Inclusive growth

The two greatest challenges of India’s rural industry have long been the need to (a) aggregate tiny producers (meant here to be small ‘primary producers’ engaged in agricultural and non-agricultural production) so that they can enjoy collective bargaining with vendors and buyers, as also economies of scale and easy finance and (b) find steady markets for their products. Most government interventions in the rural economy have relied on co-operatives as way of aggregating small producers and trying to link them with markets. Helped by a large number of NGOs (the organisations that work at grassroots level to implement government projects), these approaches have also been heavily dependent on grants, subsidies, and subventions.

While the grant and subsidy culture distorts markets (and disincentivises the small producers from standing on their own feet and becoming savvier), the government interventions have also done a bad job of linking the rural producers with markets. The fact remains that the governments have never been smart enough to understand the fast changing consumer tastes and markets, which, in the present context, are increasingly flooded with products from abroad. The cooperatives have also failed to live up to the expectations, beyond the dairy business, and have shown vulnerability to political interference and corruption.

The Fabindia model—of promoting supplier-region companies in which artisans are given shareholding— also aggregates small producers and creates an organisation that brings down the transaction costs. But most importantly, it brings Fabindia’s established and expanding market literally at the doorstep of the rural artisans, and gives them managerial and technical support in sustaining the business. Here, the artisans not only get assured orders, but also get a liquid investment vehicle that promises them returns.

There are other spin-offs. A corporate entity is also in tune with the modern economy in that it allows raising funds from external investors (who can be allowed in a controlled manner) and banks and allows rural artisans to escape the deleterious effects of mixing business with politics. In addition, the artisans get a chance to familiarise themselves with how a regulated business organisation is run.

Why should the rural artisans not be given a chance to become savvier in step with the modern economy? Let’s hope the Fabindia model inspires other large businesses to help the small producer step into the modern business organisation and economy and emerge out of the quagmire of political economy.