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Corporate Social Responsibility

Wednesday, March 11, 2009

Rural Initiative taken by ITC and HUL to fulfill their corporate social responsibility and its impact on Indian economy

Paper presented in One day National Seminar on Corporate Social responsibility and Leadership On February 17, 2009 . Held at GITAM Institute of International Business ,GITAM UNIVERSITY , Gandhinagar Campus, Rushikonda, Visakhapatnam. "Rural Initiative taken by ITC and HUL to fulfill their corporate social responsibility and its impact on Indian Economy" By R. Ramachandra Naik ,Associate Professor, Integral Institute of Advanced Management, M.V.P.Colony, Visakhapatnam, Andhra Pradesh, ( E Mail: rrnaik2002 @ rediffmail.com ) Introduction Corporate Social responsibility means devising corporate strategies and building a business with the societys needs in mind. Social responsibility should be impaired in business decision making and it also implies an obligation to deal with social problems that business organizations are believed to have towards the society in which they function. Businesses have far reaching effects not only on the economic well being of the nation but also upon its social fabric. Business organizations have become the most significant social institutions having the power to influence the lives of the people. While emphasizing that, the concept of social responsibility is fundamentally

an ethical concept, Satish Modh explains that after Independence, policy makers suggested that companies use a part of their accumulated wealth to eradicate social problems. The concept of social responsibility in India emerged as direct response to the policies of the Government making India a socialistic democratic state. As the farmers and villagers of India are the main customers for ITC Ltd and Hindusthan Unilever Ltd (HUL) the corporate are now seriously involved in imparting the knowledge to use modern methods and tools for their financial as well as social development. This rural initiative of the corporate is beneficial to the rural population and the corporate as well. The corporates are fulfilling the social responsibility by investing in the implementation of the program in the places where their product potential is substantial and a large network is developed over the years. It also helps the corporate to win the confidence of the villagers and improves their brand image. ITC e- Choupal: ITCs International Business Division one of the Indias largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the fragmented farms of Indian Agriculture characterized by weak infrastructure and the involvement of numerous intermediaries among others. e-Choupal also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability, low investment, weak market orientation, low value addition, low margins and all this leading to further lowering of risk taking ability making him globally uncompetitive. For a country which is having very rich and abundant natural resources, hard working and efficient farmers it is unfortunate that Indian agricultural business remains globally uncompetitive. It is identified that the main problem is low risk taking ability of Indian farmer and his dependence on the money lender for his farm activity. He needs quality inputs such as fertilizers, chemicals, good farming practices and timely information about minimum sale price ( MSP ) for his product, weather data and insurance to safeguard his crop. Whereas the inputs for farming activity are supplied by Agri-input retailer the information required to take a decision about the crop is provided by the department of Agriculture of State Government through Village level workers (VLW s). In the traditional practice the farm output reaches the processor through the Mandi system or the Money lender which end up in very low margins for the farmer. The modern practice of going through a trader, broker and processor helps the farmer to get a fairly good margin for his products. High margins will enable the farmer to enhance his investment in the farming activity for

higher productivity. Such a market led business model can enhance competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality coupled with higher productivity. Further a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory. Operation and benefits e-Choupal provides real- time information and customized knowledge to making use of the physical transmission of data about the capabilities of current intermediaries, logistics, bridge financing. This enhances the ability of the farmers to take decisions and align their farm output with market demand thereby securing quality and productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufactures at fair prices. As a direct marketing channel virtually linked to the mandi system for price discovery eChoupal eliminates wasteful intermediation and multiple handling. This helps in reducing the transaction costs. e-Choupal ensures world class quality in delivering all these goods and services through several product /service specific partnerships with the leaders in the respective fields in addition to ITCs own expertise. While farmers benefit through enhanced farm productivity and higher farm gate prices ITC benefits from the lower net cost of procurement by eliminating unnecessary costs in the supply chain. ITC also offers better prices to the farmer compared to competition in the field. Sanchalaks: are the village internet kiosks managed by farmers for their use to enable the agricultural community access ready information in their local language on the weather and market prices. It helps them to know more about the scientific farm practices and risk management. It also facilitates the sale of farm products and purchase farm inputs from their door steps. The status of implementation and benefits: Launched in June 2000,e-Choupal has become the largest initiative among all Internet based interventions in rural India. e-Choupal services today are used by 4.0 million farmers growing a range of crops such as soybean, coffee, wheat, rice, pulses and shrimp in 40,000 villagers through 6500 internet kiosks operated in nine states (Madhya Pradesh, Haryana , Uttaranchal , Karnataka, Andhra Pradesh, Uttar Pradesh, Maharastra, Rajasthan and Kerala ). The problem encountered while setting up and managing these e-choupals are primarily of infrastructure inadequacies, including power supply, telecom

connectivity and band width, apart from the challenge of imparting skills to the first time internet users in remote and inaccessible areas of rural India. Several alternative and innovative solutions are being used to overcome the challenges, power back - up through batteries charged by solar panels, upgrading BSNL exchanges with RNS kits, installation of VSAT equipment, Mobile Choupals, local caching of static content on website to stream in the dynamic content more efficiently. They have also provided round the clock help desks for the benefit of farmers. ITC has taken care to involve farmers in the designing and management of the entire, e-Choupal initiative. The active participation of farmers in their rural initiative has created a sense of ownership in the project among the farmers. They see the e-Choupal as the new age co operative for development. An international study has shown that the farmers income have increased by 20%. The productivity has increased from 14% to 29% by using e-Chaupal services. Recognition: (1) ITC is the first Indian company and second in the world to win the prestigious Development Gateway Award in 2005 which recognizes ITCs eChaupal as the most exemplary contribution to the field of Information and Communication Technologies (ICT) for development priorities like poverty reduction, its scale and replicability, sustainability and transparency. (2) E-Chaupal was declared as one of Indias best Innovations and won the Innovation for India Award-2006 for ITC. (3) ITC has won the Golden Peacock Awards for Corporate Social responsibility in Asia in the year 2007, the award for CSR in Emerging Economies 2005 and Excellence in Corporate governance in the same year. These awards have been instituted by the Institute of Directors, New Delhi in association with the world council for Corporate Governance and Centre for Corporate Governance. (4) The Corporate Award for Social responsibility 2008 from, The Energy and Resources Institute (TERI) in recognition of its exemplary initiatives in implementing Integrated watershed development programmes across seven states in India. (5) United Nations Industrial Development Organization (UNIDO ) Award at the International conference on sharing Agribusiness solutions 2008 at Cairo for ITCs exemplary initiatives in agribusiness through e-Chaupal. ITCs agribusiness was adjudged the winner out of 120 solutions presented by 65 countries for providing innovative solutions including updated information on crops in remote Indian villages. ITCs e-Chaupal the largest rural digital infrastructure in the world today covers over 40,000 villages and benefits over 4 million farmers. This distribution network, comprising of digital and human

infrastructure, not only empowers farmers with information but has also helped transform rural communities into vibrant economic organizations by co-creating thriving markets. Comparison with other Indian companies: TERI has judged ITC as the first company for the corporate awards on CSR in 2008. The second prize went to Cairn India Ltd for their efforts in launching the Micro Vendor Development Program by creating sustainable lively hood opportunities. This independent evaluation of ITC e-Chaupal by TERI which is a Non Government Organization ( NGO ) shows that it is one of the best initiatives taken by a corporate in India as a part of their CSR. Other Indian Companies which have won TERI awards for their significant contribution over the years towards fulfilling their Corporate Social Responsibility are. 1) HZL 2) ONGC 3) Tata Tea 4) Mahindra& Mahindra 5) Numaligarh Refineries Ltd. ITC has consistently improved its performance by steadily expanding its e Chaupal program to different states in India over the past five years and won the farmers appreciation in India. Many developing countries are now following similar initiatives for the development of agri-business. Future plans of ITC: (1) To improve the logistic efficiency ITC is planning to integrate bulk storage, handling and transportation facilities. (2) Extension of the e-Choupal initiative to 15 states across the country. (3) To channelize other services related to micro - credit health and education through the same e-Choupal infrastructure. ITC estimates a payback period of seven years on its total investments in the e Chaupal initiative with full bouquet of services to the farmers and rural customers. ITCs philosophy for Rural Development: ITC believes that an effective growth strategy for our nation must address the needs of rural India which is home to 75 % of our population. It is imperative to ensure that Indias economic growth is inclusive, embracing its villages, so as to free millions of our disadvantaged citizens from the indignity of poverty. ITC has partnered the Indian farmer for close to a century. It is now engaged in elevating this partnership to a new height by using information technology e-Choupal initiative. HULs initiative in Rural Development - Shakti

Hindusthan Unilever Limited (HUL) and its constituent companies have been in India since 1931. The Company has consciously developed its strategies and operations keeping in view, development of India as the focus for its growth. The companys main contributions are developing and using relevant technologies, stimulating industrialization, boosting exports, adding value to agriculture and generating productive employment and income opportunities. HUL has been engaged in rural development since 1976 in India. The first programme called IRDP (Integrated Rural Development Program) was started in the year 1976 at Eta district in Uttar Pradesh as a part of its dairy operations. This programme now covers 500 villages in the district. Later, in all the places where HUL established their factories, similar programmes were also started in adjacent Villages. These activities focus on training the farmers for better productive use of their agricultural resources, animal husbandry, generating alternative income, health & hygiene and infrastructure development. The most important contribution for rural development is to create income generating opportunities to villagers. Such initiatives will only be successful when linked with the companies core business and is mutually beneficial to both the customers for whom the programme in intended and also for the company. Based on these insights HUL launched project Shakti in the year 2001 in keeping with the purpose of integrating business interests with national interests. Project Shakthi The objectives of project Shakthi are to create income - generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural living standards through health and hygiene awareness. It is ushering in prosperity and more importantly, self-respect to women in rural India. Under the project, HUL offers a range of mass-market products to the Self Help Groups (SHG s) which are relevant to rural customers. HUL imparts the necessary training to these groups on the basis of enterprise management which the women need to manage their enterprises. For the SHG women, this translates into a much-needed, sustainable income contributing towards better living and prosperity. Armed with micro-credit women from SHGs become direct-to-home distributors in rural markets. A typical Shakthi entrepreneur conducts a steady business which gives her an income in excess of Rs.1000/- per month on a sustainable basis. As most of these women live below the poverty line and hail from small villages with less than 2000 population, this earning is very significant. Project Shakthi thus enables these families to live with dignity, with real freedom from want. In

addition to money there is a marked change in the womans status within the household, with a much greater say in decision making. This will lead to better health and hygiene, education of their children especially the girl child and an overall betterment in living standards. The important and notable aspect of this model is it creates a win-win partnership between HUL and the consumers, some of whom will depend on the organization for their livelihood and builds a sustainable cycle of growth for all. Conclusion From the study of these two successful rural initiatives taken by ITC and HUL which are the leading and well established Indian Corporates, it is very clear that it proved to be a competitive corporate advantage in fulfilling corporate social responsibility. The decision of ITC to extend e-Choupal to 15 other states in the country shows their commitment to the objective of rural development in India. The infrastructure of e-Choupal can be put to better use for other services especially in rural health and education area. Providing safe drinking water to villages in India is a challenge which requires the involvement of corporates and NGOs. State Governments are engaged in developing Schemes and involving their machinery for implementation, but the success rate of these programs is very low. Corporates can play a key role in educating the rural population about the importance of safe drinking water in maintaining their health. It is estimated that the cost of providing health services for the villagers suffering due to contaminated water is 8 times higher than providing free and safe drinking water. It is therefore suggested that all corporates should take the example of ITC and HUL and do their best in fulfilling their Corporate Social Responsibility and participate in the growth of Indian economy. References: (1) http://www.echoupal.com/. (2) http://www.hllshakti.com/. (3) Business Ethics and Corporate Governance by Satish Modh, Macmillan, 2005 . (4) Innovate to empower the Agriculture an address by Dr.A.P.J.Abdul Kalam, President of India during the national symposium to commemorate 60th year of independence on 05-06- 2007 at New Delhi. Posted by K.Rama Mohana Rao at 9:18 PM 0 comments Home

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