India @ 75

C.K. Prahalad

Paul and Ruth McCracken Distinguished University Professor,

Ross School of Business, The University of Michigan

Lecture Delivered during the India@60 celebrations in New York, September 23, 2007

Thank you so much Tarun. Yes, India@60 - we have accomplished a great deal and we have to celebrate. I know we will have a fun-filled week here in New York. I suggest that as we celebrate, we ask ourselves: What next? As we celebrate India@60, let us remember that all our accomplishments are in the past. Leadership, however, is about the future and it is about change. Leadership is about hope. So I decided not to dwell on the past 60 years but to focus on the future. I will focus on India@75, not India@60. My focus will be on what we can accomplish in the next 15 years, building on our successes during the first 60. More importantly, what will it take to accomplish these goals during that period?

I will share with you one person's optimism, one person's concerns and one person's approach to building a vibrant and just India@75. I would like to start with what India@75 can be. Unless we are clear about the potential it is very difficult to undertake a difficult journey. I believe that India can and should actively shape the emerging world order. This demands that India must acquire enough economic strength, technological vitality and moral leadership. Just economic strength and technological maturity is not enough. We know that the Soviet Union and Nazi Germany had economic and technological muscle. They failed. Morality is an integral part of leadership. I am going to emphasize all three dimensions, in equal measure, in India's march to Her destiny.

The Potential of India@75

India turns its population into a distinct advantage. India has the potential to build a base of 200 million college graduates—a portfolio of educated people in every discipline. This is just 16% of India's population. Further, I would like to see 500 million certified and skilled technicians. Implicit in this future is universal literacy. This is possible in fifteen years, if leaders focus on this goal as a priority. Think about what this means. India will have the largest pool of technically trained manpower anywhere in the world. This must be the starting point for global leadership. If India fails in its educational mission, the rest of my vision for India cannot be realized.
India must become the home for at least 30 of the Fortune 100 firms. I know this is an audacious goal but it is possible.
India accounts for 10% of global trade. India can. We have to change our mindset. In fact Indians took a lot of pride when India was not affected by the 1997 Asian crisis. I said, at that time, that it is a sad commentary because if India was connected with the rest of the world, she would have felt the impact of the crisis. India must become connected with the rest of the world—a critical step in influencing others and more importantly, the basis for learning from others.
India becomes a source of global innovations—new businesses, new technologies and new business models. The early evidence is already in. Increasingly India is becoming home for new business models: very low capital intensity, extremely low fixed costs, and conversion of fixed costs into variable costs (as in the case of Airtel). The bottom of the pyramid, the 800 million Indians, can become a major source of breakthrough innovations.
India needs to focus on the flowering of arts, science, and literature. Why can't India have ten Nobel prize winners? I want to add that it would be all the better if it was for the work done in India, not just Indians getting the Nobel Prize for the work done elsewhere.
India becomes the world's benchmark on how to cope with diversity. It becomes a benchmark for the practice of universality and inclusiveness. India has the opportunity as she is home to all the major religions, 15 major languages and hundreds of dialects, and a complex range of cultures, food habits and rituals—all the diversity one can hope for. If India is not the laboratory to practice diversity and inclusiveness nobody else is. India is the laboratory to the world.

One could add to the list. The six big opportunities that I have identified, when accomplished, would change the influence of India around the world. India has the potential. If this potential intrigues you, then we can move on to the next interesting question: How do we get there? What are the principles we have to start with?

Core Principles

I want to suggest three principles.

First, relates to the essence of entrepreneurial transformation. I know that many would say that the potential of India@75 cannot be realized because we do not have the resources. I remember seven years ago I suggested a target of 10% growth. Many in India, including some very senior and extremely knowledgeable bureaucrats, said that we don't have resources for 10% growth. The issue is not resources but the balance between aspirations and the resources. Every entrepreneur who is in this room knows that it is the conscious misfit between aspirations and resources that creates innovations and entrepreneurial energy. As a country, India must have high and shared aspirations. The last time she had a shared aspiration as a country was in 1929 when the leaders of the then Congress party declared their ambition as Poorna Swaraj. Since then, India has never had a national aspiration which every Indian could share. A shared aspiration is fundamental for changing India. There are only two ways to realize an aspiration that is greater than available resources. One is to leverage resources—get more for every person and every rupee that you spend. Alternatively, one could change the game, and change it to your advantage. That was Gandhi's genius: not the traditional armed struggle against the British, but peaceful Satyagraha.
Second, which is equally important, is to realize that we cannot get to the potential of India@75 by extrapolating what we did for the last 60 years, or even the last 10 years. You cannot get there (India@75) from here (the current state). You have to imagine India@75 that I described first and then fold that future in. Folding the future in rather than extrapolating the past is fundamental. That is the reason I started by describing the potential of India@75. But that does not mean that we go from here to there in one step. We have to take small steps and clear steps, which are directionally right. Some steps may be experimental. We move with small steps but move with a sense of urgency and purpose.
Third, do not only focus on best practices. If everybody benchmarks everybody else, we will gravitate towards mediocrity. So I suggest a focus on next practices. That means we have to amplify weak signals, see a new pattern of opportunity and have the courage to pursue them.

The three principles are simple but powerful as a methodology for revitalizing India. We must start with:

$$\text{Aspirations} > \text{Resources}$$

$$\text{Fold the Future In}$$

$$\text{Focus on Next Practices}$$

These principles require us to think differently of both the here and now and certainly about the future. It forces us to develop a distinct point of view. A bold and energizing future for India cannot be created without a shared point of view. Incrementalism will not get us there. Let's not just attempt band-aid solutions. The key to becoming a leader in the world must begin by creating a shared commitment to aspirations supported by creativity, innovation and entrepreneurship.

The Developmental Context

What is the socio-political and economic context in which we have to accomplish this? I believe that during the next 10-15 years the debate in India will change rapidly. I have identified six areas where the direction of the debate and its resolution will be crucial for India to realize Her potential. The areas for consideration are:

Shift from abject poverty to income inequality
Shift from income levels to life style measurement: the universality of aspirations
Changing the price-performance envelope
Shift from low tech solution to universal access to high technology solutions
Provisioning of products and jobs for ecological vitality
Focus on governance

Essentially, these questions taken together force a new model for the economic development of a large, complex and highly pluralistic country like India. This model of development is best described as the Next Practice, as this has not been tried anywhere else before on such a large scale. That should inspire us not to look outside for models (benchmarking best practices) but to look inside India and draw deeply on Her genius (as we did in the freedom movement). We need to invent the Next Practice of economic development. I will examine, below, each one of these mega-trends that provide the context for India's next phase of development.

1. Shift from Abject Poverty to Income Inequality

India has reduced abject poverty dramatically during the last decade. However, there are still 380.6 million people in India who live on less than $1/day. It is safe to assume that "abject poverty" defined as living a "subsistence" existence on less than $1/day would be further reduced during the next 15 years. Abject poverty may not be the dominant concern in India@75. However, a more difficult problem will emerge in its place.

An important consequence of rapid economic development and globalization of the economy are the lags and asymmetries in the benefits that result. Some sections of society will benefit (as those working in the IT industry) and some (illiterate labor in rural India) will lag behind. These asymmetries will create multiple, new divides in society—divides between educated and the uneducated, the urban and rural populations, between regions of the country as well as between ethnic groups. As a consequence, income inequality will emerge as a source of social tensions. This is not a uniquely Indian phenomenon; it is true of many rapidly growing economies such as China, Brazil, and South Africa, as well as large economies undergoing rapid structural adjustment like the USA.

Table 1: Measures of Inequality (Gini Coefficient & Indices)

CountryGini (1985-1986)Gini (1989-1991)Gini (1995-1996)Gini (1999-2001)Gini (2006)GNI / Capita PPPRank in HD Index (177)USA41.642.745.046.346.9$43,5558China22.434.139.042.047.0$7,60081India32.032.133.836.039.5$3,800126Brazil59.364.060.259.657.2$8,60069S Africa----59.0+$13,000121

We can see that income inequality seems to result from rapid economic development and basic structural changes in an economy. If we only considered one measure of inequality, income, then India does not look so bad. But consider two other measures: Income per capita (measured in Purchasing Power Parity, PPP) and the Human Development Index which is a measure of the inequalities of opportunities. On both these dimensions, India is at the low end. It is, therefore, not surprising that the masses in India are restless.

India has to deal with a potent mix:

Low per capita income
A poor record of developing its human potential (education and health) that lead to better opportunities
An environment that is creating asymmetric benefits (income inequalities)
A very young population: More than 52.3% of people are below the age of 25. As of 2025, 41.8% of India will still be less than 25.

India has to reflect on how we deal with this combination of issues. Should India focus on removing abject poverty by increasing income and creating opportunities for people to move up the economic hierarchy (income mobility) to provide hope? Or should public policy be focused on reducing income inequality? The first order of business is to be clear about the distinctions between poverty (income level), lack of opportunity (income mobility) and income inequality. My preference is for creating income mobility more rapidly than we have done so far. This calls for a deep commitment to education and skill building, rapid economic growth (10%+), and fast job creation (10 Million+/year).

Inclusive growth is not about subsidies; it is about creating sustainable opportunities. Globalization is like gravity—there is no point in denying gravity; we should defy gravity and build an airplane.

2. Shift from Income Levels to Lifestyle: Universality of Aspirations

While a discussion of per capita income dominates development literature, it sheds little light on how people live and what they hope for. Consider a life on $2/day per person. For a family of five, that equals $10/day, or $3,650/year (approx. Rs. 146,000/year). Significant contributors to consumer-led growth in India live on $2/day—powering growth in two-wheelers, cell phones, personal care, healthcare, and education.

In places like Dharavi (Mumbai), inside a slum hut, you may find a color television, a cooker, a cell phone, an electric iron, a fan, and a small refrigerator. Their lifestyles are very different from what appears on the surface, even in an area with poor sewage or water access. With 30–35% of India living in dense population clusters (slums) in the next 20 years, we must recognize that when people move to cities, their aspirations change dramatically. It is the lag between increasing aspirations and incomes that can fulfill those aspirations which leads to social unrest.

3. Changing the Price-Performance Envelope

How can we cope with these massive problems simultaneously? We must focus on a fundamental change in the price-performance levels of all products and services.

TRADITIONAL VALUE EQUATION THE CHANGING VALUE EQUATION ========================== =========================== High ^ High ^ | +---------+ | +---------+ | | Rich | | | Rich? | Price | +-----+---------+ Price| +-----+---------+ | | Middle Class | | | Middle Class? | | +-------+---------------+ | +-------+---------------+ Low | | BOP | | | BOP | <-- [Breakthroughs] +--+-------+----------------> +--+-------+-------------------> Low High Low High Performance Performance Correlation: Higher performance Disruptive Examples: demanded higher price; poor got • $30 Cataract Surgery • $0.01 Shampoo Sachet low functional quality. • $30 Cell Phone • $2,500 Car • $35 DVD Player • $25 Hotel Room

Affordability to the new consumer, without a sacrifice in functional and emotional quality, has changed the value equation. This process is accelerating and provides a direct antidote to increasing income inequality.

4. Shift from Low Tech Solutions to Universal Access to High Technology Solutions

The rate at which high technology cost-performance is improving allows the poor to afford cutting-edge technology in very short timeframes.

Table 2: Rapid Shifts in High-Technology Performance

Metric1970198019902006Transistors / chip$10^3$-$10^6$$10^9$Decrease in size of micro-devices-$10^{-1}$-$10^{-6}$Computing power--$10^{11}$$10^{15}$Cost per MIPS ($1000)--11MDNA sequencing cost ($/base pair)--100.05Magnetic data storage (bits/dollar)$10^4$--$10^{11}$

(Source: Ray Kurzweil)

At these rates, there is no reason why India cannot provide the latest technology solutions for everyone, creating explosive growth in consumption.

5. Provisioning of Products and Jobs for Ecological Vitality

If 800 million Indians become micro-consumers and micro-producers, the environmental impact on ecosystems (water, energy, land, waste) will be tremendous. Ecological stresses hurt the poor first (e.g., trucked water costs, respiratory ailments from biomass cooking).

India represents an ecological "time bomb" if we do not innovate. Four critical areas need immediate attention:

Water quality, availability, and access (balancing agricultural, industrial, and family usage).
Energy cost and systems.
Deforestation control.
Health care systems tied to clean environments.

Poverty alleviation and sustainable development are intimately linked; we must innovate biodegradable packaging, clean cooking systems, and smarter water allocation.

6. Focus on Governance

Using public data from the World Bank (GNI/capita PPP), UNDP (Human Development Index), and Transparency International (Corruption Perception Index), key global trends emerge:

HDI vs. CPI (Governance) CPI vs. PPP (Wealth) ====================================== ====================================== Honest ^ PPP ^ | * ($) | * | | * | (India: Low HDI, | * | High Corruption) | * Dishonest|--------------------> | (India) +---------------------> +------------------------------> Low High Dishonest Honest HDI Index CPI Score

PPP vs. HDI ========================= PPP ^ ($) | | | * (India) | * * +-------------------> Low High HDI Index (Focus on Individual)

Key Conclusions on Governance:

Corrupt countries have lower levels of human development.
Corrupt countries are not rich overall.
Good governance / lower corruption leads to high GDP per capita, not the other way around. A nation must become less corrupt before it gets rich.

In 2006, India ranked 126/177 in HDI and scored 3.3/10 in Corruption Perception. If India moves to a 7 on CPI (near the USA) and a rank of 20 in HDI by 2020, per capita income could move from $3,800 PPP to $25,000 PPP—representing a $28.2 trillion GDP opportunity.

Cultural & Policy Shift Requirements:

Mental Models: Examine citizenship rights and what it means to be an Indian.
Individual vs. Group Rights: Shift from group-based politics to protecting individual rights.
Data-Driven Solutions: Base choices on empirical data, not ideological dogma.
Principles over Rituals: Use core ethics as decision tie-breakers.
Social Justice $\neq$ Socialism: Focus on equal opportunity and wealth creation, not socialist state control.
Accountability for Performance: Hold systems accountable for preventable issues like child mortality.
Corruption as Treason: Treat corruption at all levels with extreme severity.
Imagination over Resources: Deploy resourcefulness over sheer size.

The Innovation Sandbox

All economic development for a nation of 1.2 billion people must operate inside a strict set of non-negotiable boundary conditions. This is The Sandbox for Economic Development:

+-----------------------------------+ | GLOBAL SCALE | / \ / \ INDIVIDUAL RIGHTS / \ ENVIRONMENTALLY RULE OF LAW / \ SUSTAINABLE | INNOVATIONS WITHIN | | THESE CONSTRAINTS | SOCIAL EQUITY \ / NEW PRICE- FOCUS \ / PERFORMANCE \ / LEVELS \ / +-------------------------------+ MARKET BASED

Every stakeholder—politicians, bureaucrats, business leaders, NGOs, and citizens—must innovate within this sandbox without violating its edges.

The Emerging World Order: Looking Back to Look Ahead

In a 1989 CII presentation, I mapped out the future matrix of global commerce:

In 1989, India had a small domestic market and no global firms. My prediction was that by 2000, India and China would join the elite quadrant of world-scale domestic markets home to global firms alongside the US, Europe, and Japan. We are well on our way.

The poor of India are ready for this journey; the bottleneck lies with the elites and political leadership. As the Tamil saint and ethicist Thiruvalluvar stated over 2,000 years ago:

"Even if God wills against you, hard work will get you there."

We must take full responsibility for our future. If India@75 fails, the responsibility lies solely with us. It is not a matter of resources; it is a matter of confidence, imagination, courage, and humility.

Thank you.

Footnotes & References

i. The Knowledge Commission under the leadership of Mr. Sam Pitroda and the Skills Commission are good starts in this direction.
ii. C.K. Prahalad: The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Wharton Publishing, 2004; and C.K. Prahalad: The Innovation Sandbox, Strategy+Business, 2007.
iii. World Resources Institute.
iv. Source: UN Population Division: World Population Prospects 2006.
v. Proposed targets of 10% GDP growth and 10 million new jobs/year introduced by the author starting in 2002.
vi. World Resources Institute.