MARCH 3, 2020

Thank you for inviting me and giving me the opportunity to share my thoughts on investing in India.

As other speakers have already covered business climate, policies and reforms quite extensively, I thought I would take a slightly different approach to tackling the topic assigned to me. Please bear in mind that I was not aware of this talk until about a day ago, so I haven’t had the time to prepare my talk nearly as much as I would have liked.

Be as it may, I would like to take you on my personal journey as we think about investing in India. Some of you may be thinking – here we go, another former government officer with an exaggerated sense of self-importance! That may be true, but I would like you to reserve your judgment on this at least until I have finished. In the meantime, I would like you to think of this more as a journey of a typical Indian, who grew up in that era. I am positive many in this room have similar stories of their own to tell.

I was born in a small town called Bhiwani in the state of Haryana. We were perhaps a lower-middle class family. My mother was a teacher and my dad a postmaster. They collectively perhaps made 500-600 rupees, about 20 dollars a month, which may not seem like much, but it was enough for us to live a comfortable life. It helps that when you have a limited knowledge about the world, and don’t know about how people live elsewhere, you don’t really feel deprived. We didn’t have a TV, fridge or a washing machine growing up, but neither did any of our neighbors. In fact, colored televisions didn't come about until about 1984 when India hosted Asian games. Our town didn’t even have a broadcasting station until the early 1990s. I am not even going to talk about dishwashers, because those still don't exist. Unless you mean humans, who do the dishes!

So, most of the time we played in the streets or went for long walks in the neighborhood parks. It was a very idyllic and relaxed lifestyle.

I went to college in Chandigarh, while it was still a small sleepy town; a modern town designed by a French architect named Le Corbusier in late 1950s, early 1960s. The city was very well-planned and the nearby Himalayan mountain ranges not just provided a beautiful background, but also fresh air was available in abundance. You could go for long walks in the street and not even come across many cars.  


Then, in 1991, India went through a major economic crisis. We nearly defaulted on loans and IMF had to bail us out. But, something good came out of that crisis. India turned its back on the socialist style economy, where the government attempted to plan and control all facets of the economy. The keyword here is attempted, because it didn't really have the capacity to actually control the economy, which was really a silver-lining for the economy.

After I joined the government as a young ICS officer, I had a chance to observe its functioning very closely. It was very exciting, even thrilling, to be working at such a senior level in my early 20s. It came with a lot of responsibility and recognition. As a senior administrator, you get to witness the inner workings of the government very closely. Unfortunately, this meant that I observed how inefficient and ineffective the government in India could be. I also witnessed corruption in action that afflicted all levels of government, which was very discouraging to a young idealist, who didn't understand the “ways of the world”. I tried to make as much difference as I could.

Anyway, liberalization and privatization started to do wonders for the economy. Reduced role of the government removed many of the shackles on the economy. It suddenly took off. India began to witness a rapid economic transformation. Until then, Indian growth rate was derisively referred to as Hindu growth rate. That changed rapidly. India has now been growing at 7-8% per year for the last 25-30 years. Its average capita income has increased by six times from $1250 in 1991 to over $7500 last year.

From a poor country with massive poverty problem — more than half of its population was officially classified poor— and many others still lacked basic amenities. I don’t think I need to tell anyone that this rapid growth has lifted millions out of abject poverty and has created an ever-rising middle class- a middle class that is by some estimates now larger than the population of the United States.

However, in economics, there is a saying that there are no free lunches. While rising incomes have led to increased consumption and associated business opportunities, it has also put massive pressure on infrastructure.

Today, urban congestion and pollution are the norm. In fact, some of it is probably due to the fact that India has witnessed massive population increase over this period. In 1947, at independence, India’s population was roughly 300 million people. In 70 years since then, it has quadrupled to over 1.2 billion people. Rapid improvements in healthcare and decline in mortality have far outpaced the decline in birth rates. As a result, India’s population is not expected to stabilize until it crosses that of China to make it the largest country by population, expected to be about 1.4 billion by 2025. A friend, who recently visited India, was shocked to discover that the village she was visiting had a population of about 50000 people. A village with 50000 people. She had never heard of a village with that kind of population!

It is easy to see both the opportunities and challenges that come with such a rapid increase in population and economic activity. Mckinsey estimates that “by 2025, India will have 69 cities with a population of more than one million each.” It’ll have a total urban population of around 600 million. India needs to double its annual investment in infrastructure to $200 billion, which alone is a huge opportunity. More importantly, all of this investment is needed in the backdrop of climate change and rapidly deteriorating environment and quality of life. On our most recent trip to New Delhi last December, we had to wear face masks with air filters because we were worried about the effect of winter smog on the young lungs of our 6-year old. In fact, I really worry about my family and friends, who live in India.

According to the World Health Organization, 6 of the 10 most polluted cities are in India. While India only has 32 cities in the top 500, which is nothing compared to China that has 283 cities in the top 500. However, as India moves towards greater industrialization and catches up with China, and China moves towards cleaning up seriously, the worry is that it is about to change very quickly.  

Thus, sustainability and livable cities will be the biggest challenge for India in the near future. In this sense, Indian metros are somewhat akin to London, New York, Berlin and other similar cities of the early 19th century. I don’t mean to suggest that it will also take India some 200 years to get its act together. It is just to provide some perspective on the nature of traditional development trajectory. However, as leapfrog technologies have shown, it does not need to be that way. If Africa can skip landlines and cassettes altogether and go straight to cell phones and online content delivery, so can and should India leapfrog to cleaner and more sustainable development model.

However, this would require significant investments. I enjoy watching a talk by venture capitalist Eric Strasser at Stanford, where he mentions that the biggest worry in the 1980s was that the world will not have enough food for the growing population. However, 20 years of venture capital investment solved that problem so profoundly that instead of starvation, we now have a global obesity epidemic. It is true that a significant portion of that food is junk food and not healthy food. It is also true that there are sizable chunks of populations around the world, who still lack access to food. However, at the macro level, venture capital and focused attention on food problems has solved this problem to a significant degree. Similar attention now needs to be reserved for sustainability and clean energy. The world needs to resolve to invest in these problems; for the survival of the human species itself depends on addressing this challenge.

While Indian government needs to improve its act in addressing the red tape and bureaucratic challenges, and it seems to be addressing as indicated by rapid rise in World Bank’s Doing Business ratings, the investment from the private sector into digitization and promoting transparency can and will also be of great help.

Relatedly, India often points to its huge population as a competitive advantage, however the so-called demographic dividend can be a reality only if it has the skills that at least matches international standards. Unfortunately, here too, like everything else, it’s a tale of many India’s. While there are some very smart people in India, the quality of education and research remains poor. In a modern world, you cannot compete without high quality research. It’s telling that not one of Indian universities ranks in the top 300 in the world, and only 6 are in top 500. The quality of Indian universities derives from the difficulty in getting into schools, but not what happens when you get into those schools.    

To improve competitiveness of Indian universities, a lot of things have to change. Some of it is really difficult, like promoting more egalitarian culture that values individuals for capabilities, and not for their rank in the social hierarchy. It has to start valuing specialized skills in all facets of life. The way scientists working on space programmes are treated should be the way all scientists in numerous fields are treated.

I also believe it’s time for India to be obsessed about the future as much as it is about the past. While I understand the desire to right the wrongs of the past, perceived or real, the world is constantly changing. It doesn't matter how advanced India was or was not when British occupied India and stunted its development for some 300 years. It is time India focused on ensuring that this cannot happen again. Ever. The only way to ensure that would be to focus on technologies of the future. In other words, India needs to obsess over leading technologies, and philosophies, of the future such as artificial intelligence, block chain, machine learning, biotech, and so on and so forth.

This is the broader landscape, then, in which the future of India will be decided. It is also the landscape of investment opportunities not just in India, but much of the developing world. On a recent trip to India, in the context of potential reorganization of United Nations Industrial Development Organization (UNIDO)’s field operations, I asked Dr. Rene Van Berkel, the country representative a provocative question on why UNIDO still needed to be in India. Why could an emerging power such as India not take care of itself? His response was that not just that there are multiple Indias with some as underdeveloped and any other on the planet, but also that India is a role model for at least 70-80 emerging countries. Thus, an investment in India is often a gateway investment to much of the developing world. The lessons learned here can be used to tap into other emerging markets rather easily.

Finally, I would like to mention that in strategy we often recommend Blue Ocean strategy, which is based on the work of Professors Kim and Mauborgne at INSEAD. Blue ocean strategy is essentially the art of finding and succeeding in untapped markets. Despite intense competition in some industries such as mobile phones and retail, India is still a vast blue ocean waiting to be tapped.

Just remember that India does not need to follow the path of dirty development. It can leapfrog the past and advance confidently into the future. Fortunately, the entrepreneurship and startup ecosystem is rapidly evolving, and some of these challenges will be tackled head on by local entrepreneurs. India now has the third most active startup scene with some 50000 startups at the end of last year. These startups represent a great investment potential. Collaborating with investors-based in more advanced ecosystems will be a win-win for both as it will provide not just capital and technological upgrades, but also knowledge on leapfrogging dirty development models. In my humble view, this is then what should be the focus on investing in India.  

On that happy note, I end my remarks. Thank you once again for inviting me to share my thoughts on this important topic.