Author's View on The Making of India
Over the last five years that have I have had the opportunity of observing India’s social, political and economic change, the country’s mood (or at least, the mood of those who invest in India’s capital markets) has moved from the depths of despair on a ‘policy paralysis’ to the excitement of achche din. Such descriptors are good indicators of how the market participants feel but rarely do justice to describing the complex process of change and tumult that India is going through. As we will see in this book, India is going through a multitude of transitions each connected with the other and influencing each other, as they proceed apace.
The ebb and flow of sentiments guides human actions and hence, make no mistake, the positivity that surrounds the ‘can-do’ approach is important. What, however, will make India actually achieve its goal of uplifting itself and its people into a more materially wealthy place with ease of living and doing business are hard-nosed decisions based on thought-through debates and discussions.
When we at Kotak started the GameChanger series half a decade ago, it focused on the institutional investor community to give it an idea of the various long-term macro changes taking place in society, economics and politics of India. For us the audience was the institutional investor who invested in the Indian equity market and our objective of highlighting these trends and themes was to help it take an informed call on the longer-term picture in India. We hoped this would help them in making a more convincing buy or sell argument about their holdings.
Over time, we realized that we were getting requests for our data-oriented and analytical reports from various parts of the group, whether the corporate banking channel or the wealth team servicing some of India’s richest families. What worked, it seems, was that these reports would piece together data and analysis from varied sources and made out a coherent story about a big theme sweeping across India. This book is hence a natural culmination of putting together the various themes that we have worked on over the last many years and the narrative of the changes taking place.
This book draws on the various reports that we have written over the last many years and hence seeks to be both a diary of what we are witnessing today in India and also a report on our prognosis of where we will potentially head. In cataloguing where we stand today, I have, using my training and background as an analyst, looked at the issue by deep-diving into data. In developing my prognosis I have tried to bring together the inter-linkages between the various transitions.
This is of course easier said than done in India. There are limited high-quality or high-frequency data points that can be relied on to make assessments, judgements and eventually decisions. For example, in a country that expects to harvest a demographic dividend, the criticality of the information embedded in the labour market cannot be over-emphasized. In India, however, we survey our labour market only once in five years. An element which has not ceased to amaze me over the years is that opinions, ideologies and paths of actions remain steadfastly defined and hardly have any linkages with data. Maybe that is the defence mechanism that we have developed given our lack of working with data! Continuing with the theme on labour, the impact that NREGA has had on the availability of farm labour misses the point about how frequently it is used and the purpose the scheme serves. However, if one were to hear the two sides talk about it, the opinions and ideologies help define the path of action rather than any allusion to data.
In the need for a here and now analysis, changes taking place slowly seem to get missed out or not commented on in detail. For example, there is an amorphous understanding on why women have dropped out in such large numbers from the workforce in rural India and the implications that this can have on the lives of such women and for society as a whole in India. These issues will suddenly acquire an appeal when they surface even though their significance cannot be bottled into a short article, debate or discussion.
Across the various themes that we have explored in this book, I have put together the changes that are taking place in each and identified them with as high quality a data point as is available. Many of these data points not surprisingly emerge from the government. To measure social, political and economic changes, the government has traditionally been in the best position to collect and disseminate data both because it had the ability to spend on collecting data and because it would invariably be the repository of the data. As things currently stand, the quality of data is both poor and dated.
As the digital revolution starts percolating down, data will leave the preserve of the government and will start becoming available more broadly. For example, in developing the story on transportation in urban India, I struggled to get any recent good quality data on how frequently or fast people commute within cities. The best I could source was a reported done in 2007. As crowd-sourced data starts to become available, transport design can immensely change using it. Data scientists, who are highly sought after in the tech industry will, hopefully soon, find a place of importance in matters of public policy.
One of the challenges of writing a book which seeks to encapsulate and document the changes that are permeating through India is that some of the changes can come by very quickly. In situations where change is brought on due to the correction of the imbalances that have built-up, situations change quickly if the price and information flow is fast and unfettered. For example, skilling the youth was considered to be a large challenge with a broken business model. However, as the futility of college education dawned on the people, vocational training courses which are connected with industry have started seeing a large number of registrations and placements. We will see similar changes taking place in urbanization (expansion of cities), agriculture (change in the composition of output), governance (freedom of information) and in consumption (premiumization).
One of the joys of writing this book is that these are changes that one is not only observing but is also an active part of. All the themes that I have encapsulated here are themes that I have seen actively play out in my own life. A question that I always get asked whenever we release a new report is how I chose this particular theme. My answer invariably is that whenever I see and feel a change around myself, I prompt myself to deep-dive into it.
All the themes that we will encounter in this book are those that I can—and I am sure a lot of the readers can—identify as my own: we are after all a part of the making of India. I am part of the demographic dividend that India is seeing: one of the many millions who are less than thirty-five years of age and hence form almost two-thirds of its population. As with many of my peers, the number of years that I spent educating myself is significantly higher than the education of the earlier generation. More important, this is true for the women in my family many of who are now a part of India’s workforce. Not surprisingly, given that massive growth has taken place in the services sector over the last two decades, my wife and I are employed at an IT company and a banking/securities company respectively. We do help in bringing in the dollars for the country: one by exporting her services, the other by advising foreign (and domestic) portfolio investors on their investments in India. We have both been drawn from smaller cities or suburban areas into Mumbai and are a part of the urbanization theme. My wife’s office in Airoli is outside the conventional limits of Mumbai—we will see this point about the development of new business hubs in the urbanization story. Our food palate and also where we have our food has changed meaningfully over the last decade, as have our choices of clothes, housing, education and transport. We interact seamlessly with the government, the various businesses and fellow citizens on the digital network that India is now creating. Having said this, there are two observations that are in order here: (1) this is not a seamless transition and the various changes bring with them their own challenges and joys and (2) many of our fellow co-travellers from the demographic dividend cohort are in various phases of making all or many of these transitions. Many of the changes that I have described in this book have already started taking place. They are and will be long-term secular themes which will continue to play out over multiple years. However, change comes unexpectedly and also from unexpected directions. I believe that many of the challenges that India now faces will almost similarly be resolved by the development and changes that are taking place quite far away. For example, India will see (and is seeing) an e-commerce revolution before the brick-and-mortar organized retail comes in or it will see the advent of mobile banks even as only a quarter of its population is currently served by traditional banks. The spread of communication technologies and collaborative tools is redesigning the shape of Indian cities which suffer from poor transport infrastructure.
In an exceptional 2007 paper, ‘From Horse Power to Horsepower’, Eric Morris, then a Ph D student at the University of California, identified the challenges that urban centres were facing in the late nineteenth century: horse manure. This was because horses were the key mode of transport of both goods and people. The many thousands of horses that each city required were also helping generate significant horse manure: so much that there were public health concerns around the same. What changed the situation dramatically for the cities – and made the cities expand out dramatically from a small downtown core – was the invention of the internal combustion engine and the development of the car industry in the early part of the twentieth century.
Today personal transportation has again become a nightmare as cities struggle to create enough infrastructures to move their citizens around. Urban planners now worry about the falling proportion of public transport across the world as people move to personal vehicles. This also leads to loss-of-air-quality and increases commute time in cities. What could change this? It is hard to call: (1) Will communications technology become so strong that transportation needs fall—people will tele-commute rather than actually commute? (2) Smart cities which have far better information on the traffic situation at any given point in time (coupled with driverless cars) will lead to better traffic management? or (3) Something completely new and different will come up.
Looking at the problem from only one perspective tends to blinker us from potential GameChangers and hence it is important that we look at each problem in a composite manner. The ability to identify the inter-connectedness and tipping-points eludes the best of us but that should not stop us from trying. Such changes when they take place can be very meaningful and can quickly upend old ways of doing things and create some very interesting new opportunities. Recognizing such changes as they take place can create phenomenal wealth and precipitate meaningful social change. Such changes require cautious but pro-active handling from a governance point of view.
Let us look at two examples in India – one which has played out and the other which could possibly play out: in both the cases, the solution to the ‘crisis’ comes in from completely unexpected sources. The foreign exchange crisis of early 1990s made India open up its trading and manufacturing market: the idea was that if India is a more open country, foreign direct investment would come in which would help stabilize India’s precarious foreign exchange position. At that time there was hardly any expectation that the industry that will bring in the much required dollars would be the IT industry and the remittances sent in by the diaspora. Especially over the last decade when the oil prices rose significantly, it is the inflow of dollars from the IT industry and remittances that helped keep India’s foreign exchange reserves in place. If we look around today and wonder where the employment opportunities will emerge, I believe, the sudden emergence of new sectors will surprise us. The current expectations are that traditional industries like automobiles, textiles, retail and construction will create employment opportunities. However, it would not be surprising to see significant numbers of jobs being created in the industries associated with e-commerce: companies catering to the delivery and warehousing of the goods could become some of India’s largest employers.
As we set out to make India, we should celebrate and nurture this change. Change that will come may be unexpected and in many cases, will not be painless. However, a vibrant economy which grows as it embraces change will create opportunities for those who are willing to take them. I hope what I am able to bring to you is a balanced perspective of where things stand and what will make them move. We will try and identify how, when and where the changes will emerge and we will outline them as GameChangers in each chapter. From a governance perspective, these trends need to be identified and nurtured, from an investor’s perspective, there will be significant money to be made by investing in these themes and frosm a citizen’s perspective, these transitions will make life easier to live so that we can pursue our dreams and happiness. I do hope this book provides food for thought to all these three audiences.