In the last 150 years, the world has seen three industrial revolutions starting with the steam engine in the 19th century, mass manufacturing in the mid-20th one and the internet in late 20th century. Each of these technological innovations transformed productivity and re-defined the paradigms of economic growth and jobs led by countries which spearheaded these technology revolutions—UK with steam engine, US with mass manufacturing, and China with internet enabled low-cost manufacturing. Now we are embarking on the fourth industrial revolution led by digital technologies which will once again reshape the paradigm for economic growth and jobs as I argued in part 1 of my two-part series where I suggested three shifts that should shape this new paradigm. In this follow-up article, I develop one of these ideas—the concept of mass services—which I believe has the potential to become the engine of economic and jobs growth for India in the 21st century.
What are mass services? To explain this concept, let us first understand the analogous concept of mass manufacturing which started at Ford Motor Company when they launched Model T in the year 1908. Before this model was launched, cars were seen as a luxury product and within 8 years of its launch, Model T was being sold for $260, less than half the average annual wages in the US. In 1914, Ford’s 13,000 employees produced ~ 300,000 cars while 299 other companies employing ~66,000 employees produced only ~280.000 vehicles. As the price came down, the industry volume tripled in just 6 years. From Ford, this new technology spread to other automotive companies and then across to other industry sectors. The cost of manufactured goods fell between 3-10 times, dramatically increasing mass consumption of products, raising competition multi-fold and driving new investments. This virtuous economic cycle was progressively supported by a facilitative regulatory regime to make the markets more efficient. Mass manufacturing as an economic growth paradigm was born and created hundreds of millions of new jobs.
Digital technologies have the same potential to transform the paradigm of economic growth and jobs through mass services, and India is well positioned to lead this paradigm shift as England, the US and China had done earlier. Like mass manufacturing technologies, digital technologies dramatically alter the cost-price equation of services which can lead to the creation of a virtuous cycle of growth, competition, investments and new jobs, as we saw in the manufacturing sector. Digital technology does this in four different ways. First, it drives productivity. For example, large asset managers, by leveraging the digital technology stack, have reduced customer acquisition and operations costs by 10-100 times. Secondly, it has the unique characteristic of allowing ‘fractionalisation’ or in consumer vocabulary, ‘sachetisation’, i.e, breaking down the service into small consumption offers. The third is its unique characteristic to allow integration of physical and digital assets and processes to drive down price, induce consumption and grow the market, e.g, taxi aggregators or e-commerce. Finally, the digital and digitally-enabled businesses also spur innovation by entrepreneurs to find new value creation opportunities through the exploitation of the power of data and analytics across the value chains.
Three pieces of the jigsaw puzzle have to come together to make this happen. The first is the huge unmet demand for services and a decent starting position in service sectors. India has both, with services being the largest part of its economy, unlike other developing countries, but still with huge unmet demand existing across sectors, especially health, education, financial services, logistics and transportation, government and municipal services, tourism, and agricultural services. The second piece of the puzzle is the need for a world-class public digital infrastructure as the backbone of mass service sectors, as high quality public physical infrastructure like roads, ports, and airports was the backbone of the mass manufacturing industry. India has a world-leading starting position on this front with its digital stack consisting of Jan Dhan (banking for all), Aadhaar (digital identifier for all), and mobile connectivity, and public applications like e-KYC (for e-authentication), digi-locker (for digital storage), e-signature (digital signature recognition), BHIM (a national payments gateway). Together, they constitute a comprehensive digital architecture which offers open APIs as public infrastructure which private and public enterprises can integrate into their digital platforms to transform the cost-price equations of a wide range of services. The final one, and this is perhaps the most challenging part of the puzzle, is a facilitating regulatory regime that liberalises the services sector, encourages competition, and allows more efficient markets to develop.
In addition to these, we need policy interventions in several key areas. The first is setting standards for data flows which are the backbone of any service offering—in terms of both interoperability and privacy. Secondly, a regulator is required which has the technical skills and understanding to develop and regulate the revenue sharing arrangements between partners in the digital ecosystem to create an efficient market. Finally, a public policy case can be made for creating societal digital platforms for all public goods like education and health and which are offered for free for the development of business solutions by entrepreneurs. GSTN can be one such powerful public digital platform which, of course with necessary privacy protections in place, can help entrepreneurs develop truly innovative financial products which can, for example, solve the huge challenge of funding faced by small enterprises.
Mass services is not an untested hypothesis. We have already experienced it in India to drive growth and create new jobs in the telecom sector after it was liberalised in the mid-1990s. At that time, the price of a phone call was over Rs 16 per minute and the total subscriber base was just above 1 million. As the cost per minute fell below Rs 1 (currently it is Rs 0.19), the number of subscribers expanded exponentially (today we have over 1.13 billion today) showing the scale of unmet need in the market. As demand grew, huge investments were made, competition became intense, prices and products were innovated and millions of direct and indirect jobs were created. (Of course the story has since then taken a twist which illustrates the power of regulations to both make and break the market!)
The twenty-first century will see the emergence of mass services as the driver of economic and jobs growth, much as mass manufacturing did in the twentieth. India has a great starting point to be an early leader in this fourth industrial era. Whether we grasp this opportunity or lose the plot, as we did with the third industrial transformation (internet-driven low-cost manufacturing), only time will tell.
-The author is Senior partner, and director of BCG Henderson Institute. Views are personal