Inclusive Supply Chain and Providing Energy Access to the Poor

The Farmer Income Gap and the Case for Inclusive Supply Chains

An inclusive supply chain improves the livelihoods of disadvantaged suppliers while making the chain commercially stronger. In Indian agriculture, the central problem is not simply production: the farmer receives a small share of the consumer’s final price because produce moves through a wasteful, information-poor and highly intermediated chain.

How little of the consumer price reaches farmers

Thus, for fruit sold at ₹100 per kg, the grower may receive only ₹30–40. Anecdotally, Karnataka oranges retailing at ₹60–70 per kg may yield the farmer under ₹10 per kg. Lychee can retail around ₹250 in season, yet growers in producing states such as Bihar have left the crop and become construction labourers because returns are inadequate.

Why the gap persists

The strategic task is to reduce waste, match supply with demand, improve quality and remove unproductive intermediation—without assuming every intermediary is useless.

Key takeaways

• The farmer’s price share is especially low for fruits and vegetables because they are perishable and complex to move.
• Supply-chain waste, fragmented information and repeated mark-ups explain the income gap.
• Smallholders face a compound disadvantage of low volume, weak bargaining power and poor market intelligence.
• Improving farmer income requires both farm-level productivity and downstream market/logistics reform.

Why Reliance chose bananas

Reliance Retail saw an opportunity to source agricultural products directly, improve supply-chain efficiency, sell higher-quality fruit and raise farmer income while strengthening its retail business. It initially planned dedicated fruit-and-vegetable chains for its own stores, then also supplied organised and unorganised retailers.

Banana was the first experiment because demand exists year-round, with festival-season spikes; India produces about 25% of global bananas; and the fruit has export potential. Reliance had previously bought fruit through third parties, so direct sourcing was a new operating model.

The traditional mandi system and the smallholder access problem

Agricultural marketing was designed to protect farmers: produce had to be sold through licensed traders at designated mandis, where competitive bidding was expected. In practice, traders could engage in cartelisation—agreeing not to bid prices up. Traders also lent to farmers, tying market access to debt and interest income. The result was a vicious cycle of low productivity, exploitation, debt and low farm income.

Some states allowed retailers to procure directly from farmers, creating alternatives to mandis. Large corporate retailers such as Tata, Godrej, Birla and Reliance could use economies of scale and scope, and direct buying saved farmers’ transport and handling costs. Yet direct procurement normally favours large farmers: buying tiny quantities from many smallholders creates high transaction costs. Since small farmers account for roughly 80–90% of Indian farmers, bypassing them would not make the chain inclusive.

The five supply-chain problems Reliance addressed

1. Inefficient farm practices lowered banana yield and increased waste.
2. Too many intermediaries created repeated handling, fruit damage and value dissipation; some were exploitative.
3. Existing ripening methods were unhygienic.
4. Poor quality produced low price realisation.
5. Smallholder aggregation and market access were difficult at corporate scale.

Hundikaris: local aggregation without excluding small farmers

Reliance appointed hundikaris, local-community intermediaries, to bridge small farmers and the company. They knew local language, soils, water access, farmers and cropping conditions; understood Reliance’s quality/demand needs; communicated best practice; organised seasonal labour; aggregated supply; forecast production and seasonal/local demand; evaluated quality; paid farmers; and sometimes arranged transport to processing centres.

The hundikari is a deliberate redesign of intermediation. Unlike the traditional chain, the role is oriented to quality, waste reduction and efficiency so that farmer, intermediary and Reliance gain together. Reliance remains a for-profit business responsible to shareholders, so the model is inclusive precisely because farmer benefit and corporate profitability are designed to reinforce one another.

Farm, logistics and quality interventions

Reliance’s polymer division developed sleeves/bags that allowed appropriate gas and moisture exchange. Its group-company capabilities, financial resources and talent made such investment feasible. Crucially, the model used a light-touch approach: expert advice and demonstrations, not compulsory contracts. Farmers remained free to retain traditional practices or sell elsewhere.

Outcomes and why the model worked

The model also diffused better practice to other retailers, including competitors, making Reliance an ecosystem developer. Its success depended on backward integration with the core retail business, local hundikaris/agriculturalists, two-way learning from farmers’ tacit knowledge, transparent quality/weight assessment, the best price, voluntary participation and long-term trust. It respected local socioeconomic conditions rather than imposing outside practices.

Exam tip: Reliance’s farmer benefit was not charity. It was commercially aligned backward integration: better quality and lower waste created value for retail, while transparent direct sourcing increased growers’ share.

Key takeaways

• Direct procurement can improve farmer terms but ordinarily excludes smallholders because of transaction costs.
• Hundikaris aggregate and translate local knowledge, making smallholder inclusion commercially workable.
• Reliance combined biological inputs, training, handling, compact logistics and controlled ethylene ripening to improve quality.
• Voluntary adoption and transparent pricing/measurement were essential for trust.
• Farmer share rose 28% → 42%, while waste fell 30% → 15%.

Intermediaries are not all expendable

Reliance removed many traditional intermediaries but inserted fewer hundikaris. This creates an unavoidable concern: displaced intermediaries can lose livelihoods. Intermediaries can aggregate supply/demand and convey information—valuable functions. The rural-chain failure is excessive and exploitative intermediation, not the existence of every middleman.

For Reliance, efficiency and technological change are legitimate commercial objectives. At a policy level, however, modernisation may displace workers who have little education or ability to move into new work. The key distributional questions are: where does the new surplus go; who captures margins; and are gains fairly distributed along the chain? Hundikaris themselves also require careful selection and governance so they do not reproduce exploitative behaviour.

Malcolm Harper’s warning on retail modernisation

Malcolm Harper’s 2011–12 analysis projected that modernising retail could eliminate at least 1 million traditional retail jobs annually for 10 years, while new-format retail would recreate only about one-fifth as many jobs. The expected pattern is uneven:

Harper’s conclusion was more hopeful for small producers: an efficient chain need not harm them and can benefit them, as in Reliance’s farmer outcomes. Comparable hope is harder to extend to many traditional intermediaries. This is a policy challenge, not a burden a profit-seeking firm can fully solve.

Karnani: when doing good is compatible with profit

Anil Karnani’s Doing Well by Doing Good: The Grand Illusion distinguishes two cases:

This does not make firms morally good or bad; it clarifies organisational purpose. An inclusive business model prioritises social impact while remaining financially viable (not loss-making), and may accept lower profit. A conventional for-profit may benefit society strongly but will not normally choose that benefit where it directly conflicts with profit.

Porter and Kramer: shared value

Shared value (Porter and Kramer) replaces the view that shareholder wealth must be maximised at the expense of employees, customers, communities or the planet. It seeks to overcome the efficiency–social-welfare trade-off by creating additional wealth while benefiting multiple stakeholders. It is not merely redistribution of existing profit.

Reliance is best understood as shared value rather than a pure inclusive business: shareholder returns and smallholder benefits rise together through a stronger banana chain.

The agri-tech lesson: WayCool and perishability

WayCool, DeHaat and Ninjacart have used technology to link farmers with consumers, retailers and restaurants. WayCool was at one point valued at 700 million US dollars, connected 50,000 farmers and reported ₹1,600 crore revenue in FY2024, with strong investor backing and unicorn expectations. It then encountered the central challenge of perishables: seasonal production variation and supply-chain waste.

Reliance began slowly with one relatively year-round fruit, invested heavily in forecasting, local links and waste control, then expanded. Investor-pressured agri-tech firms often had to source many fruits and vegetables simultaneously and lacked equivalent resources/learning time. They shifted portfolios toward grains, spices and dairy—easier to source, store and transport—while reducing perishables. The lesson is that no single model solves farmer poverty: large firms, agri-tech and other interventions all have roles.

Key takeaways

• Supply-chain efficiency can raise producer income while eliminating intermediary jobs; gains must be analysed across all actors.
• Harper predicts job losses will outnumber new retail jobs and disproportionately hurt women and less-educated workers.
• Karnani’s test is the profit trade-off: firms share benefits when it helps profit, but usually not when it lowers profit.
• Shared value creates additional stakeholder value rather than redistributing a fixed pool.
• Perishables make agri-tech particularly difficult; gradual learning and resource-rich logistics matter.

What energy poverty means

Energy poverty has three dimensions: low energy consumption, polluting energy sources and excessive time spent collecting fuel. The 2011 census estimated 81 million Indian households without electricity, including 75 million rural households—about 45% of rural and 7% of urban population using household sizes of 4–4.5.

Without electricity, poor households depend on biomass (wood, charcoal and crop residue) or kerosene. Burning biomass produces smoke and black soot, reduces lighting and causes health harm, particularly to women who spend substantial time in kitchens. Women also spend long hours gathering forest wood, displacing care work, education and income-generating activity. Lack of energy limits operating hours for businesses such as eateries and prevents children studying after sunset.

India declared every village electrified on 28 April 2018, when Lisang village in Manipur was connected. But the definition requires only 10% of households plus public institutions (such as school and health centre) to have access. Kutcha houses/hamlets may be excluded, and grid connection does not ensure power actually flows reliably. Even with LPG expansion, decentralised clean-energy solutions remain necessary.

SELCO: energy as a livelihood enabler

SELCO supplies customised solar-lighting solutions to poor households and micro-enterprises. About 400 million Indians were estimated to lack clean, cost-effective energy, often relying on kerosene or forest wood. SELCO’s systems serve street vendors, small eateries and households; they improve productive hours, income potential, health, education and quality of life while reducing time spent acquiring fuel.

Founded by Harish Hande in the late 1990s (around 1997–98), SELCO was organised like a for-profit venture but prioritised maximum social impact, not profit maximisation. Hande’s premise was that poor customers will pay for a product that meets a real need and creates value; donation is not required. Government-donated solar lights had often failed after five or six months because maintenance was absent, giving solar technology a poor reputation. SELCO therefore combined customised design, financing and rapid doorstep service to keep systems functioning.

Need-led design, not sales maximisation

SELCO engineers doubled as empathetic salespeople. They assessed need rather than trying to maximise units sold:

• A lamp placed at the intersection of two rooms could replace two lamps.
• A four-room household might need four holders but only two movable lights, since all rooms are not used simultaneously.
• A system could be rented for only three or four hours when that was all a customer needed.

This approach deliberately distinguishes need from desire. Commercial selling can stimulate desire; with poor customers, unnecessary purchases are dangerous because recovery from a wrong purchase is difficult. SELCO therefore incentivised people to sell the smallest suitable system, not the largest revenue system.

Finance without the conflict of interest

Solar systems were unaffordable upfront, but SELCO did not lend directly. Combining sales/service with loan collection would pressure engineers to sell and recover rather than understand customers. SELCO spent its initial four to five years persuading rural commercial banks that solar lighting is an income-generating asset, not mere consumption like a television. It facilitated bank loans and used other agencies for bridging finance where a bank could not fund the full purchase.

The principle is doorstep finance plus doorstep service, delivered through specialised partners rather than a conflicted seller-lender. Loans must match customer cash flow: daily earners can pay daily; seasonal earners can pay at harvest.

Worked affordability example: the pushcart vendor

The bank pays SELCO; the vendor pays the bank about ₹10 daily. The vendor immediately saves about ₹5 daily versus kerosene, gains clean lighting and, after loan payoff, owns an energy asset for the remaining useful life. Small restaurant owners could extend operations from 6 pm to 10 pm; cap-mounted solar lights freed both hands of tea pluckers and doubled productivity.

SELCO also created local livelihoods: rental entrepreneurs supplied/collected short-use lights and recharged them, while cycle and television repair workers were trained as field/service engineers. Maintenance—especially cleaning panels—is essential to system uptime.

Exam tip: SELCO’s innovation is a bundle, not a lamp: customised productive-use energy + cash-flow-matched bank credit + local maintenance. Removing any one component threatens affordability or uptime.

Key takeaways

• Village electrification is not household-level, reliable electricity; clean decentralised energy can still fill major gaps.
• SELCO treats solar lighting as productive infrastructure that supports income, health and education.
• Need-led configuration prevents poor customers being oversold.
• SELCO enables credit but avoids lending itself to preserve customer-centred incentives.
• Solar-light savings/productivity can repay the loan and turn an unbankable household into an asset owner.

Why BoP ventures struggle to break even

In a conventional business, cost rises more slowly than revenue after initial investment because scale economies emerge. For a base-of-the-pyramid (BoP) venture, moving from one village to another often requires fresh distribution, retail and infrastructure investment. The dispersed market makes cost rise almost alongside revenue, delaying profitability. Such ventures may need roughly 30% penetration in a geography before revenues exceed costs.

This is why well-intentioned large-company ventures failed to make money: P&G Health Science’s Pur water-purification powder and Solé’s soya-fortified snack food. Successes such as low-cost water in Manila, CEMEX low-cost housing in Mexico and Grameen Bank show success is possible, but not automatic.

Principles that reduce BoP cost

• Leverage existing retail/distribution infrastructure to minimise capital expense.
• Bundle multiple products through the same channel.
• Employ local people in sales, retail, distribution, warehousing and related activity.
• Prefer existing demand pull over expensive efforts to push or create demand.
• Use consumer peer groups for information and education.

Many apparent successes, including Manila Water and CEMEX, benefited from implicit or explicit subsidies (for example, use of government infrastructure). SELCO is notable for selling solar lights profitably without such subsidies while educating customers, creating demand and facilitating credit.

Customisation versus standardisation

Customisation fits the actual context: number of lamps/holders, rental versus ownership, financing and repayment timing can match household use and income. It improves affordability and trust, but limits scale because tailoring is labour-intensive.

Standardisation lowers cost by repeating one design and production process at high volume. Henry Ford demonstrated the trade-off over a century ago: a standard car enabled mass production, economies of scale and lower price. The same logic underlies McDonald’s and Aravind Eye Care’s high-volume cataract work. Cataract surgery is comparatively standardisable; cardiac surgery at Narayana Health requires more individual customisation and costs much more.

SELCO balances the two: components can be standardised, but configuration must fit a particular household or vendor. Grameen and Rang De similarly began with standard products but moved toward customisation when borrowers’ cash flows and needs differed. Over-standardising can sacrifice real needs; over-customising can prevent affordable scale.

Trust is the binding mechanism. SELCO did not reward salespeople for higher volume. It rewarded serving the right poor customer with the smallest suitable system; a customer who could buy a five-light system or did not require credit was likely outside the target segment. Honest advice creates lasting trust and demand.

Prahalad’s BoP principles in SELCO

Key takeaways

• Dispersed BoP markets cause distribution cost to rise with revenue; profitability may require about 30% local penetration.
• Existing infrastructure, local labour, bundling and demand pull lower the cost burden.
• Customisation protects fit and trust; standardisation enables scale and lower cost—social entrepreneurs must balance them.
• SELCO operationalises Prahalad through buying power, aspiration shaping, healthy markets and access.

Harish Hande’s leadership model

Hande combined personal intent, technical competence and deep field immersion. An energy engineer with a PhD, he worked in rural Karnataka, Sri Lanka and the Dominican Republic to understand how poor households use decentralised solar energy. He insisted that local customers—such as farmers—often understand their own problems better than outside experts, so SELCO staff must listen and learn.

His leadership required conviction, persistence and sacrifice: he travelled remote rural Karnataka, sometimes missed transport, slept at bus stands or accepted local shelter, then travelled the next day. He led by example, built partnerships and alliances, advocated for facilitative policy, and later shifted from operating SELCO to evangelising, alliance-building and mobilising resources once capable managers could run it.

He also challenged conventional wisdom: scaling is not automatically desirable if it causes mission drift. The microfinance collapse showed how scale pressure can break customer-centred practice.

Investors and patient capital

Investor selection is critical. Even self-described impact investors may demand high ROI or rapid valuation increases, pressuring firms to scale and dilute mission. SELCO instead converted philanthropists into investors: they supplied capital with business discipline and an expectation of financial viability, but accepted long timelines and prioritised impact. This is patient capital—capital aligned with both impact and patience, not merely the label “impact investment.”

SELCO’s incentives reinforced targeting. Salespeople were rewarded for smaller systems where appropriate; an unaided purchase or a five-light purchase could signal a customer was not poor enough for SELCO’s intended segment. The model deliberately avoided direct finance and used product ownership/repayment to make communities bankable: after two or three years, a paid-off solar asset can support future borrowing during its remaining useful life.

A dual structure for innovation and ecosystem growth

SELCO Private Limited could not generate enough surplus for all pre-commercial research and development. It therefore created SELCO Foundation, a not-for-profit that develops and tests innovative solar-powered solutions such as water pumps, paddy threshers, processing mills and blacksmiths’ blowtorches, replacing polluting kerosene with more efficient solar energy. This dual for-profit/nonprofit structure lets the business sell proven solutions while the foundation funds higher-risk R&D and other activities not viable commercially.

SELCO Incubation helps social entrepreneurs create context-specific sustainable-energy models. Rather than scale SELCO uniformly, Hande sought to inspire distinct local enterprises: a solar-light business in Odisha should differ from one in Karnataka because conditions differ. Incubation supports model development, but rural entrepreneurs can struggle to access funders who prefer English-language pitches and spreadsheets. SELCO Fund was created to finance incubated ventures after their model was clarified; it was shut down in 2026.

Key takeaways

• Inclusive-business leadership combines lived context, technical ability, field learning, persistence and willingness to challenge scale-for-scale’s-sake.
• Patient, mission-aligned capital protects social purpose better than return-driven capital with short timelines.
• SELCO’s incentives, finance separation and asset creation keep sales focused on genuinely poor customers and build bankability.
• A for-profit operating company plus nonprofit foundation/incubator can fund R&D and seed locally adapted ventures that the core business cannot.