Recently I attended the US-India Business Summit West, in Silicon Valley. The stellar array of speakers was capped by a closing keynote from former US Secretary of State, Condoleezza Rice, making the case for a global alignment of nations to promote ?free people and free markets?. The US-India Business Council, which represents US business interests in India, naturally expressed concern over the policy uncertainties and lack of some key economic reforms in India. The pause on FDI in multi-brand retailing and the recent Budget pronouncements on taxes, seemingly threatening arbitrary discretion in making tax claims retroactively, figured prominently in these concerns.
Panels on innovation and investing were the most enlightening, however, almost exclusively featuring entrepreneurs and investors of Indian origin. As one would expect from those trying to make the future, either through implementing new ideas or funding them, there was a quiet optimism that provided some balance to the macro concerns expressed at other times during the day, which also dominate the headlines. This is not to say that the only optimism came from Indian Americans. Senior executives from Cisco, VMWare and Walt Disney International also gave examples of how India represents opportunities, or how it can take advantages of emerging opportunities.
One theme that I detected was the continuing potential of information technology to make a difference for India?s future growth. One example was for low cost and better quality delivery of educational content and services. Making this work will not be easy, but it represents a possibility for leapfrogging much of the conventional development of universal education in the West. Broadband access and low cost access to information devices (from mobile phones through tablets, laptops and desktop computers) can play an enormous role here, if not completely substitute for classroom education (vocational training and science and engineering education cannot do without physical facilities, of course).
Another information technology example is the proliferation of IT-enabled jobs, ranging from simple data entry, checking for accuracy and classifying photographs, to HD-animation and sophisticated software development and design. This process is well under way of course, but the message was that new possibilities are opening up all the time.
Another theme emphasised the potential for innovation in general. Several speakers suggested that the Indian market has reached a level of size and sophistication where indigenous innovation becomes more likely. Process innovations that promote efficiency and cost-savings?still epitomised by the Mumbai dabbawalas, Aravind Eye Hospitals and Narayana Hrudayalaya?have great potential in India. One way to overcome some of the problems of inefficient supply chains may be through leapfrogging innovations that leverage increasing internet access, as Flipkart has done. The UID system, as it rolls out, may provide an identity infrastructure that allows for innovations in payments, marketplaces, education and medicine, as well as in shopping.
A third idea was the importance of clusters. These can include conventional large cities, which have historically served as growth poles, but also medium and smaller towns, in geographic proximity. One emphasis here was on the need to provide the physical infrastructure for the inevitable rapid growth of these clusters, and to the extent that these are many smaller sets of infrastructure (housing, water and sanitation, power, broadband access) this may change the way that policymakers want to think about the scale and financing of these projects (as opposed to the enormous needs of individual transportation hubs and metropolitan cities).
Physical clusters go hand-in-hand with entrepreneurial ecosystems. Several speakers noted the lack of role models and mentors for entrepreneurship and innovation in India. This is changing slowly, and the shift in aspirations away from government jobs or politics as routes to success represents the gradual change in Indian societal attitudes towards business. Indian American entrepreneurs, as well as their home-grown counterparts, represent the development of these role models. So, too, do the venture capitalists and private equity investors that are now setting up offices in India, rather than flying in and out.
What can the government do to turn imagination into reality? Many of the speakers (including entrepreneurial legend Vinod Khosla) were pessimistic about the government?s ability or capacity to play a positive role in innovation. Nevertheless, infrastructure and institutions are traditional areas where the government can create a fertile field for growth. One might argue that there could be more creative thinking within the government, to examine how it can promote innovation at different levels, for the poor and middle classes, as well as the big businesses that will do well whatever the government does. It may want to consider whether short-term revenue extraction is worth the growth costs. For example, lower-cost spectrum with the right level of competition could translate into faster internet penetration and access to new services and job opportunities. Forgoing revenue on this front means finding expenditure savings elsewhere. Indian governments promise everything, and hence cannot deliver. India 2.0 will need a government that prioritises more intelligently for inclusive growth.
The author is professor of economics, University of California, Santa Cruz