil receive exactly what they need for optimum health and productivity through SaaS or drone technology.

Rural E-commerce & Digital Knowledge Platform

Today agri-tech startups are building direct-to-farm models for selling Agri inputs and using their field force to interact with farmers and teach them about the process of digital booking as well as resolving their product-related queries w.r.t its application, price, method, etc. With the disruption of the agricultural supply chain amid lockdown, rural e-commerce turned out to be a boon. Many agri-input companies were onboarded and digital agri-tech players facilitated the delivery of commodities to farmers at farmers’ doorsteps. When access to on-ground advisory services took a hit, more farmers took to online portals to learn from the agri-experts and scientists about farming best practices and applied them on their farms.

Banking for the Farmers

Approximately 30 percent of farmers have access to institutional credit and balance while 70 percent remain dependent on informal credit. Bankers require to build the need-based lending module, for this banks require real-time data, market linkages, transactional cost, and better insight into farmers' households to access credit requirements. With agri-fintech, it is becoming possible to increase farmer access to markets and farm economics without changing the regulatory environment.

Supply Chain Models

Most agri-techs are building supply chain models (including farm-to-fork and direct-to-farm) are typically having the opportunity to interact with farmers for less than 3-4 months in a year. Engagement is a bit more in the case of vegetable farmers due to short-duration crops and much higher in the dairy/ egg/ fisheries supply chain because of the daily throughput of the produce. Additionally the level of socio-economic impact experienced by farmers with increase in their disposable income is significant to improve their livelihood and thus also contribute to the United Nations Sustainable Development Goals. The study suggests that a farmer can improve their income by 16 percent with their allied activities of dairy farming. Since women play an important role in managing the end-to-end dairy farm operations, the ease of receiving quality cattle feed at her doorstep is empowering her, improving animal yield and at the same time increasing her income source.

One of the critical pieces of understanding the rural market is the distribution of the product at the village level. When it comes to agri-tech e-commerce companies this is solved by devising solutions with the hyperlocal delivery models. This involves innovatively built technology integrated own logistics solution catering to the upstream and downstream agri-supply chain. On the one hand, agri-tech in this space is bridging the gap between manufacturers and farmers and on the other, facilitating regional-based SMEs with their products to reach customers in the potential market.

Adopting New Age Methods

3 to 5 years back agronomy intelligence backed by data if offered to farmers in India was rejected but today Indian farmers are more than ready for it. Digital advisory on a paid basis as SAAS is a reality and start-ups are leading the way forward. Paid digital advisory addresses every stage of crop production and guides farmers to be ready with everything they need for the best output at an optimized cost.  The digital advisory has been able to address all of their concerns and provide them with a real-time solution to farming problems. This has led to a big shift in Indian agriculture and this will only grow stronger from here.

With an increasing contribution to development and exposure to needs, the buying capacity of rural Indians has taken a sharp upward turn. However, rural consumers have a strong value-for-money orientation, significant local cultural affinity, and a more conservative financial outlook. Their purchasing aspirations are often constrained by easy availability. Digitization and technology can facilitate access and availability of more and more services and products made available to meet the rising aspirations of the underserved and unreached rural India. This is being driven strongly by the government’s Digital India program. One of the key enablers is the growing internet penetration, expected to grow from 25 percent in 2016 to 55 percent by 2025.

According to a report by World Bank, India is expected to become the largest consumer base for adopting digital innovations, with its population expected to expand from 1.3 billion in 2015 to 1.5 billion by 2026. They have also reported that India’s GDP is expected to see the greatest rise in terms of world GDP by 2050 (from 2 percent to 13 percent), making it the country with the third-highest GDP by 2050 (WB Report, 2015).

Initiatives by the Govt.

The facilitative environment provided by state and central government is playing a major role in promoting rural distribution. The primary motive of the program ‘Digital India’ is to transform rural areas to make them more resource-oriented and digitally strong. Other initiatives include the app called ‘Kisan Suvidha’ which assists farmers with relevant information on the weather of the current day and next five days, market prices, dealers, agro advisories, and plant protection; Aadhaar, a unique biometric identifier, zero-balance Jan Dhan savings bank accounts, direct transfer of social benefit payments, and the digital payment infrastructure BHIM. The bank account penetration increased from 54 percent in 2014 to 80 percent in 2018 on the back of these initiatives.

These initiatives by the government and the effort from the private sector are huge steps towards digitizing rural India but touch just a fraction of the rural population. As smartphone penetration and mobile data usage grow in rural India, governments, regulatory bodies, financial service providers, and fin-tech companies need to collaborate to unlock the potential of a digital rural India. The next few years will witness the increased deployment of new digital technologies like big data analytics, machine learning, blockchain, cloud computing, and artificial intelligence (AI) which will be used to offer products beyond cities and in rural areas.

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