THE ECONOMY

The Power of Imagination

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He has a dream. Do you? Even as we resign ourselves to Budget 99, C.K.
Prahalad, the strategy guru, unveils a competitive agenda for our future.
Radical only because of our reality, he tears apart our mindblocks, and
envisions how we can create a magnificent future for India Inc.. A BT
exclusive.

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I believe that India's opportunities today are not limited by her resources,
but by her imagination. We have to dream, think big, and think world-class. We
must act. A bias, and the courage for action comes from learning. We have to
learn from our past. We have to be bold, and experiment. We have to create our
future.

Where do we start? Imagining India in the Next Millennium does not appear to
be a popular activity. Politicians, managers, and academics--all seem to shy
away from the debate about the future of India. I see little written or
discussed on the nature of India's opportunity; much less on how to realise
that opportunity.

My dream for India starts from a different vantage. I start with the
obligations that educated Indians have. The obligations are clear. We need to
confront ourselves with 5 simple, but difficult questions:

Do I, as a representative of a billion people, have the right and an
obligation to influence the pattern of development of the global economy in
the Next Millennium?

Do I accept the responsibility for changing the social power structure in
India for the benefit of the broader good, or do I support the status quo?

Has the economic debate in India become elitist? Can we exclude the poor from
this debate, especially when the implications of the economic choices made so
profoundly affect them? How do we broaden the debate about vision, methods,
and involvement as we did during the Freedom Struggle?

Why is the mood not optimistic? Why don't we believe that India is full of
opportunities?

Why is India defensive about global trade? About transnationals? Why aren't we
discussing how to develop our own transnationals?

The answers to these questions will determine how India moves forward, and the
progress she can make to join the unique club of the Top 5 nations of the
world. Making a break from India's immediate past requires that we recognise
that the policies during the first 50 years of Independence have not delivered
the results that were expected. We have to recognise that we have a problem.

REALITY

The reality of India as we enter 1999 is well-known. I am an optimist, and do
not like to dwell on failures for long. But recognition of failure is critical
to gain the courage to make a radical departure. We need to recognise the
burning platform. I see 5 main failures:

STAGNATION. We have had nothing more than patchy and slow progress on all
fronts: population, health, literacy, income-distribution, infrastructure,
pollution, judiciary, or crime. Further, there is also variation in the
quality of improvements in various parts of India. It is difficult for
anybody studying the variance in the progress that has been made by the
states to think of one India. An analysis of per capita incomes by region or
by states demonstrates the same variance. The same patterns emerge if we look
at literacy, population- growth, and infrastructure. Why?

LACK OF ASPIRATION TO BE WORLD CLASS. World-class accomplishments seem to
evade the Indian psyche. The litany is obvious: in sports, in science, in
industry, and in exports, India is not a force to reckon with. With one of
the largest pool of scientists and engineers, one may wonder why we have so
few that blaze new trails. With so many people, why do we not win any gold
medals in the Olympics? Are we easily satisfied with the progress we have
made with respect to our past rather than compare and benchmark ourselves
against the world's best? Don't we want to swim with the sharks?

A SENSE OF COLLECTIVE PARALYSIS. It appears that the System is the cause for
most of the problems facing India. If the System is the cause, then we must
have an approach to changing it. Most thoughtful people have resigned
themselves to a state of helplessness in the context of the massive problems
facing India.

NO VISION. In no field of endeavour do we see a shared vision of what India
can accomplish. Space and atomic energy may be exceptions. For a country that
was totally energised by a vision during the first half of this Century, the
second half has been singularly devoid of a shared, national agenda.

LOOKING TO THE WEST FOR VALIDATION. There is an increasing feeling that most
educated Indians look for validation of their ideas from the West. We were so
captivated by the British that we wanted to convert all Indians into Brown
Sahibs. Now, it is a fascination with the US. Are there lessons to be learnt
from Japan, China, South Korea, Malaysia, Chile, or Brazil? How much do we
discuss, for example, Chinese economic strategy, and the lessons for India?

These developments have taken their toll. India has to regain its pride and
self-confidence. To imagine a new India, we must start with confidence.

THE LESSONS

Imagination and out-of-the-box thinking is essential for coping with resource
constraints

Strategy is about discovery and innovation, breaking away from conventional
wisdom

Business and organisational models that work best are those that are
indigenously developed

Transactions must be based strictly on commercial considerations to be
successful

Deployment of high technology must be as innovative as the technology itself

World-Class standards are what Indian operations can--and must strive to--
attain

PARADOX

India is blessed with a billion people. But we, often, see it as a problem.
Poverty in India, it appears, is not a problem to be solved. It is seen as a
condition that India cannot escape from. Poverty may have become a
constituency. If India can find a way of converting the poor--the 700 million
at the bottom of the economic pyramid--into active consumers, we will have one
of the largest markets in the world. Why is there so much national discussion
about poverty, and so little intellectual and managerial energy focused on
creating consumers out of the poor?

The bottom of the pyramid represents an enormous latent opportunity. But it
cannot be served without recourse to state-of-the-art technology
solutions--be it genetically-altered seeds to grow more food inexpensively,
or the use of new materials for providing housing. India provides a great
test-case for sustainable development. Products and services developed for
the affluent are resource- and pollution-intensive. India is a unique
marketplace for the development of products that are biodegradable, and are
efficient in the use of energy and water. India can be the leader in
low-cost, sustainable development- oriented products and services in the
world. We have the market and the need.

India has a problem to be solved: serving the bottom of the economic pyramid.
The solution represents a profitable business opportunity. There is no
alternative. India cannot progress without creating a consumer class out of
the poor.

OPPORTUNITY

Is there a real opportunity here? Have I subjected this notion of a great
opportunity in serving the poor to a proof of concept test? I propose that we
consider 2 examples that provide important lessons.

OPERATION FLOOD. India has emerged as the largest producer of milk in the
world. Verghese Kurien, and his vision created the basic framework for the
revolution in milk-production. The Anand Model, as it is now known, is
indigenous. The model was built around the reality of India as it existed.
Therefore, it had to be creative.

For example, origination of milk takes place in a highly decentralised
fashion in villages: 53,000 villages and 6.30 million farmers--70 per cent
are marginal farmers--with 2 or 3 cows or buffaloes form the production
backbone of the system. An integral part of the Anand Model was the
introduction of hybrid animals to increase milk-yields. The milk is processed
and distributed using state-of-the-art technology. What started in Gujarat
has spread to 22 states. The National Dairy Development Board now handles
more than 10,900 metric tonnes of milk a day. It is estimated that Operation
Flood increased milk-production during the period 1974-94 by 44 million
metric tonnes per year.

The entire operation is run on a commercial basis. Of the 72,000 village-level
co-operatives, milk was collected only from 53,000. The rest of them were
considered to be commercially unviable. The initiative has brought economic
independence, and better health and education opportunities to the villagers,
particularly women. It is estimated that this alone is responsible for more
than a billion dollars of rural income. Here is an indigenous initiative that
converted the poor into consumers. More importantly, it has created 6 million
entrepreneurs in India's villages.

C-DOT. In less than 10 years, India has created a telecom infrastructure that
is quite unique. Instead of worrying about telephone density measured as
telephones per 1,000 people--a measure of telephone ownership--the Centre For
Development of Telematics (C-DOT) concerned itself with access to telephones.
Under the visionary leadership of Sam Pitroda, C-DOT was involved in the
design and development of a family of modular products, the heart of which
was the 128- line rural switch and a 128-line PBX for businesses. The basic
module was built into a 512-line central exchange and was expected to move up
to a 64,000-line urban switch. Again, the idea was indigenous.

Digital technology was the choice, not analog. The goal was to build robust,
rural switches that could stand harsh conditions in the villages. These
switches had to withstand the dust and the heat of India's villages, and were
not air-conditioned. Many innovations were incorporated in their design,
manufacturing, and installation. The usage of telephones in India was also
different: 36 calls per hour per line at peak times compared to 10-12 calls
per line per hour in the US.

C-DOT had an initial budget of $36 million over a 3-year period. It started
with 425 Indian engineers, and the average age of the team was 25 years.
Today, there are 600,000 std booths, and more than 2 million digital lines
which support std. These developments are providing access to a telephone to
the urban and the rural poor. It is changing the patterns of interaction and
trade between villages and small towns, and small towns and big cities. Many
std booths that dot the country have added other services: fax and e-mail.
This is possible because India made a choice to go with digital technology
for switching and transmission when there was a lot of opposition in the
country. Net access, on the same basis as the telephone, cannot be far
behind. There are about 1 million connections. But each connection serves
20-25 people.

Today, the discussion is about information-kiosks. India has created, based on
a vision, a new beginning. India's information technology backbone is unique.
Local entrepreneurs--women--help provide the infrastructure.

The lessons from both these success-stories are similar. They are:

Imagination is a pre-requisite for coping with apparent resource-constraints.
We have to think outside the box, breaking both the conventional wisdom in
India as well as the existing business models elsewhere. Strategy here is
about discovery and innovation. The business models that work in India are
indigenously-developed. Strong leadership--knowledge, persistence, belief,
and commitment--pays. Entrepreneurship is well and alive among the poorest.
Government intervention, subsidies, and policies cannot accomplish what
millions of entrepreneurs can. The appropriate technology was
state-of-the-art technology that was creatively adapted to Indian conditions.
The task of deployment of the technology required as much innovation as the
technology per se.

New organisational models are critical for India's development.

All transactions must be based on commercial considerations.

Accountability and transparency in performance is a pre-requisite.

Indian operations can be world class; in fact, it must strive to set global
standards.

All useful initiatives will upset the power structure. Leaders must recognise
that major innovations will meet with enormous resistance up-front.

The success of these efforts provides us with an understanding of how to
transform the problem of the poor in India to the opportunity of a mass
market.

MARKET CREATION

I believe that a mass market is ready to be created in India. I am not
focusing on the Tier II and Tier III markets, but the market that can evolve
out of the bottom of the economic pyramid. I believe that we have to come to
terms with the following:

CREATING ACCESS TO CREDIT. This must become a birthright just as freedom is.
Credit is critical to bring the poor into a monetised economy. The daily
payments for milk collected in Operation Flood, and the availability of cash
collected from telephone-users create access to cash and credit. The Grameen
Bank's experience in Bangladesh also proves the importance of credit.
Surprisingly, the poor need little help to escape the cycle of poverty. The
Grameen Bank has 3 million customers with an average loan of $15. The default
rate is less than 1 per cent. This is a commercial operation, not a subsidy.

CREATING SUSTAINABLE DEVELOPMENT. The bottom of the pyramid cannot be served
by fine-tuning current products and services. For example, India is very
short on potable water. One of the targets of the Technology Missions was 40
litres per person per day. To put this in perspective, on an average, an
urban, well-to-do Indian uses 500-600 litres per day. In the US, the average
is 4,000 litres per person per day. Most of the poor do with just 20 litres
per person per day.

The water needs of this country cannot be met unless we develop unique
technologies for reducing the pollution of our rivers, desalination, closed-
loop water-management systems for homes and institutions, better agricultural
methods, and novel approaches to washing and personal hygiene. It is believed
that a significant portion of India will come under enormous water stress,
and that can exacerbate the current water disputes in the country, and with
Bangladesh and Pakistan. This problem is universal. India must deal with this
problem. Solutions that are developed in India will not only benefit India,
but would be globally relevant. Water is just one item in sustainable
development.

DISTRIBUTION & COMMUNICATION. The efficiencies in distribution must be
dramatically altered. For example, an estimate of the loss from the farm to
the plate is 10 per cent for India. It cannot afford this waste.
Food-preservation, storage, and transportation needs are obvious. An
effective market for food cannot evolve without adequate information flows on
availability and prices. The development of a telecom infrastructure can
significantly add to India's ability to create markets. Indian firms have
been very reluctant to incorporate the power of infotech to dramatically
alter the capital needs of the business. For example, Indian-managed firms
have, on an average, working capital needs of 200-plus days. Transnationals
operating in India seem to get along with about half that. Hindustan Lever
boasts zero net working capital. Thus, the capital that can be released by
managers through distribution efficiencies are staggering.

RELIEVING CHOKE POINTS. India is a low-wage country, but not a low-cost
country. Even in milk-production, while Indian milk is cheaper than milk in
the world markets, milk-powder and butter are more expensive by 10-20 per
cent. Understanding the productivity-levels along the value chain are
critical for us to understand the choke-points in the system, and to identify
opportunities for fully exploiting India's vast resources.

PRIVATE ENTERPRISE AS THE KEY TO DEVELOPMENT. For too long, public policy in
India was driven by the government undertaking the role of producer and
marketer. We have learnt that that does not work. The lessons from Operation
Flood and C-DOT are that private enterprise is alive and active in India.
There is a role for government in creating infrastructure capabilities, such
as education and health. Even in these spheres, public policy in India has
failed. Government cannot do more than act as an enabler in most areas of
development. It is about time that we entrusted our development efforts to
private enterprise--both indigenous and transnational-based.

SCALE IS IMPORTANT. It is important to recognise that, in a country of
India's proportions, entrepreneurs think of scale as an integral part of
their efforts. Many a Non Governmental Organisation provides an excellent and
creative effort to improve the lot of people at the bottom of the pyramid.
But they do not ask themselves how they can scale up their efforts to cover a
vast country such as India; much less how to export that knowledge to other
parts of the world. The choice of technology, the business model, and the
managerial skills must become a part of the total effort to scale up when an
experiment succeeds.

STATE-OF-THE-ART TECHNOLOGY SOLUTIONS ARE CRITICAL. For too long, Indian
efforts at development have focused on appropriate technology, meaning dated
and old technology. We have to move towards solutions that are at the
state-of- the-art. Solving the problem of poverty should not mean that India
resorts to old solutions. For example, transportation is not about making
bullock-carts more efficient, but asking ourselves why we are still dependent
on bullock- carts.

We have to leap-frog and invent solutions that are unique and new. The bottom
of the pyramid as a market will force us to innovate.

THE AGENDA

Access to credit must become a birthright. It is critical to bring the poor
into a monetised economy Distribution efficiencies must be dramatically
altered. The capital that can be released is staggering

Relieving choke points by understanding productivity-levels along the value
chain is critical

Development efforts must be entrusted to private enterprise, both indigenous
and transnational

Scaling up is important in the choice of technology, the business model, and
the managerial skills

State-of-the-art solutions using new and unique technology, not dated methods,
must be provided.

DREAM

The opportunity for innovation and world-class efforts in India are numerous.
We need to start imagining a new India. I have less difficulty in convincing
managers in transnationals in the West about the opportunities in India than
I have convincing Indians in India. Everyone outside India sees India's
potential. They all recognise the need for 10 per cent growth per year for an
extended period of time--say, 20 years--to make a significant change to
India's fortunes, and its influence on the world economy. China has shown
that it can be done. Why not India?

Of course, we should all understand that recognising potential is not the same
as accomplishment. Identifying the potential and being energised by it are
critical. But doing it is different. Accomplishment needs team-work. This is a
critical missing ingredient in India. Sam Pitroda sums it up nicely. He says:
"One Indian = 10 Japanese. 10 Indians = 1 Japanese." We seem to have lost our
ability to work together and accomplish goals bigger than any one of us.

I am not given to nostalgia. I leave it to others. But, on this occasion, let
me indulge myself. Look at what the India of the past stood for. The great
Brihadeshwarar or the Meenakshi temple or Dilwara were built at the same time
the great cathedrals in Europe were built. In sheer conception, scale, and
aesthetics, India matched and challenged the best. Tipu Sultan's army was the
first to use rockets. Abdul Kalam tells the story, in half jest and half
pain, that the British learnt about accurate rocket-propulsion from Tipu
Sultan's armoury. We do not know who the engineers were, and we did not
improve on what they knew. The British did, and they have accurate records.
Very few, even from Maharashtra, know that the Maratha Navy held the British
at bay for a long time. The Maratha Navy was a strong fighting force.

Of all the great initiatives in India's Freedom Struggle, the Salt Satyagraha
remains the most innovative. Think of Gandhi, for a moment, as a strategist.
He had to fight the British Empire. He understood his competition. He was
resource- constrained, if we consider military or financial resources. He
needed a cause that would unite people, the rich and the poor. He needed a
public demonstration of defiance. He did not want a defiance that would
involve any technological requirements. Salt was it. It unified all castes
and economic levels. Salt is God's gift. Salt-water and the Indian sun could
do the trick. The Dandi March and the crowds on the beaches attracted more
people. The British learnt for the second time not to underestimate the power
of common symbols: tea in Boston, and salt in Dandi.

Jawaharlal Nehru, on behalf of all Indians, made a tryst with destiny on her
Independence 51 years ago. He said: "The service of India means the service
of the millions who suffer. It means ending of poverty, ignorance, disease,
and inequality of opportunity" The legacy that we can leave our children is
of great importance. Especially in India, both because of its hoary
traditions and its growing pains as a democracy. If we do not make a change,
we will leave behind a legacy of moral indifference, apathy, increasing
intolerance, and violence. That is what I see in India today. We may want to
go back to the legacy that Vikram Sarabhai left for us:

Building institutions of excellence with resource constraints.

Innovation, and not imitation.

Focus and determination, not defeatism.

Faith in India's future, not fatalism.

This is the legacy that makes sense. When one reflects on his legacy, a
central theme stands out. Sarabhai was not constrained by what India was. He
was concerned about what India could become. He imagined a new India, and an
India that was world-class. The Physical Research Laboratory, ISRO, the
Atomic Energy Commission, ATIRA, IIM-a, and a host of other world-class
institutions are part of his legacy and gift to India. These institutions
have endured and prospered. He not only imagined a new India, but also
understood how to build institutions to support and develop that vision. He
was a pre-eminent scientist, institution- builder, visionary, global citizen,
bridge-builder, and a social reformer.

I still have a dream for a great and prosperous India. But where have all the
dreamers gone?

Based On The 22nd Vikram Sarabhai Memorial Lecture, The Power Of Imagination:
India's Legacy And The Path To The Future, by C.K. Prahalad, Harvey C.
Fruehauf Professor Of Business Administration, The University Of Michigan
Business School

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