India’s Struggle to Develop, Conclusion

Stephen DeAngelis

March 09, 2010

This is the final post in a 3-part series about development in India. In this post, I would like focus on what is being done to help India’s poor. As noted in a previous post, India is still home to some 300 million people living on a dollar a day or less. Lifting these impoverished millions out of poverty is important for India’s long-term economic health. One of the surest ways to help them is to foster a robust economy that creates jobs. As highlighted in the last post, however, job creation must be accompanied by enforceable labor standards that both encourage businesses and protect workers. Most analysts believe that India will never reach the next economic level unless it increases its manufacturing sector. As I have chronicled in the past two posts, current efforts to increase industrialization have been setback by land and labor protests. Some jobs, though not enough of them, are being created [“Rural India Gets Chance at Piece of Jobs Boom,” by Lydia Polgreen, New York Times, 13 November 2009]. Polgreen writes:

“Under harsh fluorescent lights, dozens of heads bend over keyboards, the clattering unison of earnest typing filling the room. Monitors flicker with insurance forms, time sheets and customer service e-mail messages, tasks from far away, sent to this corner of India to be processed on the cheap. This scene unfolds in cities across India, especially in the high-tech hubs of Bangalore and Gurgaon, places synonymous with the information technology revolution that has transformed India’s economy and pushed the country toward double-digit economic growth. But these workers are young people from villages clustered around this small town deep in rural Karnataka State in India’s southwest. They are part of an experiment by a handful of entrepreneurs to bring the jobs outsourcing has created to distant corners of India that have been largely cut off from its extraordinary economic rise. Only about a million workers are employed in the buzzing call centers and pristine tech company campuses that have come to symbolize India’s boom — a drop in the bucket, given the country’s more than 1 billion people. Almost all of those jobs are in cities. But 70 percent of Indians live in rural areas. India largely skipped — or never arrived at — the industrial phase of development that might have pulled the rural masses to cities. Over the decades a Gandhian fondness for — some say idealization of — rural life has also kept people in villages, where the bonds of caste and custom remain strong.”

In one of my previous posts, I noted that India carries a heavy historical burden — i.e., caste and custom –that too often serves as an anchor to progress. Of course, India also enjoys a long history of learning, art, and culture of which it is deservedly proud. In the opening paragraph of author and diplomat Shashi Tharoor’s book entitled The Great Indian Novel, the story’s narrator says:

“They tell me India is an underdeveloped country. They attend seminars, appear on television, even come to see me, creasing their moulded plastic briefcases, to announce in tones of infinite understanding that India has yet to develop. Stuff and nonsense, of course. These are the kind of fellows who couldn’t tell their kundalini from a decomposing earthworm, and I don’t hesitate to tell them so. I tell them that if they would only read the Mahabharata and the Ramayana, study the Golden Ages of the Mauryas and the Guptas and even of those Muslim chaps the Mughals, they would realize that India is not an underdeveloped country but a highly developed one in an advanced state of decay.”

Although Tharoor’s novel is fiction, I believe his description of India is accurate. India’s “advanced state of decay” is what keeps so many people in poverty. A challenge, Polgreen notes, with which “India has struggled unsuccessfully.” She continues:

“Some economists argue that India still needs rapid urbanization if it is ever to become a major economic power and provide jobs to its vast legions of unemployed. But the founders of Rural Shores, a company that is setting up outsourcing offices in rural areas, say it makes more sense to take the jobs where the people are. ‘We thought, “Why not take the jobs to the village?”‘ said G. Srinivasan, the company’s director. ‘There is a lot of talent there, and we can train them to do the job.’ Rural India was once seen as a dead weight on the Indian economy, a bastion of backwardness embodied by the frequent suicides of farmers eking out livings from arid fields, dependent upon fickle monsoons. But Indian and foreign companies have come to see India’s backwaters differently, as an untapped market for relatively inexpensive goods like low-tech cellphones, kitchen gadgets and cheap motorcycles. Now some businesses have begun looking to rural India for an untapped pool of eager and motivated office workers. Rural Shores has hired about 100 young people, most of them high school graduates who have completed some college, all of them from rural areas around this small town [Bagepalli]. The company has three centers now, but it aims to open 500 centers across India in the next five years. Most of the center’s employees are the first members of their families to have office jobs. They speak halting English at best, but have enough skill with the language to do basic data entry, read forms and even write simple e-mail messages.”

Rural Shores is not simply being altruistic, it pays “much lower rent and wages” in rural villages than it would have to pay in larger cities. In fact, “the company says it can do the same jobs as many outsourcing companies for half the price.” Polgreen explains:

“A Bangalore office worker with skills similar to those of workers here commands about 7,000 rupees a month, or $150, Mr. Srinivasan said. In small towns and villages, a minimum-wage salary of about $60 a month is considered excellent. Here in Bagepalli, the Rural Shores office hums through two shifts a day. One set of workers answers customer service e-mail messages for an Indian loyalty card company. Another processes claims for an insurance company. In one room, workers capture data from scanned timecards filled out by truck drivers in the United States. They record nights spent in Abilene, Tex., deliveries in Kansas City and breakdowns in Salt Lake City, all of which the workers decipher and enter into a database.”

Although by western standards the wages sound low and the working conditions Spartan, “for many, a job at an outsourcing center is an unimaginable opportunity.” Polgreen provides brief biographical sketches of some of the workers and how having a job has changed their lives and the lives of their families. The biggest change is that many of these individuals have gone from scraping out a living to being able to afford a few of life’s non-essentials. As the poor begin their climb up the economic ladder, more and more companies are looking to profit by selling products and services to them [“Indian Firms Shift Focus to the Poor,” by Eric Bellman, Wall Street Journal, 21 October 2009]. Bellman writes:

“Indian companies, long dependent on hand-me-down technology from developed nations, are becoming cutting-edge innovators as they target one of the world’s last untapped markets: the poor. India’s many engineers, whose best-known role is to help Western companies expand or cut costs, are now turning their attention to the purchasing potential of the nation’s own 1.1-billion population. The trend that surfaced when Tata Motors’ tiny $2,200 car, the Nano, hit Indian roads in July, has resulted in a slew of new products for people with little money who aspire to a taste of a better life. Many products aren’t just cheaper versions of well-established models available in the West but have taken design and manufacturing assumptions honed in the developed world and turned them on their heads.”

The term used to describe India’s unique innovation process is “jugaad,” which basically means “get it done.” It is a process now being taught around the world. To learn more on the subject, read my post entitled Innovation, Development, and India. Bellman describes some of the innovations that have developed from using this process:

“For the farmer who wants to save for the future, one Indian entrepreneur has developed what is, in effect, a $200 portable bank branch. For the village housewife, a wood-burning stove has been reinvented to make more heat and less smoke for $23. For the slum family struggling to get clean water, there is a $43 water-purification system. For the villager who wants to give his child a cold glass of milk, there is a tiny $70 refrigerator that can run on batteries. And for rural health clinics, whose patients can’t spend more than $5 on a visit, there are heart monitors and baby warmers redesigned to cost 10% of what they do elsewhere. Such inventions represent a fundamental shift in the global order of innovation. Until recently, the West served rich consumers and then let its products and technology filter down to poorer countries. Now, with the developed world mired in a slump and the developing world still growing quickly, companies are focusing on how to innovate, and profit, by going straight to the bottom rung of the economic ladder. They are taking advantage of cheap research and development and low-cost manufacturing to innovate for a market that’s grown large enough and sophisticated enough to make it worthwhile.”

Even though people are poor, most of them are still aware of advantages enjoyed by others. When those “advantages” become affordable, companies are learning that the poor will snap them up. Bellman demonstrates how this has happened with cellphones in India.

“Unexpectedly strong demand for cheap cellphones in recent years revealed the untapped markets in India’s villages and slums. Thanks to $20 cellphones and two-cent-a-minute call rates, Indian cellphone companies are signing up more than five million new subscribers a month, most of them consumers no one would have considered serving only five years ago.”

Companies are now exploring what other products will catch on among the poor. Bellman continues:

“With so many unlikely products aimed at overlooked consumers, the trend could bolster bottom lines over time, create new companies and lead to a new kind of multinational corporation that thrives outside of the developed world. Unilever NV and General Electric Co. are taking notice. GE’s chairman, Jeffrey Immelt, on a recent tour of Asia, outlined how the global giant is restructuring to take advantage of what he calls ‘reverse innovation.’ … ‘The biggest threat for U.S. multinationals is not existing competitors,’ says Vijay Govindarajan, professor at Dartmouth’s Tuck School of Business and chief innovation consultant to GE. ‘It is going to be emerging-market competitors.’ What is happening today is much different than the so-called ‘sachet revolution’ of the 1980s when Unilever and other consumer-goods companies realized they could sell hundreds of millions of dollars more of their shampoo, detergent, toothpaste and snacks just by selling them in tiny packets. This time, Indian engineers are reinventing products to cut costs and reach the billions of people world-wide who live on less than $2 a day.”

One of the concomitant benefits of this new trend is a spate of “start-ups as well as new business divisions in established Indian companies.” These start-ups and business divisions represent jobs, some of which will go to people in the areas being served. Bellman continues:

“Everyone from small local players — looking to go national then global with their low-price inventions — to the country’s biggest conglomerate, the Tata Group, are in the race. They are trying to figure out what the poor want and how much they are willing to pay for it. Then the companies are going back to their research teams and crafting new products and unprecedented price points. … Western companies as well as most large Indian companies have long ignored poor markets because any potential profits seemed too slim. It was too expensive to create a distribution system that could serve the consumer who shops from closet-size kiosks or weekly country markets. But instead of using traditional supply chains, many companies are distributing through rural self-help groups and microlenders that are already plugged into villages. And while profit margins are slim, companies are counting on volume to compensate. Many hope to sell to other poor and underserved markets in Asia and Africa eventually.”

According to Bellman, not just the poor are going to benefit from these new programs and products. He explains:

“Some of the products may end up in developed markets. One of the Nano’s first export markets, for example, will be Europe. The European version of the car will have better interiors and safety features and cost more than the Indian version but will still be cheaper than almost anything in Europe.”

Selling to the poor might sound easy, but if credit is involved all sorts of challenges arise. And if the rising poor want to save a little money in a secure place, there are also challenges associated with opening up savings accounts. Bellman continues:

“To bring banking services to villages, Anurag Gupta, a telecommunications entrepreneur, distilled a bank branch down to a smartphone and a fingerprint scanner. A bank representative goes directly to a village and can set up shop anywhere there is shade. Savers line up and give an identification number, scan their fingers and then deposit or withdraw small amounts of rupees. The transactions are recorded through the phone and the representative later visits a standard branch to pick up or drop off rupees as needed. Mr. Gupta named his innovation Zero, after what he says is India’s most important innovation — the number zero — which many believe was invented by Indian mathematician Aryabhata in the sixth century. Indian banks already are using his system to open millions of new accounts. The running cost of his ‘branches’ is about $50 a month to serve hundreds of people daily. A standard branch or ATM costs thousands to run.”

Gupta’s system is not only helping the poor within India, it is being used by Indian construction workers in Bahrain to “open bank accounts and send money home.” Because many of India’s poor are uneducated, historically they have been exploited and have had no where to turn for help. An Indian billionaire is trying to change all that [“Billionaire Makes Biometric Bet to Bring Growth to India’s Poor,” by Bibhudatta Pradhan and Saikat Chatterjee, BusinessWeek, 22 January 2010]. Pradhan and Chatterjee write:

“Corrupt officials in the Indian state of Bihar steal a third of laborer Balram Singh’s $2.20 daily wage, withdrawing money from his post office account without providing proof of identity. ‘We don’t get the full wages,’ said Singh, 48, who toils in Jamui district in the eastern state under a jobs program set up in 2006 to tackle village poverty. Money is withdrawn and distributed by a supervisor, who takes a cut. ‘We just give a thumb print on a piece of paper,’ said Singh, who is illiterate. To help the hundreds of millions of rural poor like Singh, India turned to billionaire Infosys Technologies Ltd. founder Nandan Nilekani to devise a fraud-proof identity number. A year from now he’ll begin rolling out the world’s biggest biometric database to enable the half of India’s 1.2 billion people who lack access to financial services to open an ICICI Bank Ltd. account or sign up for a Vodafone Group Plc mobile phone.”

As noted above, Anurag Gupta’s Zero banking system already uses a fingerprint scanner to protect his customers. Nilekani is talking about a huge “secure identity database” that “will remove one of the biggest hurdles preventing the poor from accessing state benefits and the wider economy.” Pradhan and Chatterjee continue:

“Nilekani, who at Infosys served clients including General Motors Co. and Goldman Sachs Group Inc., plans to appoint a consultant next month to draft a tender to run the database that will include names, dates of birth, fingerprints and photographs. ‘I’ve a mandate to give an identity number to every Indian resident and the two big drivers for that are to create one more form of inclusion and to improve the quality of public spending,’ Nilekani, who aims to allot the first 16-digit number in February 2011 and cover 600 million people in five years. … While using the numbers won’t be compulsory, Nilekani said the program’s advantages will attract banks and utilities wanting to target fraud and help the government ensure subsidies that account for more than 14 percent of India’s total expenditure, or $28 billion, reach their intended beneficiaries.”

In addition to helping the poor, the system being devised by Nikelani will also tackle another challenge that impedes progress in developing countries: corruption. Pradhan and Chatterjee continue:

“‘When you find ways and means to stop corruption, people find ways to circumvent it,’ said Nikhil Dey, a founder of Mazdoor Kisan Shakti Sangathan, or Workers and Farmers Unity Organization, which works in the western state of Rajasthan and audits the jobs program that pays Balram Singh. Secure ID may cut fraud ‘but it will still need a constant vigil.’ … Still, Nilekani will need to overcome technological challenges and ensure the project doesn’t exacerbate India’s budget deficit.”

Detractors of the program fear that the cost of running it will outweigh the program’s benefits. But, according to Pradhan and Chatterjee, getting even small amounts of money into the hands of the poor could make a big difference in their lives. They conclude that “the identity number project ‘has the potential to empower every citizen, bring transparency, and boost the economy — if it’s implemented properly,’ said Kris Dev, an e-governance consultant based in Chennai.” Empowering the poor is one way of giving them hope for the future. India’s economic future must be built on a sustainable middle class and that sector will only grow as impoverished citizens move up the economic ladder. The late historian Will Durant wrote: “India was the mother of our race and Sanskrit the mother of Europe’s languages. She was the mother of our philosophy, mother through the Arabs, of much of our mathematics, mother through Buddha, of the ideals embodied in Christianity, mother through village communities of self-government and democracy. Mother India is in many ways the mother of us all.” Helping lift India’s poor out of poverty will help not only put the country’s economy on firmer ground it will help India reassume an important leadership position in history.