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Sunday, June 12, 2011

India. Compass and Kindling.

Finalist, India Future of Change/Financial Times Competition
(12.31.10, un-annotated) 

A pragmatic, passionate policy suite for inclusive growth.

“Their fortunes, too, stubbornly retained a lean and hungry aspect, and a triumphal return to the village remained a distant dream.” – Rohinton Mistry, A Fine Balance

Photo by Debasish Borah
Character of Growth

It’s 1928, rural Bengal. In Satyajit Ray’s 1955 classic film Pather Panchali, a boy named Apu chases after a candy seller with his sister. Eighty years later, 250,000 miles above his head, Chandraayan‑1 releases a lunar probe that gently nestles a tri‑colored flag on the face of the moon. A breathless Vasco de Gama and Robert Clive rub their eyes and rap their television sets— one giant leap?

Elephant, goldilocks, reluctant tiger, India’s tortoise versus China’s hare, “Hindu rate of growth.” Can an elephant dance with a dragon? While entertaining and attention‑grabbing, today’s myopic vocabulary masks India’s human‑centric story, its rawness, elegance, and texture. India is not following in China’s footsteps. India has never been done before. It’s time to refresh, recast, and re‑center India’s story on a durable, inclusive growth.

Recently, India raised its GDP growth forecast to 8.75% for fiscal 2010 to 2011. Meanwhile, glasses clink, toasts sound, and scorecards are punched. Not to be a killjoy, but don’t we have a lot of work left to do? My biggest fear is that India’s momentum morphs into complacency, entitlement, and hubris. Nobel laureate Amartya Sen asks of the quality of growth. And, what should one make of the obsession to top 10%? The arm wrestling with China? How to stave off the “middle income trap”?

India’s growth is no flash in the pan, it’s real. It’s organic. It has pulled millions out of poverty into dignity, choice, and security. The proportion of India’s people living under $1.25 per day, the World Bank’s yardstick, fell from 60% in 1981 to 42% in 2005. You don’t need to hear it from Thomas Friedman. Listen to the Tamil buzz in a Chennai living room with my relatives. Ask the man who used to sell pani-puri on a Mumbai side street, the fisherman in Kerala, the single mother in Andhra Pradesh selling beauty products as a Hindustan Lever Shakti entrepreneur, the millionaire retailer in Chandigarh, the Delhi family getting off the scooter and into a car, or the farmer in Madhya Pradesh selling soybeans using e‑choupal Internet kiosks. Even a new term— “indovation”— has been coined.  

But, growth has been uneven. Of India’s 1.2 billion citizens, just 66 billionaires collectively hold over one‑fifth of its $1.1 trillion GDP. Sadly, according to India’s own Tendulkar Committee, 408 million people were mired in poverty in 2005, living on fewer than 447 and 579 rupees per month in rural and urban settings, respectively. The Gini index, a standard barometer of income inequality across the globe, stood at 36.8 for India in 2004 (with 0 signifying perfect equality and 100 representing perfect inequality). Mumbai, India’s financial hub and home to Bollywood, accounts for one-third of the country’s entire economy. Surprisingly, two‑thirds of the metropolis’s people, including many encompassing the “middle class,” live in slums, including Dharavi, Asia’s largest and backdrop for the Oscar hit Slumdog Millionaire. Outside, Mukesh Ambani unveiled a helipad-equipped, 37,000 square foot, billion dollar home for him, his wife, and three children.  

Numbers reveal only part of the picture. Walk past mango groves, Technicolor urban wonders, oxcarts, escalators, hawkers, spangled trucks, tender coconuts, and beggars, and the depravity remains entrenched. Often observers get caught up in a supposed romanticism around poverty. But, there is nothing serene or romantic about it. As Robert Kaplan points out, “it can be dull, numb, devoid of meaning, and monotonous...The door to the espresso bar or to that charming bookshop with those Penguin paperbacks constitutes a border as hard to cross as any drawn on a map”. No matter how you slice it, the soaring growth “miracle” has yet to touch many. 

They are the unsung authors. While India’s arc has been punctuated by towering personalities and the seismic events of 1947 and 1991, the great story has been and will be written by untold millions who toil, dream, and strive in obscurity. Uniquely, India offers an unusual dose of optimism and pragmatism, conspicuously missing in other poverty‑stricken landscapes. And, the story resonates— it was just last year working in rural Kenya that I was sitting on the back of a pikipiki (motorcycle), when the driver turned to ask, “Do you like Shahrukh Khan?” Shashi Tharoor reminds us of the teeming curry houses in London and the popularity of Indian soap operas in Afghanistan and Senegal.

A 900,000 square foot mall went up in Kolkata in 2008. In fact, according to the McKinsey Global Institute (MGI), consumption makes up roughly 55% of India’s GDP, with the proportion set to rise to 70%, akin to the U.S. today, by 2025. But, is this the mark of an enduring, inclusive growth story? What should be the measure of India?

An unequal India is not only morally unhealthy, but can fray society and derail economic progress. Behind the disparity is both inequality of outcome, which is ex post and remedial, and inequality of opportunity. The former is treated under a progressive and pragmatic tax schedule, as well as a formal social safety net. I will focus on inequality of opportunity, which is more vexing and pervasive and will require equal parts imagination, courage, and marathon stamina.

To tackle India’s asymmetry, I suggest a policy mix with more depth, dignity, and dare— one of both compass— cold, calibrated direction— and kindling— India’s gravity, vulnerability, spirit, deliberation, division, ambition, grace, resilience, unity, experiment, and elevation. Inclusive growth hinges on the most daunting challenges, namely revamping education and managing the “plow—high-rise axis.”


India’s Right to Education Act came into force in April 2010. Evangelize the obvious, louder— fulfilling the promise of universal education with accountability will be the defining mark of sustained inclusive growth. It’s been shown time and time again— educate a girl and you will secure a generation.

Today’s facts surrounding primary education are as abundant as they are dismal. 30% to 40% of the population is illiterate, depending on who and where you are. The World Bank approximates a quarter of teachers are absent on any given day. Education inequality echoes the north‑south income disparity— just look at the absenteeism and literacy in Bihar relative to Tamil Nadu. My parents’ stories of walking miles to school in dusty Mysore four decades ago are still a reality today for many. Despite strides in lunch programs and IT/connectivity, many schools lack chalkboards and latrines. Moreover, it’s often better for families to sidestep decaying public education and go private, spending 10% of their income. Private education is projected to balloon to $68 billion in 2012.

Higher education fares no better. Despite the luster of the IITs, they along with most of the university and college system are crumbling. IT giant Nandan Nilekani writes that a disproportionate emphasis on India’s secondary over primary schooling from inception was “an edifice that amounted to university arches perched on stilts.” The portrait today is one of professor shortages and a stubborn focus on cramming and testing. Impressive numbers cloud quality. Roughly 80% of graduates are simply un‑employable. Moreover, less than one third of women participate in the work force.

India is playing catch‑up and needs to go all in:

  • Boost public spending on education to 9% of GDP through 2030 (4% primary, 3% secondary, 1.5% tertiary, 0.5% technical).  
  • Significantly expand investment in school structures, basic materials, latrines, water supply, and electricity. Delivery and accountability of Sarva Shikha Abhiyan (SSA) rural paradigms are crucial. Expand lunch programs and IT investment.
  • Triple resources for teacher accountability, effectiveness, and retention through regular monitoring and training. Establish a body of best practices.
  • Complete full strength state‑Pratham partnerships and nationalize the Annual Status of Education Report (ASER) by 2015. Set 5-year block goals through 2040, with the aim of full, verifiable literacy by 2030 (a target that has already been pushed five decades).
  • Rapidly expand the Teach for India (TFI) program, modeled after Teach for America, to 50,000 selected teachers annually by 2020 and 100,000 annually by 2025. 
  • Decentralize University Grant Commission (UGC) policy and oversight of nearly 17,000 colleges by 2020. Expand IIT/IIM admission to 5% by 2025, along with requisite investments in campus and staff support. 
  • Expand electrical, mechanical, and automobile technical schools and training programs in Tier 2 and Tier 3 cities (fill the immense and growing jobs gap).  
By 2020 the average age of Indians will be 29 (25 in the north) and by 2030 India will add 270 million more people to the work force. They will be a new band of “midnight’s children,” born after 1991 and scarcely aware of imperial and socialist artifacts, looking only to upward mobility as a North Star. Let’s give them our vote of confidence. 


Today, Gandhi’s misguided belief that the “blood of the villages is the cement” of the cities rings hollow. There is no zero-sum game or town mouse-country mouse debate. While a rising tide has not lifted all boats, blooming cities have improved rural life.

The steady drumbeat— urbanization. An MGI study showed that India’s urban population rose from 290 million in 2001 to 340 million in 2008 and is set to balloon to 590 million by 2030, when 68 cities will house more than 1 million people, 13 of which will bustle with more than 4 million citizens. Importantly, cities will generate the overwhelming majority of new jobs in the next century. But, the income gap is palpable and widening. 75% of today’s urban population earns under $1.80 per day. Meanwhile, Mumbai is among the priciest rental and real estate locations in the world. Managing the rural (agriculture)-urban flux is key to managing inclusive growth and sustaining a healthy middle class.

Visiting the outskirts of Bangalore, my family planned around load-shedding at 6 am. Unfortunately, the minor inconvenience is devastatingly magnified for millions relegated to slum life and urban decay. The usual response of “infrastructure” simply doesn’t cut it. It’s not active and leads to platitudes and disconnected fixes. Policy must be integrated, set in a framework of an active, people‑driven dynamic—

  • Raise urban infrastructure spending (water, sanitation, transportation, power, housing) to 4% of GDP through 2040 and 5% from 2040 to 2060, weighted toward Tier 1 and Tier 2 cities.
  • Expand Jawaharlal Nehru National Urban Renewal Mission (JNNURM) 5x. Leverage private operation and funding, closely monitoring outcome measures.
  • Broaden Rajiv Awas Yojana (RAS) program 5x. Boost allocation, flexible pricing, and incentives for affordable housing (can happen outside of a comprehensive land reform).
  • Modernize tax collection, rental/lease schemes, municipal debt, and private grant operations.
The bulk of new employment, due both to migration and organic urban growth, will come from liberalizing and incentivizing retail, manufacturing, heavy industry, and textiles, as well as services for advertising/design, finance/consulting, hospitality, marketing, media and entertainment, and personal care.

Additionally, India’s urban centers should take the lead in the next phase of high tech growth. In the multinational universe, “outsource” is a dated and increasingly irrelevant term. Global companies will invest wherever they think is best. While India remains the global leader in overall outsourcing, according to Everest Group, the Philippines call center business is slated to surpass that of India with revenue totaling $5.7 billion in 2010. Going forward, India will be expected to innovate and co‑create in new industries and thus should implement tax incentives for energy grid/renewables, IT (“the cloud”, sensors), and bio- and nanotechnology in its urban centers (SEZ expansion should be carefully tempered with local innovation and labor standards).

Plow’s Edge

“Islands of excellence” are not enough. An agrarian economy supports 30% of India’s GDP and over 60% of the population. Nowhere is inequality starker than when crossing the regional divide. It is no coincidence that the more rural, less globally connected, and landlocked Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh (BIMARU), as well as Orissa, Chhattisgarh, and Jharkhand have yet to melt away hierarchical strictures that once shackled India. While making great strides of late, Bihar holds only half the per capita GDP of its friend and neighbor Gujarat. Many of India’s 600,000 villages lack accessible roads, in or out. While many farmers remain at the whims of the monsoon, India remains a net exporter of food, but sees much of it spoil due to lack of cold chain transport, rail, and port structures.

Subsidies, which have become a political third rail, do serve a supportive role, but they are never permanent solutions. Moreover, they often exacerbate the income gap that they intend to alleviate. While the National Rural Employment Guarantee Act (NREGA), assuring 100 days of work per year, has been successful during rough waters in the past few years, the program is still a band‑aid, not a substitute for formal direct income transfers and long-term structural policy:  

  • Trim subsidies for fuel, food, fertilizer, and electricity <0.5% of central and state GDP by 2020, making room for direct transfers and private/public structural investment. 
  • Invest 8% of GDP in rural irrigation, roads, sanitation, healthcare, electrification, water and connectivity infrastructure through 2030. Expand the Bharat Nirman Scheme and boost private partnership.
  • Develop freight logistics, weighted toward rail, to better connect inland communities with coastal and global markets. 
The scale is immense, but with it comes efficiencies. In fact, if Uttar Pradesh were its own country, it would be the fourth most populous in the world. India’s future will rise and fall with northern rural investment.

Midnight 2047

The big plus, India has the liberalizing wind to its back. It is becoming more privatized, globally integrated, and open to trade, as well as foreign direct and institutional investment every day. Gradually, the finance and retail sectors will also open up. Paving the way for accessible and affordable financing and insurance for small and medium enterprises (SMEs) will unlock even more potential.

One area that has lagged has been labor law, which remains highly rigid. India needs to grease its wheels. While simultaneously building its social safety architecture (medical, unemployment, disability), India should improve labor mobility, particularly by removing the requirement for businesses with 100 employees or more to seek permission for retrenchment. Governance is the bugaboo, as the government’s worst enemy is itself. Delivery and implementation of the above policy suite will be the name of the game.

As a scrappy worker in Dharavi already knows, ingenuity and invention are not just the domains of high tech; they will be the hallmarks of a lasting, inclusive growth. Remember, it’s the natural pearls over the cultured ones. “Crowdsourcing” and “crowdfunding” are no longer decorative terms. The government should add some more to the recipe:

  • Expand private funding to 40% to 45% for infrastructure projects and ramp up public private partnerships nationally. Central to this goal will be establishing a network of regional infrastructure banks.
  • Similar to the U.S.’s Race to the Top education reform competition and the X-Prize Foundation, implement $5 billion prize distributed to states for innovative healthcare (focus on lifestyle disease), energy, and education solutions.
  • India is already a global incubator of social innovation. The government should partner with leading social entrepreneurs, NGOs, private equity, and industry leaders to establish a $5 billion India Social Innovation Fund (ISIF).
On top of this, India’s billionaires should join 57 others in The Giving Pledge, a philanthropic campaign led by Bill Gates and Warren Buffett, to donate half their fortunes to charity. The duo will visit India in March 2011. Let’s hope India catches the spirit. 

India has been no stranger to great vision and today, India is embarking on the biggest project yet— issuing standardized, biometric, 12-digit ID cards to 1.2 billion people, with hopes of bringing everyone out of the shadows. The project will enable a more crisp, nimble, accountable, and efficient society. But, to secure the thriving middle class and prevent India from fraying at the ends, it must think even bigger.   

The Wink

While market forces have been and will be central in unlocking human economic spirit and generating national growth, they do not allow for global benefits to reach India’s least fortunate. These benefits do not “trickle down.” More saliently, in the U.S., the Great Recession has demonstrated that “pain trickles up.”

India’s citizens, despite headlines of Hindu chauvinism, are voting less on reflex, caste, division, and class, hewing toward pragmatic, economic success. Government is increasingly efficient in direct tax collections and will gradually retreat from inefficient subsidies. For its part, progress will not warrant celebration, but measured, nose‑to-the-grindstone diligence, foresight, and courage. C. K. Prahalad, the late business visionary, kept a map of India tilted on its side hanging in his office. So, this is how we must see it— sideways. The calls for a more muscular, hands‑on approach are everywhere. It’s India’s agility, adaptability, and re‑invention that are in demand.  

In the back seat, snarled in Delhi traffic. I look to the front passenger side— a Muslim builds a Hindu temple. To my right— a man in crisp chappals sells ancient plastic trinkets. He turns to wink. Is he thinking what I’m thinking?