The Economy: The Power of Imagination

He has a dream. Do you? Even as we resign ourselves to Budget 99, C.K. Prahalad, the strategy guru, unveils a competitive agenda for our future. Radical only because of our reality, he tears apart our mindblocks, and envisions how we can create a magnificent future for India Inc.. A BT exclusive.

I believe that India's opportunities today are not limited by her resources, but by her imagination. We have to dream, think big, and think world-class. We must act. A bias, and the courage for action comes from learning. We have to learn from our past. We have to be bold, and experiment. We have to create our future.

Where do we start? Imagining India in the Next Millennium does not appear to be a popular activity. Politicians, managers, and academics--all seem to shy away from the debate about the future of India. I see little written or discussed on the nature of India's opportunity; much less on how to realise that opportunity.

My dream for India starts from a different vantage. I start with the obligations that educated Indians have. The obligations are clear. We need to confront ourselves with 5 simple, but difficult questions:

The answers to these questions will determine how India moves forward, and the progress she can make to join the unique club of the Top 5 nations of the world. Making a break from India's immediate past requires that we recognise that the policies during the first 50 years of Independence have not delivered the results that were expected. We have to recognise that we have a problem.

The reality of India as we enter 1999 is well-known. I am an optimist, and do not like to dwell on failures for long. But recognition of failure is critical to gain the courage to make a radical departure. We need to recognise the burning platform. I see 5 main failures:

STAGNATION. We have had nothing more than patchy and slow progress on all fronts: population, health, literacy, income-distribution, infrastructure, pollution, judiciary, or crime. Further, there is also variation in the quality of improvements in various parts of India. It is difficult for anybody studying the variance in the progress that has been made by the states to think of one India. An analysis of per capita incomes by region or by states demonstrates the same variance. The same patterns emerge if we look at literacy, population-growth, and infrastructure. Why?

LACK OF ASPIRATION TO BE WORLD CLASS. World-class accomplishments seem to evade the Indian psyche. The litany is obvious: in sports, in science, in industry, and in exports, India is not a force to reckon with. With one of the largest pool of scientists and engineers, one may wonder why we have so few that blaze new trails. With so many people, why do we not win any gold medals in the Olympics? Are we easily satisfied with the progress we have made with respect to our past rather than compare and benchmark ourselves against the world's best? Don't we want to swim with the sharks?

A SENSE OF COLLECTIVE PARALYSIS. It appears that the System is the cause for most of the problems facing India. If the System is the cause, then we must have an approach to changing it. Most thoughtful people have resigned themselves to a state of helplessness in the context of the massive problems facing India.

NO VISION. In no field of endeavour do we see a shared vision of what India can accomplish. Space and atomic energy may be exceptions. For a country that was totally energised by a vision during the first half of this Century, the second half has been singularly devoid of a shared, national agenda.

LOOKING TO THE WEST FOR VALIDATION. There is an increasing feeling that most educated Indians look for validation of their ideas from the West. We were so captivated by the British that we wanted to convert all Indians into Brown Sahibs. Now, it is a fascination with the US. Are there lessons to be learnt from Japan, China, South Korea, Malaysia, Chile, or Brazil? How much do we discuss, for example, Chinese economic strategy, and the lessons for India?

These developments have taken their toll. India has to regain its pride and self-confidence. To imagine a new India, we must start with confidence.

THE LESSONS

Imagination and out-of-the-box thinking is essential for coping with resource constraints

Strategy is about discovery and innovation, breaking away from conventional wisdom

Business and organisational models that work best are those that are indigenously developed

Transactions must be based strictly on commercial considerations to be successful

Deployment of high technology must be as innovative as the technology itself

World-Class standards are what Indian operations can--and must strive to--attain

India is blessed with a billion people. But we, often, see it as a problem. Poverty in India, it appears, is not a problem to be solved. It is seen as a condition that India cannot escape from. Poverty may have become a constituency. If India can find a way of converting the poor--the 700 million at the bottom of the economic pyramid--into active consumers, we will have one of the largest markets in the world. Why is there so much national discussion about poverty, and so little intellectual and managerial energy focused on creating consumers out of the poor?

The bottom of the pyramid represents an enormous latent opportunity. But it cannot be served without recourse to state-of-the-art technology solutions--be it genetically-altered seeds to grow more food inexpensively, or the use of new materials for providing housing. India provides a great test-case for sustainable development. Products and services developed for the affluent are resource- and pollution-intensive. India is a unique marketplace for the development of products that are biodegradable, and are efficient in the use of energy and water. India can be the leader in low-cost, sustainable development-oriented products and services in the world. We have the market and the need.

India has a problem to be solved: serving the bottom of the economic pyramid. The solution represents a profitable business opportunity. There is no alternative. India cannot progress without creating a consumer class out of the poor.

Is there a real opportunity here? Have I subjected this notion of a great opportunity in serving the poor to a proof of concept test? I propose that we consider 2 examples that provide important lessons.

OPERATION FLOOD. India has emerged as the largest producer of milk in the world. Verghese Kurien, and his vision created the basic framework for the revolution in milk-production. The Anand Model, as it is now known, is indigenous. The model was built around the reality of India as it existed. Therefore, it had to be creative.

For example, origination of milk takes place in a highly decentralised fashion in villages: 53,000 villages and 6.30 million farmers--70 per cent are marginal farmers--with 2 or 3 cows or buffaloes form the production backbone of the system. An integral part of the Anand Model was the introduction of hybrid animals to increase milk-yields. The milk is processed and distributed using state-of-the-art technology. What started in Gujarat has spread to 22 states. The National Dairy Development Board now handles more than 10,900 metric tonnes of milk a day. It is estimated that Operation Flood increased milk-production during the period 1974-94 by 44 million metric tonnes per year.

The entire operation is run on a commercial basis. Of the 72,000 village-level co-operatives, milk was collected only from 53,000. The rest of them were considered to be commercially unviable. The initiative has brought economic independence, and better health and education opportunities to the villagers, particularly women. It is estimated that this alone is responsible for more than a billion dollars of rural income. Here is an indigenous initiative that converted the poor into consumers. More importantly, it has created 6 million entrepreneurs in India's villages.

C-DOT. In less than 10 years, India has created a telecom infrastructure that is quite unique. Instead of worrying about telephone density measured as telephones per 1,000 people--a measure of telephone ownership--the Centre For Development of Telematics (C-DOT) concerned itself with access to telephones. Under the visionary leadership of Sam Pitroda, C-DOT was involved in the design and development of a family of modular products, the heart of which was the 128-line rural switch and a 128-line PBX for businesses. The basic module was built into a 512-line central exchange and was expected to move up to a 64,000-line urban switch. Again, the idea was indigenous.

Digital technology was the choice, not analog. The goal was to build robust, rural switches that could stand harsh conditions in the villages. These switches had to withstand the dust and the heat of India's villages, and were not air-conditioned. Many innovations were incorporated in their design, manufacturing, and installation. The usage of telephones in India was also different: 36 calls per hour per line at peak times compared to 10-12 calls per line per hour in the US.

C-DOT had an initial budget of $36 million over a 3-year period. It started with 425 Indian engineers, and the average age of the team was 25 years. Today, there are 600,000 std booths, and more than 2 million digital lines which support std. These developments are providing access to a telephone to the urban and the rural poor. It is changing the patterns of interaction and trade between villages and small towns, and small towns and big cities. Many std booths that dot the country have added other services: fax and e-mail. This is possible because India made a choice to go with digital technology for switching and transmission when there was a lot of opposition in the country. Net access, on the same basis as the telephone, cannot be far behind. There are about 1 million connections. But each connection serves 20-25 people.

Today, the discussion is about information-kiosks. India has created, based on a vision, a new beginning. India's information technology backbone is unique. Local entrepreneurs--women--help provide the infrastructure.

The success of these efforts provides us with an understanding of how to transform the problem of the poor in India to the opportunity of a mass market.

I believe that a mass market is ready to be created in India. I am not focusing on the Tier II and Tier III markets, but the market that can evolve out of the bottom of the economic pyramid. I believe that we have to come to terms with the following:

CREATING ACCESS TO CREDIT. This must become a birthright just as freedom is. Credit is critical to bring the poor into a monetised economy. The daily payments for milk collected in Operation Flood, and the availability of cash collected from telephone-users create access to cash and credit. The Grameen Bank's experience in Bangladesh also proves the importance of credit. Surprisingly, the poor need little help to escape the cycle of poverty. The Grameen Bank has 3 million customers with an average loan of $15. The default rate is less than 1 per cent. This is a commercial operation, not a subsidy.

CREATING SUSTAINABLE DEVELOPMENT. The bottom of the pyramid cannot be served by fine-tuning current products and services. For example, India is very short on potable water. One of the targets of the Technology Missions was 40 litres per person per day. To put this in perspective, on an average, an urban, well-to-do Indian uses 500-600 litres per day. In the US, the average is 4,000 litres per person per day. Most of the poor do with just 20 litres per person per day.

The water needs of this country cannot be met unless we develop unique technologies for reducing the pollution of our rivers, desalination, closed-loop water-management systems for homes and institutions, better agricultural methods, and novel approaches to washing and personal hygiene. It is believed that a significant portion of India will come under enormous water stress, and that can exacerbate the current water disputes in the country, and with Bangladesh and Pakistan. This problem is universal. India must deal with this problem. Solutions that are developed in India will not only benefit India, but would be globally relevant. Water is just one item in sustainable development.

DISTRIBUTION & COMMUNICATION. The efficiencies in distribution must be dramatically altered. For example, an estimate of the loss from the farm to the plate is 10 per cent for India. It cannot afford this waste. Food-preservation, storage, and transportation needs are obvious. An effective market for food cannot evolve without adequate information flows on availability and prices. The development of a telecom infrastructure can significantly add to India's ability to create markets. Indian firms have been very reluctant to incorporate the power of infotech to dramatically alter the capital needs of the business. For example, Indian-managed firms have, on an average, working capital needs of 200-plus days. Transnationals operating in India seem to get along with about half that. Hindustan Lever boasts zero net working capital. Thus, the capital that can be released by managers through distribution efficiencies are staggering.

RELIEVING CHOKE POINTS. India is a low-wage country, but not a low-cost country. Even in milk-production, while Indian milk is cheaper than milk in the world markets, milk-powder and butter are more expensive by 10-20 per cent. Understanding the productivity-levels along the value chain are critical for us to understand the choke-points in the system, and to identify opportunities for fully exploiting India's vast resources.

PRIVATE ENTERPRISE AS THE KEY TO DEVELOPMENT. For too long, public policy in India was driven by the government undertaking the role of producer and marketer. We have learnt that that does not work. The lessons from Operation Flood and C-DOT are that private enterprise is alive and active in India. There is a role for government in creating infrastructure capabilities, such as education and health. Even in these spheres, public policy in India has failed. Government cannot do more than act as an enabler in most areas of development. It is about time that we entrusted our development efforts to private enterprise--both indigenous and transnational-based.

SCALE IS IMPORTANT. It is important to recognise that, in a country of India's proportions, entrepreneurs think of scale as an integral part of their efforts. Many a Non Governmental Organisation provides an excellent and creative effort to improve the lot of people at the bottom of the pyramid. But they do not ask themselves how they can scale up their efforts to cover a vast country such as India; much less how to export that knowledge to other parts of the world. The choice of technology, the business model, and the managerial skills must become a part of the total effort to scale up when an experiment succeeds.

STATE-OF-THE-ART TECHNOLOGY SOLUTIONS ARE CRITICAL. For too long, Indian efforts at development have focused on appropriate technology, meaning dated and old technology. We have to move towards solutions that are at the state-of-the-art. Solving the problem of poverty should not mean that India resorts to old solutions. For example, transportation is not about making bullock-carts more efficient, but asking ourselves why we are still dependent on bullock-carts.

We have to leap-frog and invent solutions that are unique and new. The bottom of the pyramid as a market will force us to innovate.

THE AGENDA

Access to credit must become a birthright. It is critical to bring the poor into a monetised economy

Distribution efficiencies must be dramatically altered. The capital that can be released is staggering

Relieving choke points by understanding productivity-levels along the value chain is critical

Development efforts must be entrusted to private enterprise, both indigenous and transnational

Scaling up is important in the choice of technology, the business model, and the managerial skills

State-of-the-art solutions using new and unique technology, not dated methods, must be provided.

The opportunity for innovation and world-class efforts in India are numerous. We need to start imagining a new India. I have less difficulty in convincing managers in transnationals in the West about the opportunities in India than I have convincing Indians in India. Everyone outside India sees India's potential. They all recognise the need for 10 per cent growth per year for an extended period of time--say, 20 years--to make a significant change to India's fortunes, and its influence on the world economy. China has shown that it can be done. Why not India?

Of course, we should all understand that recognising potential is not the same as accomplishment. Identifying the potential and being energised by it are critical. But doing it is different. Accomplishment needs team-work. This is a critical missing ingredient in India. Sam Pitroda sums it up nicely. He says: "One Indian = 10 Japanese. 10 Indians = 1 Japanese." We seem to have lost our ability to work together and accomplish goals bigger than any one of us.

I am not given to nostalgia. I leave it to others. But, on this occasion, let me indulge myself. Look at what the India of the past stood for. The great Brihadeshwarar or the Meenakshi temple or Dilwara were built at the same time the great cathedrals in Europe were built. In sheer conception, scale, and aesthetics, India matched and challenged the best. Tipu Sultan's army was the first to use rockets. Abdul Kalam tells the story, in half jest and half pain, that the British learnt about accurate rocket-propulsion from Tipu Sultan's armoury. We do not know who the engineers were, and we did not improve on what they knew. The British did, and they have accurate records. Very few, even from Maharashtra, know that the Maratha Navy held the British at bay for a long time. The Maratha Navy was a strong fighting force.

Of all the great initiatives in India's Freedom Struggle, the Salt Satyagraha remains the most innovative. Think of Gandhi, for a moment, as a strategist. He had to fight the British Empire. He understood his competition. He was resource-constrained, if we consider military or financial resources. He needed a cause that would unite people, the rich and the poor. He needed a public demonstration of defiance. He did not want a defiance that would involve any technological requirements. Salt was it. It unified all castes and economic levels. Salt is God's gift. Salt-water and the Indian sun could do the trick. The Dandi March and the crowds on the beaches attracted more people. The British learnt for the second time not to underestimate the power of common symbols: tea in Boston, and salt in Dandi.

Jawaharlal Nehru, on behalf of all Indians, made a tryst with destiny on her Independence 51 years ago. He said: "The service of India means the service of the millions who suffer. It means ending of poverty, ignorance, disease, and inequality of opportunity" The legacy that we can leave our children is of great importance. Especially in India, both because of its hoary traditions and its growing pains as a democracy. If we do not make a change, we will leave behind a legacy of moral indifference, apathy, increasing intolerance, and violence. That is what I see in India today. We may want to go back to the legacy that Vikram Sarabhai left for us:

This is the legacy that makes sense. When one reflects on his legacy, a central theme stands out. Sarabhai was not constrained by what India was. He was concerned about what India could become. He imagined a new India, and an India that was world-class. The Physical Research Laboratory, ISRO, the Atomic Energy Commission, ATIRA, IIM-a, and a host of other world-class institutions are part of his legacy and gift to India. These institutions have endured and prospered. He not only imagined a new India, but also understood how to build institutions to support and develop that vision. He was a pre-eminent scientist, institution-builder, visionary, global citizen, bridge-builder, and a social reformer.

I still have a dream for a great and prosperous India. But where have all the dreamers gone?

Based On The 22nd Vikram Sarabhai Memorial Lecture, The Power Of Imagination: India's Legacy And The Path To The Future, by C.K. Prahalad, Harvey C. Fruehauf Professor Of Business Administration, The University Of Michigan Business School