India story – Challenges and Opportunities By Rajeev Chandrasekhar 

I have been asked to speak about India and the challenges we face. 

I am assuming that most of you present here are, no doubt, familiar with the India story and have read or heard different variants of it.

 Let me give you my perspective - I see India as a work in progress, as a cup half full, but with a genuine aspiration to filling it and complete the idea of India.   My perspective is a bit different because my life and progress has been linked inextricably to the progress that India has made since 1990 when the opening up of the Indian economy commenced. 

I returned to India in 1991 just when the word ‘economic liberalization’ was entering the Indian lexicon. Therefore, I have been fortunate to have been a participant in the late 80s and early 90s - as part of the 486 and Pentium Architecture teams at Intel - in Silicon Valley – when the building blocks of today’s tech world were being built out – The internet, the workstation, windows, client-server, routers, low power computing platforms, high speed processors, multi-thread processing etc. Similarly and as fortunately, I have been a participant and witness to building blocks of the current India being laid – and two decades on, I can say I have been a participant, observer, victim and beneficiary of the Indian economic progress story - 10 years as an entrepreneur in the fabulous telecom success story of India, and the last 4 years in Public life. 

Two decades ago, the Indian Economic story was a very difficult and complex one to understand even for Indians. The Economy was a controlled economy – controlled by the Public Sector and a few Indian Business families – limited entry opportunities for new names, limited competition. Public spending with limited corporate investment remained the only growth drivers and hence the reason for years and years of anemic growth, low liquidity and high costs of capital – risk or otherwise.   

Today, The India Economic story is a far simpler and more exiting proposition to explain– 

There are two parts to it – The Indian Consumer expansion story - Pent up Consumer demand, growth in the consumer demand with increased consumerization of Indian society, and the second piece is the Infrastructure and Technology deficit, and therefore, demand for them and the connected investments in them. 

There are two other real additions to this already interesting proposition - The Indian Demographic of one of the youngest population mixes in the world in such large numbers is one – The other is the coming of age of Indian private sector and entrepreneurship. I know for a fact that when I started 15 years ago, there was not even a fraction of the energy, determination, confidence and innovation that I see and experience in today’s Indian entrepreneurs.

 India has managed, as you all know, a pretty stellar economic performance track record as an economy since 2003-2004 and across different political regimes. This political commitment to economic growth is centered around a consensus amongst all the many political parties including the Left – that economic growth is the panacea to cure the country’s challenges of poverty and deprivation – which afflict the lives of 450 Million Indians even today. 

The last decade of sustained growth and its visible benefits has also seen an awakening of aspirations and a continued increase of those aspirations amongst Indians – the rural and poor increasingly are demanding entitlements of and access to Education, Health, Justice, Security - The Urban city citizen wants modern cities and a standard of living at par with his peers in other Asian cities. 

These aspirations are the core reason for this new push towards evolving an economic growth model – that takes the benefit of this growth faster to the deprived than the conventional trickle down economics. This is what we call inclusive growth, and this is increasingly and visibly driving Government Public policy and spending. Inclusive growth is aimed at bringing more and more Indians out of the poverty zone into the mainstream and expanding the coverage of access of Health, Education, Justice, Security and the pressure is now to achieve this in an accelerated manner in the shortest possible time. 

The dramatic increase in Government spending and the increasing use of Private Public Partnerships are evidence of political responses to these aspirations and demands. Government outlays for the social sector have doubled in the last 3 years alone to almost $40 billion. 

That, in a nutshell, is where we are. But to understand India’s progress is also to understand how we have reached here, and this is where I start differing from the conventional wisdom of the many pundits who have already pre-ordained India’s Economic Superpower-dom. 

This last decade or so of India’s solid growth out of six decades of socialist rut has been because of one phenomenon – the breakout of Indian entrepreneurship and Private sector and innovation. And its innovation has been recognized as the only way to sustainably grow and thrive. While this is worth celebrating, this hides an important problem – which is, that as Indian private sector has grown, thrived and strived to be at par with its global peers – the Indian State and institutions of Governance have declined dramatically - Where innovation is still an exception, where spending is the rule, and outcomes are the exception. This is the half empty cup I was referring to.

 The signs of this are very visible to those who look. The evidence ranges from the Commonwealth games, Poor Delivery of Services and subsidies, Tremendous leakages in public spending (politically correct way of saying corruption), A bureaucratic structure (a colonial relic from the British days) of generalists managing the many of the specialist growth challenges, Inefficient Electricity infrastructure, Creaky legal system etc.etc. 

There is also this trend of Kleptocracy and Crony capitalism that has created many billionaires – a consequence of the ease with which Public policy or regulatory capture can be affected. There’s also the connected social disquiet arising out instances of blatant crony capitalism in sectors like Mining, Real estate etc with its consequent security implications. 

Now this may seem like bad news to some and faint hearted. And indeed it would be if we left it unaddressed.  

There is a very simple reason why this is now starting to get addressed. It’s the issue of aspirations and entitlements. For many decades, the problems that our governance or lack of it represented was not a visibly debated National Priority -   because the poor and deprived who are the only ones to be really affected by this governance deficit didn’t really have a voice that was heard.  But with the increasing visibility of the benefits of growth – there is real pressure on governments and an urgency to deliver on this inclusive growth faster - and to reach a larger and larger population faster. 

This desire for inclusive growth  is, of course, now facing up to reality of finiteness of resources, and hence, the need for alternate models for achieving this faster and better coverage and therefore for modernizing and reforming Government.

 And that search for new models is also the opportunity. 

As I said, the current strategy of inclusive growth being addressed only by profligate spending by Government has a limited shelf life and has almost run its course. The twin alarm bells of fiscal responsibility and inflation pressures are creating a serious motivation in Government to look for alternate models to simply spending by leveraging its balance sheet. As aspirations continue to increase, and the uncovered continue to press for access to social services,  the coming decade will see a significant and fresh push to reforming and modernizing Government and Government institutions – with the objective of achieving accelerated Inclusive growth even with the finite direct financial headroom, resulting from the pressures of fiscal consolidation and deleveraging. So this reform of Government is aimed at what Anand Patwardhan of IIT Mumbai refers to as “market expansion” or “market creation,” which is the provision of goods and services to the unserved, or the so-called “bottom of the pyramid.” If one were to think of some of the innovations in India of significance for growth and development outcomes, these might include, for example, dairy cooperatives in the dairy sector, public call offices where Government ownership of the product was replaced by access to the service, and more recently, examples such as the Mumbai dabbawallas (where two hundred thousand lunch boxes are delivered daily by about five thousand people with an error rate of less than one in six million deliveries), the Aravind eye care system (where doctors perform two thousand eye surgeries a year), the Tata Nano or the one rupee shampoo sachet from Hindustan Lever and I am even including the new Airports and similar PPP infrastructure projects like that. There is quite a range of innovations; technology-based and business model-based, both in products and in services, and coming from the private sector, the non-profit sector and the public sector. So innovation, Technology and Private Public Partnerships will find a big place in what the Government does to reinvent itself, to sustain the Indian Economic growth model. 

Don’t misunderstand me, the change will start slowly as is the case with everything in India, but as you have seen in Telecom and other PPP projects, it will gather rapid momentum as the case is made in many parts of India over and over again. 

Given that you are investors in a Technology company, let me give you a few examples of how this may play out with technology and Private Public Partnerships. 

Take Education for example – The demand–supply gap that exists today is in my opinion unbridgeable for the next two decades if we adopt conventional models of brick and mortar schools with teachers as the only solution that’s on offer. The reason is simple, even if the financial resources within the government can be found to build the infrastructure of the school – the softer but more critical issues of building the capacity of Teaching faculty and building excellence in education within the Government system are two very non-trivial challenges to solve. Therefore, the solution will be much more rapid proliferation and deployment of Distance/Remote/Virtual School models – the kind that CISCO is building in Raichur Dist. in my state. I believe strongly that this model is key to rapidly rolling out access to Quality Education. I will go further to say that this model is relevant not just in remote villages but also in City schools, especially Government schools, where good teachers are in short supply – and this, in a way, provides for utilizing the scarce teaching resource in the best way. For many years, pundits argued that Education in India can’t be a profitable enterprise – with a win-win for investors and Government.  There are many companies that have proved them wrong. These are companies in soft space of skills, curriculum and teaching. There is space for investors and companies in the teaching infrastructure space as well. 

It is a similar situation in Health – while primary level health care access is available, the secondary level and other levels of diagnosis and talents are clustered around pockets around the country. A similar CISCO project in Raichur is, in my opinion, a potential model for rapidly rolling out access to Quality Health and Doctors. 

Take our Cities – Most of our cities are chaotic pockets of energy and action. Chaos because the growth that these cities have been subjected to and have had to handle have far outstripped the planned capacities. While there are some examples of fresh new Greenfield cities being planned, especially in states like Gujarat, the challenge for most other existing cities is to evolve a more connected, intelligent and sustainable blueprint – allowing it to house more and more without the connected infrastructure spends and loss of heritage and environment. Technology and PPPs will be key to managing the growth of all our cities in the next decade. 

I can tell you about Electricity, Homeland security and so many other aspects of Government and Governance that are going to need restructuring, reform or modernization. But in summary, almost the entire spectrum of Government/State institutions and services need modernization, reform and made more outcome oriented. Heavy use of PPPs and reliance of technology will be core to this effort at filling this half empty cup and truly place India on its path of its economic potential! 

Let me end by saying this from my personal experience – the last two decades saw some pretty interesting action and innovations in the private sector; the coming decades will see action and innovation in the hitherto Government/State space – slowly at first, but surely, and just as you saw new Entrepreneurs in new areas last decade, you will see new ventures and enterprises and investments from the private sector in the conventional state space in the future as well.

Thank you. 

(This speech was delivered by Mr. Rajeev Chandrasekhar, Member of Parliament at the CISCO International Investors Conference in Bangalore on Oct, 14^th, 2010)