You are on page 1of 22

Role of rural in Indian Economy

The Rural Economy in India is wholly agriculture based and it is of tremendous importance because it has vital supply and demand links with the other Indian industries. Agriculture is the main stay of the Indian economy, as it constitutes the backbone of rural India which inhabitants more than 70% of total Indian population. The fertility of the soil has augmented the success of agriculture in India. Further, Rural Economy in India has been playing an important role towards the overall economic growth and social growth of India. India has been predominantly an agriculture-based country and it was the only source of livelihood in ancient time. During prehistoric time when there was no currency system the India economy system followed barter system for trading i.e. the excess of agricultural produce were exchanged against other items. The agriculture produce and system in India are varied and thus offers a wide agricultural product portfolio. India's large service industry accounts for 57.2% of the country's GDP while the industrial and agricultural sectors contribute 28.6% and 14.6% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The rural section of Indian population is primarily engaged with agriculture, directly or indirectly. Thus rural India contributes significantly to the overall GDP.

Definition of rural and urban India

Urban Area: The unit of classification in this regard is 'town' for urban areas and 'village' for rural areas. In the Census of India 2011, the definition of urban area adopted is as follows: (a) All statutory places with a municipality, corporation, cantonment board or notified town area committee, etc. (b) A place satisfying the following three criteria simultaneously: i) a minimum population of 5,000; ii) at least 75 per cent of male working population engaged in non-agricultural pursuits; and iii) a density of population of at least 400 per sq. km. (1,000 per sq. mile).

Rural Area: In the Census of India 2011, the definition of rural area adopted is as follows: (a) All statutory places with a municipality, corporation, cantonment board or notified town area committee, etc are not considered to be rural areas (b) A place which does not satisfy the following three criteria simultaneously is defined as a rural area: i) a minimum population of 5,000; ii) at least 75 per cent of male working population engaged in non-agricultural pursuits; and iii) a density of population of at least 400 per sq. km. (1,000 per sq. mile).

Population statistics
% Total Population Male Female Contribution to total population INDIA Karnataka 1,21,01,93,422 6,11,30,704 62,37,24,248 3,10,57,742 58,64,69,174 3,00,72,962 100 5.05


Rural Population

Urban Population

Source: Census 2011, Wikipedia


Subscriber Statistics(Karnataka) State Subscriber Base Population Mobile Phone per 1000 Population Karnataka




GDP & literacy rate (Karnataka)

Per capita GDP(US $)




Telephone penetration in India

The mobile subscriber base in India is 826.25 million out of which 68% of the subscribers are from urban areas and the balance 32% is from rural areas. The urban teledenisty has reached 134% whereas rural tele-denisty is only 28%. As a result, the telecom subscriber growth in urban areas is now saturated and further growth can come only from rural India. According to TRAI, 91% of the villages in India are covered by at least one operator. Overall, 51% of the villages in India are covered by three operators and 31% of the villages are covered by four operators. The population density across India is very low in villages making it less viable for the telecom companies. This is due to lower number of subscribers per BTS and lower ARPU of a rural customer when compared to the urban customers. Difficult topography and climatic conditions are the other reasons for this low tele-density in rural areas. Population Density Between 1000-2000 Between 1000-500 Below 500

Number of villages 129,000 144,000 219,000

If we look at the spread of population, 70% of the population lives in rural India

spanning 492,000 villages. Majority of this population depends on agriculture for survival. Contribution of the rural India is very significant as 45% of the GDP comes from this segment. As telecom and network connectivity is seen as enablers of nations socioeconomic growth, the Government is aggressively looking at plans to improve the teledensity in rural areas. The industry has made several suggestions for improving the teledensity in rural areas.

Fast approval mechanism for site acquisition Telecom companies spend considerable time for the acquisition of land and for

obtaining permission from the quasi-government authorities like Panchayats for the erection of BTS. There is always a threat of site demolition and considerable delay is experienced in getting approvals till now. There is also difficulty in laying down optical fibre cable due to right of way issues. Telecom is a public utility and a critical infrastructure for rural development. Government should instruct the Village Panchayats / Forest departments / Highway authorities to issue the permission for the erection of BTS site on a fast track. Similarly the land for the site acquisition should be made available quickly and there should not be any restriction or charges or penalty on conversion of agricultural land to commercial activity.

Immediate SEB (grid) power connection at industrial rate Another major deterrent for erecting sites at rural areas is the non-availability of SEB

power. The telecom companies depend on diesel power which is very expensive and does not justify the site at many rural areas. The Government should treat the telecom as essential services and mandated to the state electricity board that the power connections should be made available within one month of application and at industrial tariff. The BTS sites should be exempted from power cuts and uninterrupted power supply should be made available.USO subsidy should be considered for non-conventional energy sources like Wind power, solar energy and bio fuels.

VSAT connectivity for rural areas

The telecom companies face considerable delay in providing optical fibre, leased lines and MW backbones at rural areas. Besides it takes time and huge effort to build up this network. The Government should provide VSAT connectivity at these rural areas, faster approval and lesser charges.

Ensuring availability of low cost Handset Even though the mobile handsets are available now at Rs 1000 and below, the rural

households may still consider this as expensive and it will be a major entry barrier in rural India. The telecom companies should consider bundling of handsets along with connection and subsidise the handset cost. In turn, the Government needs to provide financial support / subsidy to the telecom companies to compensate this cost.

Develop applications to make the mobile handset more useful The literacy rate in rural areas is very low. It is therefore, important to develop

content in vernacular language and design the application software such that it is userfriendly and menu driven, with innovative graphics to overcome the limitations of illiteracy. Operators should take initiatives to offer regional and national news, weather forecasts and market prices for crops in regional languages to help improve mobile uptake in rural area.

USO subsidy for OFC connectivity As the OFC connectivity at rural areas require huge investments, USO Fund should be

made available to the telecom operators who invest capital expenditure for rural connectivity. In order to reduce the capital expenditure Government should mandate that the OFC infrastructure available in rural India should be shared among all operators at a pre-fixed nominal cost.

Mobile Banking TRAI is of the view that mobile banking is a catalyst to promote mobile services in

untapped rural India. Even today the banking services have not reached the rural India fully. It will be very expensive to provide the banking services through branch expansion or

through ATM. Mobile phone is the ideal and unique vehicle to extend the banking services to rural India. Many African countries have successfully employed mobile phones for fund transfer among the rural population. RBI and the banking sector should make the necessary policy changes and join hands with the telecom sector to reach the banking services to the uncovered areas. The advent of wireless technologies, Government support and policy changes have made it possible to overcome many of these difficulties. While launching wireless technologies in rural India, operators are required to focus on service availability, affordability, acceptability and awareness. Operators need to create and implement business models capable of driving profitable growth through a rural expansion strategy.

Revenue from the Indian Telecom Sector

The gross revenue of the telecom service sector for the year 2009-10 was Rs. 1,57,985 crores which is about 3.7% increase over the last year in spite of unprecedented recession in the market. Average Revenue Per User (ARPU) for full mobility service for GSM was Rs.131/- and for CDMA Rs.76 per month while the respective minutes of usage were 410 and 307.


Overall tele-density The number of telephone subscribers in India increased to 826.25 million at the end of February 2011 compared with 806.13 million in January 2011, thereby registering a growth rate of 2.50 per cent. The overall tele-density in India reached 69.29

Wireless tele-density (GSM, CDMA & FWP) Wireless subscriber base increased from 771.18 million to 791.38 million registering a growth of 32.62 per cent. Wireless tele-density stands at 66.36.

Wire line tele-denisty Wire line subscriber base declined from 34.94 million in January 2011 to 34.87 million at the end of February. BSNL/MTNL, two PSU operators, hold 82.71 per cent of the wire line market share. Overall wire line tele-density is 2.92.

Broadband Total broadband subscriber base has increased from 11.21 million in January 2011 to 11.47 million in February 2011, a growth of 2.34 per cent.


Wireless (Figures in millions)

Wire line (Figures in millions)

Total subscribers Total net addition % of monthly growth Urban subscribers Rural subscribers Tele density Urban Tele density Rural Tele density
Source: Trai, annual report 2010

771.78 18.99 2.52

34.94 -0.15 -0.41

512.26 258.93 64.74 143.36 31.05

26.13 8.82 2.93 7.31 1.06

Wireless Statistics

Urban Tele-denisty India Karnataka

Source: Trai, annual report 2010

Rural Tele-denisty 31.05 28

143.36 130

Some vital Statistics on Cell phones:


Telephone Subscribers (Wireless and Landline): 826.25 million (Feb 2011). Land Lines: 34.87 million Feb 2011)

y y y y y


es: 791.38 milli

Feb 2011) (Feb 2010 - 2011) (Feb 2011)

Annual Cell

ne Addi i n: 227.65 milli

Monthl Cell phone Addition: 20.20 milli Tele-denisty: 69.29 % (Feb 2011) Projected Tele-denisty: 1.159billi

75% of popul tion by 2013.

Source: Trai annual report 2010


est cell phone players of India:

Source: Trai annual report, 2010


Uni ersal servi e is an economic, legal and business term used mostly in regulated industries, referring to t e practice of providing a baseline level of services to every resident of a country. The basic concept of Universal service is the below cost pric of service to ing increase the quantity of service. Most countries fund their USO either by collecting taxes from the operators or by allocating funds through budgetary process. The third option is to allow the incumbent operator to be the designated USO p rovider by providing them legal and monopoly protection. Universal Service Obligation is essential to ensure that there is a

balanced growth in the economic and social well-being of the masses. The Government needs to take into account the social rate of return and the economic rate of return at the time of taking decision to provide services to areas which are not commercially viable. In India the rural penetration of telecom services is lower than the urban penetration. This is because the private operators were initially reluctant to expand the network in rural areas because of the lower ARPU and the high cost of provisioning services in those areas.

Roll Out Obligation


USO Funding Policy Universal Service Objectives

Termination Charges

Tariff Policy

Access Deficit Charge

Rural Service Providers

Government Funding

USO Fund in India The Universal Service Support Policy came into effect from 01.04.2002 in India. In December 2003, the Indian Telegraph (Amendment) Act, 2003 was amended to give statutory status to the Universal Service Obligation Fund. The Fund was established with the objective of meeting the Universal Service Obligation by providing access to telegraph services to people in the rural and remote areas at affordable and reasonable prices. The resources for implementation of USO are raised through a Universal Service Levy (USL) at 5% of the Adjusted Gross Revenue (AGR) of all Telecom Service Providers. This charge is included in the licence fee which ranges from 6% to 10%. In addition, the Central Govt. may also give grants and loans to the USO fund.

Activities planned under USO Fund The implementation of USO related activities is carried out by the telecom operators both in private and public sector in India. The fund supports the following activities.

Installation, Operation and Maintenance of Village Public Telephone in the revenue villages identified

Provision of additional rural community phones in areas after achieving the target of one Village Public Telephone in every revenue village.

Replacement of Multi Access Radio Relay Technology Village Public Telephone installed before 1st day of April 2002.

y y y

Provision of household telephones (RDELs) in rural and remote areas Provision of Broadband connectivity to villages in a phased manner Creation of general infrastructure and induction of new technological development in rural and remote areas for development of telecommunication facilities

Implementation of USO Fund activities DoT has entered into Agreements with M/s BSNL and Private Operators in March 2003 for operation and maintenance of existing Village Public Telephones (VPTs), providing Rural community phone (RCP) and for installation of Rural Household Direct Exchange Lines (RDELs). Substantial progress has already been made in all these areas. USO Fund has also been utilized to provide subsidy support for setting up and managing infrastructure sites in 500 districts for provision of mobile services in the specified rural and remote areas, where there is no existing fixed wireless or mobile coverage. USO Fund subsidy for wireless broadband had been given to BSNL for installing Wimax BTS in rural India. BSNL till date has rolled out approximately 1000 Wimax BTS and is in process of deploying an additional 7000 BTS in rural area. DoT is also considering support to the winners of Broadband Wireless Access (BWA) spectrum auction to ensure level playing field in rural area.

Highlights of National Telecom Policy 1994


Availability of telephone on demand, provision of world class services at reasonable prices,

Improving Indias competitiveness in global market and promoting exports, attractive FDI and stimulating domestic investment,

Ensuring Indias emergence as major manufacturing / export base of telecom equipment and universal availability of basic telecom services to all villages.

y y y

Telephone should be available on demand by 1997. All villages should be covered by 1997. In the urban areas a PCO should be provided for every 500 persons by 1997.

Value Added Services: In order to achieve standards comparable to the international facilities, the sub-sector of value-added services was opened up to private investment in July 1992 for the following services:
y y y y y y y y

Electronic Mail Voice Mail Data Services Audio Text Services Video Text Services Video Conferencing Radio Paging Cellular Mobile Telephone

Pilot Projects: Pilot projects will be encouraged directly by the Government in order to access new technologies, new systems in both basic as well as value-added services.

Highlights of National Telecom Policy 1999

Objectives & targets:
y y y y

Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged.

Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.

y y

Department of Telecommunication Services (DTS) corporatized in 2000. Spectrum Management made transparent and more efficient.

y y

Increase rural tele-denisty from the current level of 0.4 to 4 by the year 2010. Achieve telecom coverage of all villages in the country and provide reliable media to all exchanges by the year 2002.

Areas of North East, Jammu & Kashmir and other hilly areas, tribal blocks, etc. to be identified as special thrust areas for accelerated development of telecommunications.

Telephony concept for the welfare of rural population

Case study on the implementation of telemedicine concept for rural patients A patient named Shanker Chandra from a semi urban area was undergoing treatment in Kolkata under Dr. Tamal Bhattacharya at the consultation center in Kolkata. In the course of the treatment a specialists opinion was required and Dr. Tamal Bhattacharya referred the case to Dr. Alok Ranjan at the specialty centre in Hyderabad. The Kolkata consultation centre is a full-fledged telemedicine consultation centre and is connected to Hyderabad Apollo Hospital. The patients records were sent in advance and the appointment was fixed according to Dr. Alok Ranjans schedule. Before the consultation begins both the centres have to enter each others IP (internet protocol) address for a web camera meeting in the

absence of a polycam. The meeting took place for ten minutes in the course of which Dr. Alok advised the patient on his future treatment plan. The billing for a telemedicine consultation is done at a flat rate of INR500 in case one specialist is involved and INR750 in case of two specialists. In case of overseas referral cases ATEL charges $50 if one specialist is consulted and $75 in case of two. This web consultation has saved Shanker Chandra quite a few expenses he would have incurred if he had to travel to Hyderabad to consult Dr. Alok Ranjan. Web consultation has its own problems like connectivity delay, image and voice distortion. Dr. Alok Ranjan Consultant Neurosurgeon, Apollo Hospitals- Hyderabad feels that Information Technology will radically change the working of medical science. Telemedicine has revolutionized medical consultation by cutting down the distance between the rural patient and urban specialist. Dr. Ranjan feels that the direct benefits of telemedicine for patients are convenience, better care, cost effective care, state of art care and best possible care. Dr. Alok Ranjan feels the number of cases will increase from two per week now to close to twenty, which will make their task more challenging. Wider acceptance of the telemedicine concept will increase the number of referrals for a doctor and his compensation will commensurate accordingly. Doctors on the telemedicine panel should be tele-savvy, should be able to understand and answer the patients problem precisely and fast because of connectivity constraints. The Dr. believes that presently telemedicine in India is only for second opinion and is not a means of performing surgeries, due to lack of infrastructure. He feels that Apollo being one of the first corporate hospitals to use telemedicine, have large growth prospects in terms of technologically backed quality treatment and in creating a niche segment in telemedicine care. In India confidential information cannot be transferred using the existing network as it is prone to web hacking etc. To overcome this problem, Hippa a European standard for data protection can be implemented to transfer confidential information between two different hospitals. Apollo has not adopted this standard for its current project but is considering it for its future telemedicine projects.

Opportunity within NREGA for mobile payment of salaries

Opportunity within NREGA - 25 lakh working people under NREGA need bank accounts, but half the accounts are with post offices, and not under any electronic system

Difficulties with Biometric Details - Although biometric details are taken for the card holders, these details do not conform to UID specifications. There is a daunting task of repeating the whole exercise

Fund flow from NREGA require a common platform - Cascading of fund flow from large accounts to end customers involve multiple bankers and financial institutions. Currently there are no common standards existing for the whole gamut of bankers, neither are there any standards for interoperability.

MPFI (Mobile payment forum of India) is being jointly formed by Institute for Development and Research in Banking Technology (IDRBT) and Rural Technology Business Incubator (RTBI) of IIT Madras with a mission to enable mobile payments in India with secure and low cost transaction. MPFI is working on creating such common standards.

Grameen Sanchar Sewak Scheme The scheme is designed to provide availability of a phone at the doorstep of every rural household. Under the scheme, a mobile phone will be provided to a postman (Gramin Sanchar Sewak). When the postman goes to a house to deliver a letter, he will carry the phone with him. Since a postman reaches practically every house, the scheme will enable the phone service to be made available practically to all citizens in his area. Initially, the scheme is proposed to be operated on a pilot basis in 2000 post offices covering 10,000 villages. WLL Phones for the scheme will be provided by BSNL. The phones have a display screen on which the units will be displayed. A receipt for the transaction will be provided by the postman. A 25% commission has been proposed for the scheme. Based on the results of the pilot, the scheme will be extended to more post offices in the country

Role of regulator
The mission of Telecom Regulatory Authority of India (TRAI) is to ensure that the interests of consumers are protected and at the same time to nurture conditions for growth of telecommunications, broadcasting and cable services in a manner and at a pace which will enable India to play a leading role in the emerging global information society.

The Telephone Regulatory of India (TRAI) has had to rule on contentious issues, such as on the competing claims of GSM and CDMA operators in the licensing areas and, more recently, on issues connected with spectrum allocations and pricing. Unless precedents and case laws are well established, regulatory decisions will continue to be marked by uncertainty.

Major Challenges in going rural faced by telecom companies

There are four main difficulties in serving rural communities, each one of which has appeared insurmountable:

Power challenges Most of rural India is not served by the power grid. Some areas may get agricultural power two hours in the morning and evening but even this is the exception. When fuel can be afforded and delivered, power tends to come from diesel generators. The combination of poor fuel quality and poor generator maintenance severely limits the life of any generator. Revenue challenges Rural India can pay for mobile services, but only around $2 per month. The cost base of any solution has to be geared to these ARPU levels.

Skills challenges There are no trained telecom engineers and few people can read or write. This makes the installation and maintenance of GSM networks highly challenging.

Access challenges These are extremely remote communities, served by poor roads and no other significant infrastructure.

Mobile Communication in Rural Areas: The stakeholders

Telecom Service provider

y y y y

Sharing of Telecom Infrastructure Outsourcing Network O&M Quick rollout of network Infrastructure Broaden Reach

Electricity Department &Energy Providers

y y y

Full rural electrification Lower energy cost for rural use Simplify procedure for EB connection

Technology Vendors and Application providers

y y y

Provide equipment that do not require A/C, shelter Enhance maintainability and sharability Seek Sourcing and manufacturing opportunities in low cost areas

Independent Telecom Infrastructure Provider

y y y y

Ability to rapidly roll-out towers Set up sharable towers proactively in Dark Spots Serve as a one-stop-shop provider of Telecom Infrastructure Support Operators to focus only on their core activities

Regulatory& Govt Bodies

y y

Simplify land acquisition process Rebate for serving rural area

Subsidies on Telecom Infrastructure components

Industry Association

Independent Infrastructure Providers to be treated at par with other infrastructure companies by providing benefits under section 80IA (4) of the IT Act by granting infrastructure status under section 10-23(G)

Create platform for sharing best practices.

Customization for Rural Population

User Friendly

y y y y y

Software to support local language Low handset cost Handset with features that suit rural population Alerts on agriculture, health hazards, etc. Voice SMS

Products that match rural lifestyle and economy

y y y y y y y y y

Offer economical packages Incorporate lifestyle constraints into product design Appeal to aspirations Strive for Quality Enhancing the Offer Encourage technology adoption-by demystifying it Educate the economic benefits of mobility Encourage use: Design pricing and promotion schemes that encourage trial period Eliminate misconceptions about mobile handsets and build trust among a segment of consumers with low levels of education and little exposure to technical gadgets

Internet Penetration in rural India(Based on the research conducted by IMAI in 7 states of India)
Internet penetration is rising appreciably in India today. Urban India which accounts for about 28% of the total population, has witnessed the bulk of this growth, with students, youth as well as office goers being the primary drivers. Rural India, on the other hand, lags behind. By December 2009, rural India had about 7.45 Mn claimed Internet users and 5.5 Mn active Internet users. The All India estimates for computer literates in rural India are 47 Mn. This translates into a computer literacy of about 7.4% for rural India as a whole. The reasons for increased Internet penetration, especially in rural areas are multiple. Government initiatives facilitated by DIT (Department of Information Technology) such as NeGP (National e-Governance Plan), SWAN (State Wide Area Network) and CSC (Common Service Centres) are increasingly maturing. As per latest reports provided by the DIT, there are about 90,000 CSCs operational in various parts of India. With India having about 600,000 villages, each common service centre on an average serves about 6 villages approximately. Other notable Government initiatives include Sarva Shiksha Abhiyan (SSA) and the National Rural Employment Guarantee Act (NREGA) scheme. The SSA has helped computer literacy to rise among school children while also increasing Internet awareness and usage. As part of NREGA, a web based system has been designed that villagers can use for their personal use and obtain their payment online, while also storing their money safely. Also, private sector initiatives such as ITCs e-Choupal, HULs Project Shakti, Microsofts Project Shiksha and Googles Internet bus among various others, continue to help increase Internet awareness and usage. Common Service Centres (CSCs) are by far the most widely used Internet access points. In the current edition of the report therefore, there has been a streamlined focus on the type of services CSCs are typically accessed for. About 65% of all Internet access in rural India happens at a CSC or any publicly accessible computer. As per the findings, education related surfing (49%), general Internet surfing (46%), gaming purposes (28%) and bio data and CV services (25%) were the main reasons for people to access CSCs. Internet Non Awareness is still by far the main reason why people do not use the Internet in rural areas. This is followed by non-availability of computers, non-availability of Internet connections as other reasons cited. In other words, awareness of the Internet as a

medium will be another important factor that will expedite Internet adoption. Internet awareness can be increased through careful planning, designing, and execution of various promotional campaigns. These campaigns should be run with Haat, Mela, and Mandi events in villages, as these are main channels that villagers are exposed to. In addition, the penetration of television and cable television in particular, has also risen greatly in rural India. These must be utilized to generate greater awareness.

Initiatives taken by private players to enhance internet penetration in rural India

With the e-Choupal initiative, ITC continues to reach out to about 4 million farmers through 6500 kiosks and over 40,000 villages. The initiative provides useful information about the weather as well as the market price of the food grains, helping prevent the exploitation of farmers. In addition, the initiative helps to grow a range of crops including wheat, rice, pulses, soybean, and coffee among others. Hindustan Unilevers Project Shakti, with its iShakti community portal has also enabled Internet penetration to rise. The focus of this initiative is women in rural India. There are about 45,000 women entrepreneurs that cater over 135,000 villages across 15 Indian states. It is estimated that there are over 3 million consumers that are buying products sold at such outlets.

Purpose of Internet access in rural India (According to the study connected by IMAI in 7 states of India)

Source: Internet rural India, IMAI 2010

Main reasons of non usage of internet in rural India (According to the study connected by IMAI in 7 states of India)

Source: Internet rural India, IMAI 2010

Data Card Users in India

Low speed of access and higher prices are acting as the hindrances for the penetration of the data cards in India.

Source: IMRB,mobile internet in India

Drivers for data card penetration in India

y y y y y y y

Accessing emails and corporate applications on the go Urge to visit entertainment sites on a prolonged boring travel Growing businesses in all the segments Ease of use with plug and play factor Affordable tariffs Net access even in far-flung areas where wireline broadband is not available Utilities like m-commerce

Deterrents for data card penetration in India

y y y y

Download speed is slow Indian data cards offer bare minimum net connectivity Prices are high for this segment. Promise and delivery do not match