The Neglected Portion of the Indian Economy: India Uninc.

Given the plethora of writing on the Indian economy, one would have thought that all important facets of its structure and dynamics would have been explored by now. But, Prof. R. Vaidyanathan (Vaidy) clearly establishes in his new book, India Uninc. (Westland Books, 2014), that our understanding of the Indian economy is far from complete. And, that our partial view may be leading us to take inappropriate policy decisions.

India Uninc. Is the Growth Engine of India

Vaidy’s core argument (based on a close look at India’s National Accounts Statistics and other data) is that small partnerships and proprietorships operating primarily in the services sector (but with some presence in manufacturing as well) are the growth engine of India. His math shows that these firms account for as much as 45% of national income, compared to only 18% for the incorporated firms. Not only have these grown at a fast clip, they are responsible for the high savings rate that is one of the positive features of the Indian economy. Vaidy believes that, in contrast, Foreign Direct Investment is over-hyped, accounting for less than 10% of the financial resources available for investment.

Vaidy points out that a sizeable proportion of our population is self-employed, often in micro businesses that involve only themselves, their family and, at most one or two others. He quotes data from the National Sample Surveys to show that this kind of commercial activity transcends caste and religious boundaries. He therefore questions the importance given to large investments and FDI which will offer primarily wage employment. (Needless to say, Vaidy is firmly against FDI in retail, believing that it would lead to the pauperization of India). But this may need further investigation. Studies in entrepreneurship in India (such as the Global Entrepreneurship Monitor report some years ago) have referred to such wide-ranging self-employment as necessity-based entrepreneurship, implying that people get into such activity for survival and not because they necessarily want to.

The Latin American economist Hernando de Sato is well known for arguing that the absence of property rights in the form of title to property leads to a lack of collateral and hence difficulty in raising capital for the poor. Vaidy argues that gold plays the role of such collateral in the Indian economy. He points to some of the additional benefits of gold such as divisibility and liquidity. He is therefore of the view that gold should not be considered as a consumption good or a non-productive asset as seen in the west. Vaidy is particulary critical of government policy that not only ignores India Uninc, but goes on to tax it heavily without providing it a safety net.

Vaidy is anti-consumerism and emphasizes the importance of India’s frugal past. But, given the growth of malls, multiplexes and consumer spending, it looks like he is on the losing side of this issue!

India Uninc. & Innovation

As a student of innovation, this book triggered an important question: What role is India Uninc. playing in innovation? I must confess that I don’t have a good answer to this question. Just as economists have tended to miss out this vibrant slice of the economy, observers of innovation in India have tended to focus on innovation in the corporate sector or start-ups. I suppose Professor Anil Gupta’s grassroot innovators might fall under the broad rubric of India Uninc., but the drivers of India Uninc’s impressive growth numbers are in areas like real estate, construction and restaurants which are not the sectors that our well-recognised grassroot innovators work in.

One exception is the interesting work on indigenous fast food chains like the famous Darshinis (stand-up fast food restaurants) of Bangalore. I wonder whether these darshinis fall under the organized sector or India Uninc. This needs further investigation.

There may, however, be a close link between jugaad and India Uninc. Many of the popular examples of jugaad like lassi being made in a modified washing machine would fit in with the fast-growing sectors identified by Vaidy’s work. Given the importance of India Uninc, it would be useful to know more about how productive the India Uninc firms are in using resources, and whether (and to what extent) innovation helps them use resources more productively leading to faster growth.

Another question that looks interesting is regarding the links between India Uninc and the so-called organized sector. We know, for example, that the software boom in Bangalore has triggered a boom in catering services, service apartments, “paying guest” accommodation, interior decoration, and similar services. Apart from large developers who are incorporated and sometimes even listed on the stock market, there are hundreds of small builders and contractors who are meeting the demand for housing as well. So, I wonder whether the growth of India Uninc. and the organized sector including multinationals are as unconnected as Vaidy’s book might suggest.

Tailpiece

Vaidy has been developing these themes for several years now through his columns in the national press and digital media. Often times, Indian scholars do good work, but fail to consolidate and integrate their ideas, thus undermining the impact of their scholarship. So, I am really glad that he decided to put together all his writings on this subject in one volume. There is some repetition of ideas across the book, but I found that this helped to reinforce and underline the key themes.

We know from the field of innovation that good ideas take time to ripen and germinate. This one is no different. Vaidy attributes the trigger for this line of thought to talks given by Professor K.N. Raj at IIM Calcutta in the 1970s. Of course, it’s somewhat ironical given Vaidy’s contempt for communism and communists that he was inspired by a leftist economist like Professor Raj, but I suppose that’s what good scholarship is all about!.

An important contribution of this book is to underline the urgency of reform of our national statistics. Though the National Sample Survey and other economic and social data collection efforts of the government provide useful data (Vaidy has used this data extensively in this book), it’s clear that some changes are required in the categorization of economic entities if we are to track the progress of India better, and to come up with meaningful policy interventions.

[The views expressed in this blog are the personal views of the author.]

Energy Self-sufficiency need not be just a dream: Janak Palta & the Jimmy McGilligan Foundation

Amidst the gloom and cynicism that tends to pervade India at this particularly trying time in our history, meeting people at the grassroots who are doing extraordinary work brightens up life. When I came to Indore in early January, I was determined to discover such people in this part of the country. And, Indore has not disappointed on this count.

Energy Self-sufficiency

On a recent bright sunny day, I set out to meet Janak Palta McGilligan at her home, Giridarshan, in Sanawadiya, just outside Indore. I first met Janak at the Prestige Institute of Management conference a few weeks ago. At that time she mentioned that her home ran entirely on renewable energy. This immediately interested me for I had often thought of putting up solar panels on our Bangalore home. I never got around to it, but the interest remains, so I was really excited at the prospect of seeing a solar-powered home.

Janak’s home is self-sufficient on the energy front. She has a whole set of solar cookers ranging from the box type to different types of reflectors. The reflectors are foldable and light, and can hence be transported easily from one place to another. The entire tasty meal we had was cooked using these solar cookers. They have a bigger reflector as well that tracks the sun – it is really powerful, as demonstrated by a piece of paper that caught fire in no time. Solar power is also used for drying things and for power – Janak has a huge solar panel on top of her home. There’s also a windmill. Janak contributes her excess power to the neighbouring Adivasi settlement for lighting up the area.

What does Janak do on a rainy or cloudy day when there is no sun? Another reneweable source of energy is briquettes. Waste newspapers are converted into briquettes, dense cylinders that can be used to fuel a stove.

Janak uses solar energy in other ways as well including a solar powered transistor radio and solar lighting.

Janak is almost completely self-sufficient on the food front as well (except for a few things like salt and cooking oil) and grows her own vegetables and herbs. She is now working on developing a whole set of natural colours than can be used at Holi.

About Janak herself…

Not surprisingly, Janak has a colourful past. She is a Punjabi by birth (regional stereotypes can sometimes be misleading, but they are remarkably accurate in Janak’s case – she displays all the positivity, warmth and “can do” attitude that represents the best of Punjab!). She grew up in Chandigarh, underwent open heart surgery at a time when survival rates were quite low in India. Her own survival convinced Janak that she must use her life to serve others.

It took her some time to find out exactly how she wanted to do that. She went through a series of jobs in the provident fund office and as a translator in the High court; later she worked at the Centre for Rural Development on a variety of research projects, including one on communal violence. This latter work took her around the country, and to Indore. Here she met Jimmy McGilligan, an Irishman who was working on a project in Gwalior.

The Barli Institute

Janak’s tryst with renewable energy started at the Barli Institute, an organization that she and Jimmy set up to train young women from disadvantaged backgrounds. Jimmy was a very practical man who could use his hands to do a number of things – e.g. he built a good part of the house Janak now stays in with his own hands. Janak told me a fascinating story of how there were solar reflectors set up with the help of the Ministry of Renewable Energy at various locations across India. At one point of time, the only functional one was at the Barli Institute because of Jimmy’s ability to keep it going! Janak described Jimmy as a jugaadu, one who could make almost anything work, and was unfazed by lack of prior knowledge or exposure. Jimmy set up much of the infrastructure at Giridarshan.

Janak’s Holistic Approach

One thing I particularly liked about Janak’s approach to life is her holistic approach to sustainability. The Barli institute is today run by the next generation, and Janak is no longer involved in a day-to-day operational role. She has transition plans for her current home as well, and only reluctantly agreed to be the trustee of a trust set up in memory of Jimmy who passed away in a road accident a few years ago. At Giridarshan, Janak lives with Nanda and Rajendra Singh Chouhan, both trained at Barli, and both are closely involved with future plans of the Trust.

She seems to have this amazing capacity to just let go. I wonder whether this comes from her own life experiences – apart from the heart surgery I mentioned earlier, Janak is also a breast cancer survivor, and today one of her other activities is Sangini, an organization set up for the counseling of breast cancer patients. There is a spiritual influence as well – both Jimmy and Janak have been strongly influenced by the Bahai faith.

I haven’t seen the Barli Institute so far, but reading its website I can see that it trains rural women to be pillars of their own communities. That’s what the name itself signifies.

Janak is very open to having visitors, particularly youngsters. While I was there at Giridarshan, she also hosted a couple of young photographers who were making a video feature on the site.

Sanawadiya

As I mentioned, Sanawadiya is just a few kilometers away from Indore city, but Janak told me that it is very different in terms of people’s attitudes and approaches. It’s certainly very different in terms of road quality, and I really hope they are able to make a better road surface soon. Some road construction activity is visible, so I am hopeful!

What did catch my eye on the way back was some very visible construction of toilets in many homes alongside the road. The MP government was in the news some months ago for what some felt was an insensitive approach to promoting toilet construction. But the results seem to be positive, and this should benefit hygiene and public health in the state.

Conclusion

It’s been wonderful to meet amazing people like Janak. We need many thousands if not millions like her to transform India. And, for those of us fortunate enough to live in houses, we can start by emulating Janak Palta McGilligan on the energy front.

[The views expressed here are the personal views of the author.]

Chronicles from Central India - 2

Many cities have a main thoroughfare that shapes the city. In Indore, that road is the Agra-Bombay Road (often shortened to AB Road, lending itself to many other interpretations!). Indore is now getting re-defined by the By Pass Road, a four lane, divided road running roughly parallel and to the east of AB Road. The By Pass Road is a major centre of real estate action with literally dozens of gated communities springing up on either side. I am told that not many people live in these communities right now, but a few of them look quite impressive and will be occupied over the next decade as the city fills out. Already, IIT Indore faculty and students and people coming into Indore to work with companies in the industrial area of Pithampur stay there.

Indore reminds me in many ways of Ahmedabad 20-odd years ago. Highways, large construction projects, beautifully maintained compounds but an unkempt and unfinished look outside. Plastic bags litter vacant plots (this is one of the biggest eyesores in India, across the country). Fast-developing new areas like Vijaynagar remind me of the Satellite area of Ahmedabad. The good news is that by the time we left Ahmedabad in 1996, the city was looking much more neat and clean, thanks largely to a drive run by Keshav Varma, then a young and energetic IAS officer, who streamlined the city’s tax collection and then directed the proceeds towards improvement projects.

The By Pass Road is wide and motorable, but is plagued by the same problems we see elsewhere – incomplete flyovers, progressing at a snail’s pace. But I am happy to see that flyovers are being built at major intersection points now rather than after the traffic builds up as was the case of Bangalore in the Outer Ring Road and the elevated road from Hebbal to the airport. Another challenge with the By Pass Road is the lack of illumination – its pitch dark at night with only the headlamps of vehicles to light up the road.

Indore: Education Hub

Indore prides itself as an education hub, and the By Pass is often the best way to reach many of the new educational institutions that have sprung up on either side. I had occasion to visit two of them recently. The Shishukunj International School is regarded as one of the best schools in Indore, and I saw evidence of that when I visited their campus – very nicely designed, good infrastructure, and more than anything else a committed management and teachers. Representatives of the three founding families – the Mehtas, Sethias and Daves – were present on the dais at the graduation ceremony for the Standard XII students. The students were a bright and happy lot, the school choir sang beautifully, and one of the school youngsters sang a tuneful solo song. Both the head boy and head girl gave crisp speeches (the head girl was particularly impressive) – the communication skills of our youngsters are streets ahead of what they were in our time!

Each graduating student (all 150+ of them!) was given a short introduction as s/he marched on to the stage to receive a graduation packet from me or Smt. Mamta Sharma, Chair of the National Commission for Women. Some of the introductions mentioned the student’s career plans – students aspired to be rich businessmen, software technologists, architects, doctors, DJs and even Bollywood stars. I was a little concerned that no one was introduced as a prospective scientists or biotechnologist, but I guess that’s a sign of the times.

The school seems quite successful in emphasizing the right values. I heard several references to empathy, and concern for others, both from the students and from the management. The Principal led the students in taking a solemn oath to contribute to society as well as their alma mater.

There was a lot of poetry and story-telling in the air (many of the teachers who conducted the event spoke lyrically, both in Hindi and English). Clearly, this is a school that provides diverse influences to its students. There could be no better exposure to such diversity than the four panels on successive pillars as I entered the school – tennis star Mahesh Bhupati, actor Prabhu Deva, spiritual guru Osho, and the Sai Baba of Shirdi. I remain intrigued about the choice of these four (maybe there are more panels elsewhere, but these are the four that I saw), and I can only hope that these are intended to inspire the dogged persistence needed to be a top sportsman, the adaptability and flexibility of a contemporary dancer (I am sure all of you have seen some of the incredible moves by Prabhu Deva!), the creativity and openness of Osho, and the spiritual goodness of the Sai Baba (I mentioned these in my talk!).

The School had other creative ways of recognizing and commemorating its students – one of these was a gallery of portraits of the students (made in the Art class, I was told) [see the picture below].

Clearly, since the time we studied in school, high quality school education in India has come a long way. The best schools have everything on offer, from high tech classrooms to a variety of sports and out-of-the-classroom activities to languages and culture. Reflecting growing globalization, Shishukunj also has an international exchange programme.

Contrast with the rest of the Education System

While we must celebrate the existence of schools like Shishukunj, the contrast with the rest of the education system is unbearably sharp. The latest ASER report indicates high enrollments at school (96%+) but disappointing and often declining education outcomes (close to 50% of standard V students can’t read a Standard II text). Government initiatives like the Sarva Shiksha Abhiyan (SSA) have clearly achieved some success in getting students into school, but giving a good primary education remains a daunting task. I read about a new proposal to start a Navodaya Vidyalaya (rural, fully residential schools originally conceived by Rajiv Gandhi, and set up in every district) in each block of India – while welcome in itself, we really need to crack the problem of how to provide basic education on a large scale.

Tailpiece

But I must give full marks to Indoreites for their warmth and friendliness. Except for a grumpy pharmacist who looked at me suspiciously when I asked him for vitamin C tablets (it turned out that he identified products only by their brand names – when I asked for “Limcee,” his face brightened up!), I have found most people take pride in their city and are happy to welcome outsiders to it.

[The views expressed in this blog are the personal views of the author.]

Innovation in India: Emmbi Industries, Premier Explosives & Trimed blaze new paths

Schumpeter believed that the entrepreneur is the key to innovation for the entrepreneur tries to find new value for resources in an effort to grow his enterprise. The quest of this blog is to see whether and how the nature of innovation in India is changing, and its therefore useful to periodically take a look at the entrepreneurial landscape.

I profiled some interesting companies earlier like Vigyanlabs, the Mysore-based provider of energy management solutions for datacenters; Fusioncharts, a leading source of data visualization tools; and MadRat Games, the pioneer of educative Indian language board games. This blog post is devoted to three more interesting companies I came across recently.

Inc. India magazine recently did a special issue on India’s most innovative mid-sized companies. A couple of the companies profiled here come from their list.

Emmbi Industries Ltd.: Building the Right Challenge Book

Emmbi is a Rs. 140 Crore company making polyester woven sacks and other polymer-based woven products. Started by first generation entrepreneurs Makarand and Rinky Appalwar, in the mid-1990s, Emmbi is has won several awards over the years. The article on Emmbi in Inc.’s December 2013 issue gives some insight into why Emmbi has been so successful.

The article describes how Emmbi faced a problem typical of many manufacturing situations: the set-up and processing time of their manufacturing unit implied a certain minimum production run of a product for cost-effective production, so they could not accept smaller size orders even though plenty were available. They soon realized that obvious solutions like buying another piece of machinery with smaller capacity and changing the yarn after every 6-hour run were not good options. But, another experiment with the use of three specially-designed moulds allowed them to make 3 different types of yarn in parallel without shutting down for a fresh set up. This increased their flexibility to produce multiple yarns at the same time in lower quantities, meeting the demands of their customers more precisely, reducing inventory and getting better realizations. This is an excellent example of how innovation in the manufacturing process can yield increases in sales and profits.

How did this innovation happen? According to the Inc. article, this came about thanks to a concerted effort at problem solving by the engineering team in the Emmbi plant. If you read 8 Steps to Innovation, you’ll recall the importance of the Challenge Book (Identifying the right problems to solve) in the innovation process. Emmbi zeroed in on a pain point (its inability to serve smaller orders effectively), rode a wave (customers looking for specialized technical materials in small quantities) and tackled waste (inventory pile up) effectively in coming up with this innovation.

Premier Explosives Ltd.: Adversity can drive Innovation

My co-author, Vinay Dabholkar, is fond of emphasizing that innovation is driven more by curiosity than by creativity (see his nice new video). Premier Explosives is a company which has done what appears to be impressive innovation driven by adversity, and the resulting urge to solve a critical problem.

Premier Explosives is a Rs. 60 crore company run by Mr. A.N. Gupta, a veteran of the explosive industry. They have worked closely with Defence R&D projects in India. Till a few years ago, Premier was using ASA as the primary explosive for its detonators. ASA is a material commonly used for this purpose, but has drawbacks including high sensitivity and environmentally-unfriendly lead residues.

An accident in Premier’s plant in July 2012 that led to the death of two workers forced Mr. Gupta to question the wisdom of continuing to use ASA-based detonators. Premier already had access to technology for another less sensitive compound, NHN, that it had sourced from ISRO’s Vikram Sarabhai Space Centre, but had been unable to develop a commercial process using this material. The accident acted as a trigger to Premier to undertake sandbox-style intense experimentation in a short time to tweak multiple parameters to create a viable process to make detonators using NHN. According to the Inc. article, this makes Premier one of the first companies in the world to do so, and they are filing for Indian and international patents on their technology.

Mr. Gupta attributes his company’s ability to innovate to Premier’s focus on involving people in the decision-making process, and transparency of functioning.

Trimed: Ready for business model exploration

On a recent visit to Chennai, I had the privilege of visiting Trimed’s main centre just off Anna Salai at Teynampet. One of Trimed’s founders is an old friend, Raghu Venkatnarayan (when we were together at IIMA, I never expected that Raghu would become a serial entrepreneur, but that’s exactly what he has turned out to be!). Trimed defies easy description – it’s not a spa (though it offer some things in common), it’s not a hospital and it’s not just a clinic. Instead, Trimed is trying to re-define holistic and integrative healthcare.

The heart and soul of Trimed, is an eminent neurologist, Dr. Ennapadam Krishnamoorthy. His qualifications and achievements fill up a whole wall and are prominently displayed at the Trimed main centre I visited. In treating patients with symptoms of acute stress and many of the occupational hazards of modern life, he realized that the required treatment was rarely medication alone. In addition to counselling, therapies like Yoga, physiotherapy, and Ayurveda could often be of help. But most doctors were often unwilling to use these approaches and even if they were willing, the patient would find it difficult to obtain high quality treatment in these areas. This is the niche that Trimed fills.

I was impressed by the novelty of the idea. But like all products and services that are different from the existing dominant model, Trimed now faces the challenge of exploring different business models (Step 6 of our 8 Steps model) to discover how to convert this integrative approach into a sustainable business proposition.

Tailpiece

Though India is usually seen as a place for IT innovation, some of the most exciting innovation may be happening in companies such as Emmbi, Premier and Trimed. I look forward to discovering more such companies in the times ahead.

[The views expressed here are the personal views of the author.]