Corporatising local businesses: Key to ODOP success

Prof D. Tripati Rao, IIM Lucknow, surmises that One District One Product (ODOP) scheme needs two wings of skilled labour force and financing capital through institutional design as an overarching policy framework, to scale up geographically dispersed traditional and local-small businesses to foster glocalisation.

Dr D Tripati Rao TPCI

IBT: What is your take on the One District One Product scheme? What benefits is it likely to usher in for the Indian economy?

Prof. D. Tripati Rao: When it comes to understanding the context and vision of ODOP, the press releases of Ministry of Food Processing Industries and Ministry of Commerce and Industry put it succinctly:

“At the heart of it, ODOP as a concept and scheme acknowledges and celebrates the great diversity and unique competencies of districts across the country in terms of agricultural and artisanal products. It is not uncommon for us to remember a village or district by the art or craft or any produce that gives the place a unique identity, as only the local people are usually the sole possessors of that skill or the geographic conditions are conducive for it to thrive only in that region.”

Therefore, the concept as such is not new to us. Be it the dry fruits from Goa, silk sarees from Kanchipuram or Benaras, strawberries from Mahabaleshwar, or chikan and zardozi garments from Lucknow, these are all some well-known examples. Spearheaded by the central ministries, under the scheme, it will be up to the states to identify agri and non-agri products that can give each district a unique identity. For the food processing vertical, the focus is found to be on perishables. Besides government’s GI tagging, ODOP scheme goes a step further in monetizing an intangible asset. 

In the initial phase of MoFPI’s ODOP programme, 106 products have been identified from 103 districts across 27 States. But overall, the plan has identified agricultural and related products for 728 districts across the country. It includes an assortment of products from domains of agricultural, horticultural, animal husbandry, poultry, dairy, etc. The comprehensive list dedicates 60% of total 728 districts to fruits with vegetables and spices taking up a major portion as well.

This scheme primarily ensures preservation of cultural diversity at the micro-level.  Moreover, it aims at financial independence of the locals, facilitation of trade and availability of raw materials by strengthening the supply chains, higher and sustainable income generation and employment opportunities, removal of regional imbalances, promotion of tourism and women empowerment.

Together, this has all-encompassing virtuous economic cycle for the states as well as to the country at large. Therefore, ODOP aligns with the call for Make in India, Vocal for Local, and Atmanirbhar Bharat.

IBT: How have different states/districts performed under the ODOP scheme? Can you please share with us in brief about any successful case study in this regard?

Prof. D. Tripati Rao: The UP ODOP scheme with its initial success has become the role model to scale up to the national level. The scheme was initiated in UP in 2018 with an allocated budget of Rs. 25,000 crore. It is considered to be a huge hit for the unique focus it lays on UP’s grand diversity in multiple artistic facets; given its large size and population.

The Government of UP is aiming to leverage its dominance and uniqueness of craftsmanship and artistry through this scheme. For instance, as the data suggests, 44% of the country’s handicrafts exports is constituted by UP alone. Similarly, this contribution stands at a significant 39% in carpets and 26% in leather products.

The UP ODOP implemented through a gamut of schemes detailed out on their website are:

(i) Common Facility Centre, would provide financial assistance of up to 90% of the project cost

(ii) Marketing Development Assistance, would provide financial assistance to all participants in order to promote, display and sell their products at national and international exhibitions and fairs selected under ODOP programme

(iii) Financial Assistance Scheme (Margin Money Scheme) aims to benefit not whole but a margin of the project cost as the applicants receive it in the form of subsidy to set up the project.

(iv) Skill Development Scheme, would train all the skilled artisans through Recognition of Prior Learning (RPL) for a certification through various sector skill councils whereas the unskilled artisans would be trained for 10 days with an advanced toolkit free of cost, and

(v) Branding Scheme, aims to certify the quality. A wider range of indigenous crafts and agricultural products have been brought under this scheme in the 75 districts in UP.

IBT: In your opinion, what are the key gaps in the ODOP ecosystem and how can they be filled to achieve better results under this scheme?

Prof. D. Tripati Rao: The taste of the pudding is in eating. Identifying and GI tagging is only the first step in developing entire ecosystem for promoting entrepreneurial culture. ODOP success willy-nilly depends upon the ease of doing business and regulatory architecture specifically, starting a new business, registering a property, simplification of tax payments, and enforcement of contracts; which are contingent on the earnestness of states to pursue institutional reforms.

Second, ODOP is impaired by inadequate skill development programmes; a prerequisite to cater to the local manpower requirements (even through short-term crash courses and skill impartation). Third, formalisation or corporatisation of small local businesses. To scale up and to thrive small businesses, charting formal business and management processes are imperative.

One way to do this is to explore corporate consulting and advisory. To leverage value chains, small businesses can team up with private e-commerce giants (which has taken off of late) or consultant agencies. As an institutional facilitation, this should have been initiated much in advance to leverage from substantial value chain presence in online space.

 Further, local businesses are constrained by day-to-day working capital management. Therefore, institutional lenders supported by state should be on board to facilitate project-tied soft-loans and should be embedded in the ODOP architecture simultaneously.

The ODOP scheme by design is based on the edifice of “self-sufficiency” or Swabalamban of micro, small and medium enterprises (MSMEs). As the beneficiaries of receiving loans and waivers under this scheme they are expected to employ multiple other artisans, hence, creating a multiplier effect on employment, skill development and income.

Finally, “value-creation” or internalising “value-addition” or “value-retention”, prerequisites availability of, and access to information, making use of marketing and branding professionals especially for export promotion, ensuring highest quality at par with international standards do need substantial government resources. Does the state have the capacity and willingness to fund swiftly? Not making an assessment of it and mapping it to the ODOP policy at the very beginning would be like, kicking the can down the road!

IBT: What challenges did the pandemic create in the effective implementation of the scheme last year? How did we overcome them? Is the situation different this time around?

Prof. D. Tripati Rao: The ongoing pandemic tossed up everything haywire and consequently, necessary logistical arrangements for an effective execution of ODOP scheme on a remote or virtual basis at the village and district levels was impacted. The scheme still mostly dependents on in-person presence and interactions be it for training, conducting of fairs and identifying potential entrepreneurs.

However, besides these obvious challenges that were faced during the last year, there have been improvements over these months in the execution such that the safety of the artisans and farmers are not at stake. Recently the Chief Minister of Uttar Pradesh said that the traditional industry associated with his government’s ‘One District One Product’ scheme was the second biggest contributor to the state economy after agriculture during the COVID-19 pandemic  

As per the reports, UP’s 90 lakh MSMEs account 14% in the country & have a substantial contribution to the national economy. There has been an establishment of around 4.02 lakh new MSMEs, and with that, the state’s MSME sector is credited to have generated direct employment for over 24.41 lakh people in a record three years. MSMEs in UP contribute 80% to the state’s exports, which is a whopping 35% increase from nearly Rs. 88,967 crore in 2017-18 to Rs. 1,20,356 crore in 2019-20.

The reverse migrants who have returned home from other parts of the country during the pandemic have started to earn livelihoods by seeking employment in these local MSMEs. Subsequently, the per capita income has increased from Rs. 45,000 to Rs. 95,000. 

IBT: How can the government and private sector enhance the effectiveness of associations between smaller companies and e-commerce giants?

Prof. D. Tripati Rao: Off late this process has gained momentum. Innovative business models are the key ways forward. Creating new online platforms and leveraging existing ones by encouraging artisans to enroll on them to be able to showcase their products to much bigger markets is a prominent step forward. In this context, it is important to note  that the MoU that has been signed between the UP government and Governments are also leveraging business consultants such as, Ernst & Young (EY) to systematize the implementation.

Specifically, EY has been assisting in the categorization of districts to prioritize plans:

(i) Mature districts/products: stable districts and need assistance in scaling up quality to international requirements

(ii)Established districts/products: those which have high scope of growth and can outperform with moderate range of intervention in terms of finance, infrastructure, etc.

(iii) Budding districts/products: those at early stages of maturity and call for a major amount of intervention

(iv) Declining districts/products: those which have peaked earlier and are on a downwards trend now and hence need urgent assistance.

Further, it is also reviewing the existing policy and regulatory architecture in order to help the business value chain. and Amazon Global will help in showcasing ODOP products on national and international levels. The tie-up with has also materialized to ensure strong positioning of products in national market. Partnership with eBay caters to the objective of boosting exports, and National Institute of Fashion Technology (NIFT) has been roped in to improve the designs and appeal of ODOP products. Banking and financial institutions have been on board. Bank of Baroda collaboration will provide easy finance to ODOP artisans and units, while agreements with NSE and BSE will help in introducing ODOP to capital markets. 

IBT: What can be done to make sure that the beneficiaries of the ODOP scheme produce products of world class quality? What is being/can be done to promote the exports of these goods?

Prof. D. Tripati Rao:  The policy architecture either may think of going beyond ODOP as a singular track or need other complementing strategic trade and macro-cum-structural policy reforms for glocalisation of small local businesses.

As far as quality is concerned, it can be addressed in a couple of ways. One, through the skill development route and second, through the common facility centre (CFC) route. Needless to say, the branding initiative also attributes some standards of quality, reliability and durability to the products, especially for foreign buyers.

The ODOP Skill Development and Tool Kit Distribution Scheme of the UP model addresses the issue of skill gap and perpetuating skill refinement for the future. And on the other hand, to establish a CFC is to contribute to the quantity and quality of produce in terms of: testing lab, design development and training centre, technical research and development centre, raw material bank/common resource centre, common production/processing centre, information, communication and broadcasting centre, packaging, labelling and barcoding facilities.

With regard to exports, ODOP is merged with and complemented operationally by ‘Districts as Export Hub’ initiative – a brainchild of the DGFT, Department of Commerce and the Department for Promotion of Industry and Internal Trade (DPIIT) being a key stakeholder. The Department of Commerce through DGFT is working closely with state and central government bodies in this regard. District Export Promotion Committees (DEPC) have been constituted in all districts of India, except in West Bengal. DEPC meetings have been conducted in 510 districts of India and draft export action plans charted out for 451 Districts.

IBT: How can investments be enhanced to promote ODOP?

Prof. D. Tripati Rao:  Procurement of investments can be done by improving credibility, which in turn needs a focus on quality, skill development and efficiency of processes.  Scaling up of UP ODOP scheme to the other states in the country would be another means to enrich investments. Private partnerships on multiple fronts also adds to the rigour and impact of the scheme. Other stakeholders to help boost investments and support would be NGOs, volunteer organisations, self-help groups (SHGs) and cooperatives. 

An integrated approach that makes the most of existing schemes like MUDRA, PMEGP, Mukhya Mantri Yuva Swarojgar Yojana and Vishwakarma Shram Samman Yojna is another way forward. This cross-complementing integration and flow of support helps ODOP to provide the required financial support for investments to increase production.

However, beyond inclusive growth, private investments in terms of capital infusion and technological advancements would flow once productivity gains are aimed at and realised Therefore, overall policy architecture should not only aim at increasing production activities but developing an ecosystem – to create, retain and benefit from value addition or glocalisation of the entire business processes.

Prof. D Tripati Rao is currently Chairman, Executive Education (MDP), Indian Institute of Management Lucknow. He has obtained his Ph. D. from the Department of Economics, University of Mumbai under the auspices of RBI Monetary Economics Endowment Research Fellowship and M.Phil degree in Applied Economics from CDS, Trivandrum, JNU. Prior to joining the institute, he was with XIMB and T.A. Pai Management Institute, Manipal. He has been teaching Macroeconomic Environment, Managerial Economics and World Economy, International Trade and Business to both Post-Graduate students and FPM Scholars since 2005. The views expressed here are his own.

Prof. Rao gratefully acknowledges the detailed and valuable inputs on the typology of ODOP schemes and their successful implementation provided by Ms. Deeksha Vanga Reddy, Incoming-Tata Administrative Services Manager.

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