This was India’s year. Obama visited, as did Sarkozy, and many other statesmen of lesser political weight or star appeal. With an annual growth rate of close to 8.9% and foreign direct investments projected to exceed $100 billion, the booming Indian economy defied the global recession. For the first time ever, eight Indian companies made it onto the Fortune 500 global list. And even PR crises like the ill-organized Commonwealth Games and political corporate scandals that were an easy target for India’s cynical media did not eclipse the nation's staggering rise – in fact, these events just seemed to magnify the spotlight. Without a doubt, the sub-continent became ready for primetime in 2010, and to many outside observers a new confidence appeared to take hold of India’s economic and intellectual elite.
This year also marked my first visit to India. I had the privilege of assuming leadership for a team in Gurgaon (New Delhi), Bangalore, and Chennai, and to immerse myself in a country I had never been to before. I vividly remember the first five minutes after my arrival at Indira Gandhi International Airport in Delhi in September, the dusty air, the thick fog, the vanilla scented perfume tree in the car, and the calm driver whom I, for lack of any alternative, decided to wholeheartedly trust as he was racing me to my hotel amidst the polyphony of honks. Other countries are in your face or slowly creep into your soul with their mores, oddities, and sensations. India is around you, all the time. It is simple as the tourist cliché of itself (especially when you live in the airport-lounge-and-luxury-hotel bubble of the global business traveler) and yet complex as a vertical staggering of infinite parallel worlds which make sense each by themselves but fail to strike a consonant chord – like in the movie Inception.
When I attended the India Economic Summit in Delhi in November a few weeks after my first trip, jointly hosted (for the 26th time) by the World Economic Forum and the Confederation of Indian Industry (CII), President Obama had just passed through India, leaving an indelible mark on the Indian collective psyche with his now famous line that “India is not emerging, it has emerged.” The mood was bullish, if not exuberant, and many considered the visit a breakthrough moment for India. The economic reality had not changed but the awareness of the sheer scale of the opportunity ahead and the self-assurance that it might indeed be feasible to accomplish it, had moved to a whole new level, seemingly overnight. No wonder the optimism was palpable at the Summit.
The official theme was “Implementing India” but the actual theme that emerged during the three conference days was “Inclusive Growth” – how can India sustain its tremendous growth and at the same time narrow the social divide? While India’s growth numbers are impressive, many of the speakers acknowledged that its so-called “demographic dividend” (a term coined by Harvard demograph David Bloom) is a double-edged sword. By 2020 half of India’s population will be below 25, and it will account for 25% of the global workforce. But this demographic trend is unevenly distributed. India’s northern states, with their high fertility rates, are the main contributors to population growth (by 2025, the median age will be 26) whereas the south faces rapid aging (a median age of 34 by 2025). This means that “India’s demographic dividend is actually a double hump, one of which is already nearly exhausted,” Infosys co-founder Nandan Nilekan writes in his seminal book Imagining India.
This “double hump” makes capitalizing on the remaining, “unexpensed” demographic dividend rather urgent. Experts foresee a demographic disaster unless India’s young workforce is properly skilled and employable by global standards. Unfortunately this is far from being the case today: For starters, 300 million people live in extreme poverty, that is, they live on less than one dollar per day, and 90% work in the informal economy. 70% of India’s 509 million-strong working population has not received a primary education, and only 11% of those aged 17-23 receive a higher education. India has the lowest education indicators among the G20 economies and the world’s highest number of illiterate people. One of the main challenges for India will be to create jobs for the 270 million people expected to enter the working-age population over the next 20 years. Will these people become the world’s workforce, as some predict, or the world’s worry?
Sustainable growth, many argue, will come from frugal (or reverse) social innovation, through public-private partnerships that scale at the base of the pyramid. It is well known that IBM has more employees in India than in any other country, and many of India’s big IT outsourcing companies (e.g. Wipro, Infosys, Tata Consultancy Services etc.) have long been competing with multinationals. But no longer is India just the development center of excellence of the world or an emerging consumer market of massive scale; it is increasingly home to bottom-up innovations in areas such as energy, healthcare, and automotive, spurred by the urgency of structural change. Crisis has always proven to be a hotbed of innovation, and the need to improve the livelihood of a society is a powerful driver for entrepreneurship.
India is already the front of some radical product and service innovations such as the $3,000 car or the two cents per minute nationwide cell phone service. Moreover, with the deep penetration of low-cost telephony, the country’s emerging middle class could be a testing ground for the burgeoning mobile health (mHealth) technology market, in particular telemedicine and rapid diagnostic services. Globally, mHealth revenues are projected to grow by 25% annually, from $1.5 billion in 2010 to $4.6 billion by 2014. India is seeing many of its pioneering efforts, for example start-ups such as mDhil and eHealthpoints. The Indian healthcare industry, in general, is one of the fastest growing sectors of the economy, growing at 23% per annum.
A basic enabler of “inclusive growth” is to provide the rural population with access to information- and communication technologies and financial services. Although India is the second largest telecom market in the world and tele-density has increased to 56.6% in 2010, 44% of rural Indian households are still unwired, and of India’s 6,000,000 rural villages less than ten percent have a local bank branch. Microfinance, long heralded as an able solution to this shortcoming, has recently suffered a serious setback. The rapidly growing private microcredit industry faced imminent collapse when almost all borrowers in Andhra Pradesh, one of India’s largest states, stopped repaying their loans. Critics accused microfinance institutions of making “hyperprofits off the poor” by extending loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. It will take some time for the industry to restore trust (and some more regulatory oversight from the state will help, too). But again, this crisis may spur much needed innovation in the Mobile Money space.
India’s villages are increasingly becoming a breeding ground for innovation, as its rural poor develop inventions out of necessity. Mansukhbhai Jagani, Mansukhbhai Patel, Mansukhbhai Prajapati, and Madanlal Kumawat, and three others are on a recent Forbes list of rural Indian entrepreneurs (compiled by IIM-Ahmedabad professor Anil K. Gupta) “whose inventions are changing lives” of the people across the country. Jagani developed a motorcycle-based tractor for India's poor farmers, which is both cost effective – costing roughly $318 – and fuel efficient. A farmer, Patel invented a cotton stripping machine that significantly cut the cost of cotton farming and revolutionized India’s cotton industry. Prajapati, a potter, invented a clay non-stick pan that costs Rs 100 and a clay refrigerator that runs without electricity for those who cannot afford a fridge or their electricity and maintenance costs. Madanlal Kumawat, a grassroots innovator with no more than a fourth-grade education, developed a fuel-efficient, multi-crop thresher that yields cleaner grains, which can be bagged directly and eliminates the cost of cleaning.
Design and design-driven innovation are quickly entering the business vocabulary here, too, and when I met with editors of business publications in Delhi a few weeks ago, their interest in design was as keen as their conviction that India will soon become a powerful innovation engine with global impact, propelled by a distinct national design style and a throng of young, ambitious, and fearless entrepreneurs. It will require a mix of national policy and education providing the economic framework, global design and innovation firms bringing quality standards and best practices to India, and – perhaps most importantly – Indian companies embracing design as a key differentiator and value-driver, with some quick and visible market successes.
Whether you’re strolling through Old Delhi or driving along the campuses of Bangalore’s IT firms, you can’t help but marvel at the tremendous pace with which the country and its people are happening. The whole country is on the move, which offers plenty of opportunities for upward social mobility but also disrupts traditional lifestyles and cultures. New high-rise developments for the burgeoning middle class (91 million urban households are projected to be part of it by 2030, up from 22 million today) stand in stark contrast to the poor villages right next to them, which are in the progress of upending their local identities and cultural roots. According to the United Nations Development program, it is expected that 41% of India’s population will live in cities by 2020, compared to less than 30% in 2010. That is 590 million people, nearly twice the population of the US today. A recent McKinsey report (“India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth”) estimates that 70% of net new employment will be generated in cities by 2030 and that 85% of total tax revenue will come from the urban economy.
Needless to say, that this migration will further contribute to stresses on the already insufficient infrastructure. McKinsey expects 68 Indian cities to have a population of more than one million by 2030 (up from 42 today vs. 35 in Europe). It warns that the current urban policy framework will lead to urban decay and gridlock. Today, India is investing eight percent of its GDP in infrastructure, which is a high number by international standards. And as much as $300 billion are forecast to be devoted to urban infrastructure over the next 20 years, a twofold increase in per capita spending of $17 today. But McKinsey believes that $1.2 trillion capital investments are necessary to meet the projected demand in Indian cities. The firm proposes fundamental city governance reforms to ensure these funds are not only raised but put to work efficiently. Unlike China, India cannot issue sharp policy shifts to appease a young population that may not be satisfied with the living standards of their parents. If urban policies fail, social upheaval, fuelled by underlying religious and ethnic divides, will likely be the result. Or as Nandan Nilekan puts it: “This is our biggest, but also our last chance.”
India is aware of its “moment” and understands that the window of opportunity for inclusive growth is limited. The government is seeking to balance the hustle, the frenzy, and the urgency with calm and confidence. It is the only possible attitude when you have to govern what seems to be genuinely ungovernable. I thought of a line from a song by Thom Yorke: “You have all the time in the world. Don’t squander it.”
[picture: painting by Vangobot. Vangobot is "a robot who paints with the soul of the human artists who taught him how to see."]
