India is hurting. Why? What next?

Local systems solutions, investments in healthcare and public institutions, cross-pollination of ideas—a panel moderated by Arun Maira discusses how to extract the economy out of the morass it is in

Founding Fuel

The impact of COVID-19 on an already limping economy is there for all to see. But pointers to what may work to salvage and remedy and leadership calls that are showing results exist as well.

Founding Fuel’s Masterclass on February 24 on how to Navigate the Great Indian Slowdown had thought leaders talk what may it take to revive the economy and how ought leaders from business and government work together to build better systems.

Before getting into a synopsis of the session, some key learnings from India’s response to the pandemic has shown what will work, and what won’t:

  • A top-down, centrally-controlled approach won’t work — especially in a country as diverse as India that has unique local challenges. Each city needs its own solutions.
  • This is a complex system that needs adaptive solutions with some basic rules. Let local solutions emerge. A live example of this is societal platforms. (Dig deeper: In this video, EkStep Foundation’s Sanjay Purohit and 1Bridge founder Madan Padaki talk about how open digital co-creation networks can drive innovation in education.)
  • To enable local systems solutions, we must listen to real people about their very real problems.
  • To do that, India’s learning system must be speeded up. What that means is, change the learning and implementation institutions on the ground; be faster in acquiring new capabilities; and cross-fertilization of ideas.
  • The rich – poor divide, a hallmark of the slowdown, is amplified by COVID-19 — there are stark differences in how they experience a crisis, and their ability to cope.
  • India hasn’t invested sufficiently in public goods—education and health, local infrastructure, livelihood on the ground, climate change. In times of a crisis like this, these gaps amplify and show up. So, healthcare and education must be looked at as investments, or fundamental growth drivers.

The panel led by Arun Maira, former chairman of Boston Consulting Group and member, Planning Commission, included:

Rama Bijapurkar, market strategist, thought leader on India's consumer economy, and an independent board member of several blue-chip companies.

Tarun Khanna, Jorge Paulo Lemann Professor at the Harvard Business School. For over two decades, he has studied entrepreneurship as a means to social and economic development in emerging markets.

Anurag Behar, CEO, Azim Premji Foundation, Chief Sustainability Officer of Wipro Limited and Vice-Chancellor, Azim Premji University.

Sumit Chowdhury, Founder & CEO, Gaia Smart Cities. He was the Program Director of Swachh Bharat Mission and IT Expert for several Smart Cities projects. He is also associated with the Atal Innovation Mission as a Mentor of Change.  

Synopsis of the Masterclass

The indicators of a slowdown

  • People in the cockpit are telling us, the instruments of navigation have failed. But don't worry, we will get you to the destination.
  • It’s sobering that we don't have the data to make sense of any of this.
  • Some indicators of the slowdown:
    • Passenger traffic on Indian Railways was 902 million in Q3. It was over one billion in Q2FY13
    • Sales of two-wheelers contracted 20% in Q2, and 15% in Q3
    • Investment to GDP ratio in FY20 expected to be 28%, a steep fall from 35.8% in FY08

 What’s happening on the corporate side

  • Companies are not in a mood to invest.
  • From last year, during the same quarter, we're seeing a little bit of corporate gains, which is not necessarily a reflection of true demand.
  • There is in effect, a winnowing going on—a separation of wheat from chaff.. 
  • Companies playing to a strategy (such as Asian Paints and Nestle) are doing better than companies that are off-strategy and being opportunistic.
  • Such entities must think of the downturn as cyclical and not a structural slowdown.

What’s happening on the consumption side

  • Much of rural India depends on construction, agriculture and mining. We know what's happening in all of these sectors.
  • Rich India continues to do well enough. But Poor India is getting into a fairly bad place.
  • We've known for a while that we have been building this great consumer-led economy on shifting sand.
    • Outside of the top 20-25% of people, also called the middle class, nobody really has any surplus income. This makes large parts of the economy extremely vulnerable.
  • When we say the rural markets are growing, basically half of India's rich live in rural areas, as do most of India's poor. So we're managing to tap the better heeled people in rural India as well.
  • There’s a steady decline in the poorer districts; there’s a sense of helplessness in the agrarian economy. 
  • In the past 12-18 months, there’s been a steady fall in migration to the bigger cities—the employment generation magnets.
  • This creates a dichotomy:
    •  India’s infrastructure lags China by 7-10 years. But even our poorer populations are much more connected, at least technologically, to the centres of economic growth and learning.
    • And yet you have rising helplessness among the poor, and less migration to centres of learning and opportunity. (The infrastructure is so good, but the penury is widespread.)
  • Even in the small and mid-level towns, there are no jobs. The decline hasn’t happened over the last 12-18 months, but steadily, over a longer time. 

How are startups and MSMEs faring?

  • The government has come up with a lot of policies to help and attract startups. But many of these are contrarian to existing policies, or absolutely ineffective in practice.
  • Some examples:
    • Tax breaks to startups over a seven year period initially. Only 30 or 40 companies have been able to get these tax breaks in the last five years. And Jio is one of them.
    • Giving debt funding to startups and MSMEs in 60 minutes. There is no data on how many applied, or got the funding. In the process of applying, you end up uploading personal and company data into a third party system which is not owned by the government.
    • In Startup India too, only 2-3% of the amount actually got disbursed in the first four years of the program.
  • The intent is there, it has not percolated through the rank and file of the bureaucracy. For that to happen, administrative processes must be addressed as well along with policy changes.
  • A lot of the economy still relies on the massive amount of government spending. Startups don't qualify for it.
    • Initially, in the startup or the `Smart Cities Program’, the money was available to consultants only, not to the people who have the innovation and are going to implement it.
    • Tenders are designed to grow at the `Hindu rate of return’ — your next year's project cannot be about 20% more than this year's project. So you cannot take on a very big project, and are never allowed to scale exponentially.
  • There is a big disconnect in what really bothers SMEs and what policy makers are solving for.
    • Take ease of doing business, changing labour laws to enable easier firing, as examples. That's not the SME’s problem. Their problems  include getting finance on time, space to operate in, and escaping harassment from inspectors among other things. 
  • Are we really listening to the real people then about the real problems they face when shaping policies?
  • Instead, large entities get more of a hearing when policies are framed.

What’s happening and needs to happen on the policy/governance side

  • Officers have started to sit together and discuss issues holistically: For example, on interrelated issues of housing, transportation, sanitation, water supply.
  • They are starting to use data for decision making.
    • They're gathering data on traffic, air pollution, water supply, water levels, etc.
    • This proliferation of data will help us in the next five to 10 years. There is a huge opportunity for startups and SMEs to come in and innovate.
  • India seems to be a slower learning system than China.
    • The Indian system is slower in transforming itself, acquiring new capabilities, and cross-fertilization of ideas.
    • China is able to identify experiments and provide the mandate and the infrastructure to scale it across the country.
    • Rather than look for advice from economists on how to revive the Indian economy, we need to change the learning and implementation institutions on the ground.
  • We have completely failed to use the government as a strategic lever to promote innovation across the board.
    • In the US, 90% of what ultimately goes into what we see as innovative startups, comes from public funding and the creation of public goods.
    • In India, we’ve got a bias against the government. We think the solutions will come if we get the government out of the way and to leave it to the private sector.
    • We revile public sector banks. But if it weren’t for them, we wouldn’t have rural banking the way it exists now.
    • Corporate India does not want to really serve poor India or even middle India. The thinking is ‘why kiss the frog when you can kiss the prince?’ (China actually serves the bulk of poor India.)
    • We haven't invested sufficiently in public goods—education and health, quality of local infrastructure, livelihood on the ground, climate change.
    • Healthcare and education are fundamental growth drivers. We need to invest to build these as good public systems.
    • We need investments at the frontlines—in teachers and frontline health workers—to improve public systems like education and healthcare. Investment in not just capacity, but also culture.
    • The proliferation of the market economy in China over the last 30 years, is because it is built on a foundation of basic education for almost everybody.
    • A lot of everybody's consumption is conveyance, communication, healthcare, education. These are public goods, that the public (state) should think of providing.
  • India is going to be ground zero for climate change. We know that the effects of climate change are disproportionately felt by the disadvantaged, by the poor.
  • Why is nobody serving the poor? It's a question of innovation and mindset. The reason that it is not profitable is that somebody hasn't sat down and figured out a creative approach to do it within the constraints that developing countries present.
  • We’ll have to work on many things at the same time.
    • The mindset shift here is that we need local systems solutions—simultaneous solutions, formed locally and collaboratively implemented locally.
    • Spain’s approach to smart cities is a good example. They gave 100,000 euros to every neighbourhood to solve a set of problems in their neighbourhood. 52 communities got funded in Barcelona alone. And Barcelona’s smart city project isn't one project, but actually 52 communities, solving their own problem.
    • The government has also tried to gamify it.
  • India too is full of green shoots of people facilitating communities to form themselves, to take charge of their water management, agricultural practices, women farmers, and so on.
  • When innovation awards are given in terms of social innovations internationally, India gets half of them. But we don't notice that. We are still worrying about the big investments, the big factories, and the unicorns out of India.
  • It’s about a million fireflies, and not about a few unicorns.

But startups do need to survive first, and then hopefully grow. What ought to be the road map?

  • Focus on value and not valuation.
    • In fintech, we have cracked the code with the startup ecosystem that we have. It has used the power of digital to be able to serve people which big business couldn't. We just have to wait for that to scale.
  • Have a little humility. Realize that, fintech for example, is the arm. You may be the perfect arm, but you need the body. If the body is reeling with NPAs, you have to wait for the money to come back into the system.

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