India has the potential.  If this potential intrigues you, then we can move on to the next interesting question: How do we get there? What are the principles we have to start with?

Core Principle

I want to suggest three principles. The first one is relates to the essence of entrepreneurial transformation. I know that many would say that the potential of India@ 75 cannot be realized because we do not have the resources. I remember seven years ago I suggested a target of 10% growth.  Many in India, including some very senior and extremely knowledgeable bureaucrats said that we don’t have resources for 10% growth. The issue is not resources but the balance between aspirations and the resources. Every entrepreneur who is in this room knows that it is the conscious misfit between aspirations and resources that creates innovations and entrepreneurial energy. As a country, India must have high and shared aspirations. The last time she had a shared aspiration as a country was in 1929 when the leaders of the then Congress party declared their ambition as Poorna Swaraj.  Since then, India has never had a national aspiration which every Indian could share. A shared aspiration is fundamental for changing India. There are only two ways to realize an aspiration that is greater than available resources. One is to leverage resources- get more for every person and every rupee that you spend.  Alternatively one could change the game, and change it to your advantage. That was Gandhi’s genius. Not the traditional armed struggle against the British, but peaceful Satyagraha.  The second principles which is equally important is to realize that we cannot get to the potential of India@75 by extrapolating what we did for the last 60 years, or even the last 10 years.  You cannot get there (India@75) from here (the current state). You have to imagine India@75, that I described first and then fold that future in.  Folding the future in rather than extrapolating the past is fundamental.  That is the reason I started by describing the potential of India@75.  But that does not mean that we go from here to there in one step.  We have to take small steps and clear steps, which are directionally right.  Some steps may be experimental. We move with small steps but move with a sense of urgency and purpose. Third, do not only focus on best practices. If everybody benchmarks everybody else we will gravitate towards mediocrity. So I suggest a focus on next practices.  That means we have to amplify weak signals, see a new pattern of opportunity and have the courage to pursue them.   

The three principles are simple but powerful as a methodology for revitalizing India.  We must start with:

a. Aspirations > Resources

b. Fold the Future in

c. Focus on Next practices.

These principles require us to think differently of both the here and now and certainly about the future.  It forces us to develop a distinct point of view.  A bold and energizing future for India cannot be created without a shared point of view.  Incrementalism will not get us there.  Let’s not just attempt band-aid solutions.  The key to becoming a leader in the world must begin by creating a shared commitment to aspirations supported by creativity,innovation and entrepreneurship. 

The Developmental Context

What is the socio-political and economic context in which we have to accomplish this?  I believe that during the next 10-15 years the debate in India will change rapidly. I have identified six areas where the direction of the debate and its resolution will be crucial for India to realize Her potential.  The areas for consideration are:

1.      Shift from abject poverty to income inequality

2.      Shift from income levels to life style measurement: the universality of aspirations

3.      Changing the price-performance envelope

4.      Shift from low tech solution to universal access to high technology solutions

5.      Provisioning of products and jobs for ecological vitality

6.      Focus on governance

Essentially, these questions taken together force a new model for the economic development of a large, complex and highly pluralistic country like India.  This model of development is best described as the Next Practice as this has not been tried anywhere else before on such a large scale.   That should inspire us not to look outside for models (benchmarking best practices) but to look inside India and draw deeply on Her genius (as we did in the freedom movement).  We need to invent the Next Practice of economic development. I will examine, below, each one of these mega-trends that provide the context for India’s next phase of development.

1. Shift from Abject Poverty to Income Inequality:

India has reduced abject poverty dramatically during the last decade.  However, there are a still 380.6[i] million people in India who live on less than $ 1/day.  It is safe to assume that “abject poverty” defined as living a “subsistence” existence on less than $ 1/day would be further reduced during the next 15 years.  Abject poverty may not be the dominant concern in India@75.  However, a more difficult problem will emerge in its place. An important consequence of rapid economic development and globalization of the economy are the lags and asymmetries in the benefits that results.  Some sections of society will benefit (as those working in the IT industry) and some (illiterate labor in rural India) will lag behind.  These asymmetries will create multiple, new divides in society – divides between educated and the uneducated, the urban and rural populations, between regions of the country as well as between ethnic groups. As a consequence, income inequality will emerge as a source of social tensions.  This is not a uniquely Indian phenomenon.  I must add that it is true of many rapidly growing economies such as China, Brazil, and S. Africa.  It is also true of large economies undergoing rapid structural adjustment as in the USA.  The Table 1 below illustrates the growing inequality as measured by Gini Coefficient.                                                                       

We can see that income inequality seems to result from rapid economic development and basic structural changes in an economy.  The USA is not immune from this either.  If we only considered one measure of inequality, income, then India does not look so bad.  But consider two other measures; Income/per capita (measured in Purchasing Power Parity (PPP) (to reflect true local buying power) and the Human Development Index which is a measure of the inequalities of opportunities.  On both these dimensions, India is at the low end.  It is, therefore, not surprising that the masses in India are restless. India has to deal with a potent mix.

a.       Low per capita income

b.      A poor record of developing its human potential –education, and health, that lead to better opportunities

c.       An environment that is creating asymmetric benefits (income inequalities).

d.      India has a very young population.  More than 52.3 %[ii] of people are below the age of 25.  As of 2025, we will still be a country of young people. 41.8 %¹ of India will be less than 25 by 2025.

India has to reflect on how do we deal with this combination of issues.  Should India focus on removing abject poverty by increasing income and create opportunity for people to move up the economic hierarchy - income mobility - and provide hope?  Or should public policy be focused on reducing income inequality? The first order of business, I believe, is to be clear about the distinctions between poverty (income level), lack of opportunity (income mobility) and income inequality. Public debate in India does not make these distinctions.  As a result, our prescriptions are not sharply focused on the problems that we need to solve.  My preference is for creating income mobility more rapidly than we have done so far.  This calls for a deep commitment to education and skill building.  This also means not just growth (10% plus) but creating jobs fast (10 Million plus/year for the foreseeable future)[iii] .  Income mobility can be an effective antidote to social tensions arising from income inequality.  The answer is not in going back to traditional approaches to reducing income inequality through taxing the rich and subsidizing the poor.  We don’t want to go back to the communist and the socialist dogma of keeping every body poor so we have income equality. We want rapid economic growth with high income mobility and lower income inequality. 

This debate gets played out in different ways.  For example, I get asked very often whether globalization is good or bad for the poor.  I say that is a wrong question.  The question that we need to ask is how to make globalization work for all.  How we ask the question is extremely important on how we find the answer.  Globalization is like gravity.  There is no point in denying gravity.  We should defy gravity and build an airplane.  Inclusive growth is not about subsidies.  It is about creating sustainable opportunities.   Both India and China are experiencing rapid growth, and both are struggling to find solutions to inclusive growth (India) and a harmonious society (China).  India must innovate in this area.

2. Shift from Income Levels to Lifestyle: Universality of Aspirations:

While a discussion of per capita income dominates development literature and thinking, it sheds little light on how people live and what they hope for.  The human dimension of poverty - aspirations of people takes a back seat.  Consider for example, a life on $ 2/day. No person lives by herself or himself.  People live in families.  If we consider a family of five, the $2/day becomes $10/day and $3,650 per family per year.  That is Rs. 146,000 per year for that family.  We must recognize that the significant contributors to the consumer led growth in India are those who live on $2/day.  The growth in two wheelers, cell phones, personal care products, textiles, private sector healthcare and education owe a lot to these families.  We need in India to focus on the appropriate metrics to measure income mobility and inequality.  Is it income or life style?  For example, if we walk around in Dharavi, a slum in Mumbai, we are likely to find that people inside the hut may have a colour television set. They may also have a cooker, a cell phone, an electric iron, a fan and maybe a small refrigerator. Their lifestyles are very different from what it appears on the surface.  It is a slum with no access to modern sewage, drinking water, or toilets.  What do lifestyle measures mean and why we have to be focussed on it? 30-35% of India will live in slums in the next 20 years. We can designate them as dense population clusters.  India needs to reflect on the implications of rapid urbanization even second and third tier cities.  Do these developments provide new opportunities to solve the core societal problems or do they aggravate it?

When people come to the cities, whether small cities or big cities, their aspirations change dramatically. They look at the rich as a benchmark.  They are exposed to more lifestyle information on bill boards, television and other media.  Their income may not change as a rapidly as their aspirations change. Therefore, it is the lag between increasing aspirations and incomes that can fulfil those aspirations can lead to a significant increase in social unrest. I suggest a focus on Lifestyle inequality, the primary source of social tensions.  If we conceptualize the problem as not just income inequality, but lifestyle inequalities, then we may have a solution to the problem. 

3. Changing the Price-performance envelope:

The combination of problems - low incomes, high aspirations and income inequalities may give one a moment of despair.  How can we cope with these massive problems simultaneously?  I believe that it is possible.  We must focus on a fundamental change in the price performance levels of all products and services. The organized sector- private and public- primarily developed products and services for the rich and the well to do.  The poor, the bottom of the pyramid consumers and producers, were below the radar screen of most organized sector.  Therefore, we have had a situation where if we drew the price performance (value) envelope of products and services, it looks like the picture below (left).

Traditionally, the poor, the middle class and the rich were seen as distinct segments.  Products and services were developed with different performance characteristics.  The functional, emotional and aesthetic aspects of performance differed.  Price was based on the level of performance.  Detergent which irritated your skin was acceptable for the poor.  Cooking with biomass – a regressive fuel- was acceptable.  There was no need for LPG for the rural poor.  There was an invisible but distinct “price-performance” (value) correlation as we moved from the poor to the rich segments.  The emergence of the poor as consumers has altered this picture dramatically.   Affordability to the new consumer, without a sacrifice in functional and emotional quality has changed the value equation.  The $30 cataract surgery, $ 30 cell phone, $0.01 sachet of shampoo, $ 2,500 car, $ 100 computer, $ 25 hotel room are all illustrations of the dramatically changing value equation.  This process is going to be accelerated.  This increasing capacity to create life style equality can provide an antidote to increasing income inequality.  This trend is likely to be further supported by the changing nature of high technology markets around the world.