By Our Special Correspondent
When India liberalised in 1991, the gates were thrown open to foreign investment, global capital, and multinational ambition. The economy pivoted sharply from Nehruvian self-reliance to Washington Consensus-style global integration. While cities glistened with malls, motorways, and multinational billboards, the countryside watched quietly, even as its own industrial landscape was slowly dismantled.
Thirty years later, rural India is being asked to produce more, consume more, and vote more responsibly. But it cannot do any of those unless it is allowed to earn more. The truth is stark: India wants rural prosperity without rethinking the very forces that decimated rural production. The village factory, once the crucible of soaps, snacks, saris, and soda, is no more. And if we want to fix rural income, we must first understand how we broke it.
The Quiet Death of Village Industry
Consider the case of Kalimark, a beloved soft drink brand from Tamil Nadu. Its flagship product, Bovonto, was once a staple in southern India. Family-run and locally manufactured, it employed hundreds in bottling, distribution, and even sugar supply chains. Enter Coca-Cola and PepsiCo. With deep pockets, nationwide logistics, and promotional juggernauts, they didn’t just outsell Bovonto—they outlobbied, out-distributed, and outlived it. Kalimark survives in niches, but only just.
Or take the humble soap bar. Once produced in thousands of village units using coconut or groundnut oil, brands like Velvette, Chandrika, and Medimix operated with minimal machinery and strong local loyalty. Today, HUL and P&G command more than 75% of India’s soap market. Their supply chains depend on imported palm oil, not local oilseeds. The fallout? Indian farmers stopped growing groundnut, mustard, and sunflower; oil mills shut down; coconut-growing districts turned to construction labour.
Then there is the case of Solapur towels, once a cottage industry feeding lakhs. Crushed by powerloom imports and global retail behemoths, the sector now employs a fraction of what it once did. The story repeats in Dharwad textiles, Moradabad brassware, Pochampally sarees, and even Kovilpatti’s kadalai mittai.
The Wrong Metric of Competition
What allowed this silent devastation? A flawed belief that if rural producers cannot compete with MNCs, they deserve to die. But these were never fair fights. Rural industries never had access to modern branding, retail shelf space, GST-compliant logistics, or celebrity endorsement budgets. They were taxed, regulated, and often left out of government procurement.
In the name of open markets, we opened up village shelves to foreign giants but never opened up urban malls to rural goods. The result is a systemic extinction of small industries without a single obituary.
The Great Edible Oil Tragedy
Perhaps no sector captures this policy failure more vividly than edible oils. Once, India’s villages were dotted with small oil mills—pressing coconut in Kerala, groundnut in Gujarat, mustard in Bengal, and sesame in Tamil Nadu. These mills not only supported millions of farmers but also fed a thriving ecosystem of soap-making, cosmetics, and small food industries.
Then came the edible oil liberalisation. To curb inflation and appease trade partners, India slashed import duties and opened its doors to cheap palm, soy, and sunflower oil from Malaysia, Indonesia, and Argentina. The result? A slow death for domestic oilseed cultivation.
Today, India’s annual edible oil import bill stands at a staggering $12 billion, one of the highest components of our agricultural trade deficit. But this isn’t just an economic drain—it’s a social crisis.
The hardest-hit states tell the story in data:
Lakhs of farmers gave up cultivating oilseeds. Thousands of small processors shut shop. Local soap units had no raw material to work with. Even the iconic coconut economy in Tamil Nadu and Kerala suffered, not due to lack of demand, but due to policy apathy. Instead of supporting coconut-based soap or snack industries, we invited in global FMCGs that preferred cheaper imported palm oil.
This wasn’t just an economic choice. It was a structural blow to village livelihoods. A single policy error—removing protection for domestic oils—unraveled an entire supply chain built on trust, local resources, and labour intensity. And it didn’t even deliver better nutrition or health. We substituted cold-pressed native oils with refined, over-processed imports.
Had we maintained a balanced policy that linked rural employment with domestic oilseed production, not only would we have avoided a large portion of the $12 billion bill, we’d also have strengthened the rural economy with resilient, circular systems.
Rethinking Rural: From Slogans to Systems
To seriously address rural income, India needs more than subsidies and slogans. It needs a structural correction to allow rural industries to flourish. The question is not about going back to protectionism, but about building proximity economics – where goods are produced near where they are consumed, and value is retained near where it is created.
Here are four foundational pillars that can reboot the rural economy:
In the pre-liberalisation era, more than 800 products were reserved for Small Scale Industries (SSI). These included everything from soaps and detergents to handloom textiles and snacks. The rationale was simple: protect small units from industrial onslaught in select categories.
Today, we can’t go back to blanket bans, but we can selectively reintroduce this concept. For example, soaps below Rs. 20, or beverages under 300ml, or cotton towels can be reserved for rural enterprises or FPOs. Large FMCGs can be asked to co-brand or distribute these goods, not compete with them.
GST, in its current form, is distance-agnostic. A bar of soap travelling 1500 km is taxed the same as one made and sold within a district. This creates perverse incentives for centralised production.
We propose a “Proximity-Based GST Incentive Scheme (PGIS)” that provides:
Not only does this incentivize local manufacturing, but it also slashes fuel costs, reduces emissions, and eases road congestion.
Reviving village-level soap manufacturing using domestic oils (coconut, mustard, sesame) can relaunch India’s collapsed oilseed economy. Similarly, mandating co-branding for local cotton textiles (Mangalgiri, Dharwad, Ilkal) with large retailers can bring weaving clusters back to life.
By integrating agro-processing with industrial demand, we create a pull effect: farmers grow what industry demands. This also reduces India’s edible oil import bill and promotes healthier, sustainable consumer goods.
Let’s not rely only on goodwill. Introduce statutory mandates that require:
Incentives work best when backed by regulations. Let’s put CSR and ESG to productive use.
Towards a Sustainable and Decentralised India
What we propose is not anti-industry. It is pro-distribution. India’s rural economy doesn’t need pity; it needs a platform. Let every district have its own soap, snack, soda, and sari. Let ONDC and Indian Railways be the highway for Bharat’s goods, not just Amazon’s logistics playground.
Sustainability is not just about carbon neutrality; it is about economic locality. Goods should not travel 2,000 km when they can be made 20 km away. Jobs should not migrate if capital can decentralise.
The future lies not in more subsidies, but in rebalanced incentives. In GST credits for short-distance trade. In village industry quotas. In branding budgets for handloom. In tax relief for sustainable sourcing.
Rural India is not a relic to be romanticised; it is a reservoir to be revitalised. If we are to build a 5 trillion-dollar economy that is inclusive, it must rest on the shoulders of millions of entrepreneurs from Bharat.
All they ask is not for mercy. Just for space to compete.
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