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TECH TALK: As India Develops: Distribution Hubs (Part 5)

April 15th, 2004 · 2 Comments

Continuing from the RISC paper by Atanu Dey and Vinod Khosla:

The claim is that sustainable rural economic development can be achieved by providing a stable and reliable infrastructural platform upon which all essential service providers will be able to co-locate. The model is based on the recognition that providing these services to the rural population could be a commercially profitable venture. The model combines cooperation and competition amongst firms to achieve the goal of economic growth, services diversity and development efficiency. It is market-oriented and the motivating factor is competition for the rural market. It focuses the attention of corporations, NGOs, and government agencies so as to obtain economies of scale, scope, and agglomeration. These economies are fundamental to the RISC model as an engine of growth.

  • Economies of Scope: A RISC provides a complete set of services and functions. Each service provider itself is a customer of other services co-located on the RISC. The banker uses the internet and postal services, and the internet service provider uses the banking and postal services, and so on. They make each other mutually viable and even possible.

  • Agglomeration Economies: Benefits, savings or (average) cost reductions resulting from the clustering of activities. RISC obtains urbanization economies, which arise from the agglomeration of populations and infrastructure facilities.

  • Scale Economies: The average cost of a large number of RISCs could be significantly lower than the cost of implementing only a handful of RISCs. Scale economies would be significant at each level of the model. At the infrastructure level, there are transaction costs associated with the necessary coordination between the firms providing the core infrastructural services. At the services level, the cost of the services will be inversely proportional to the quantity demanded and supplied.

    There is a fundamental assumption of appropriate scale where costs are low somewhere between the small village and the megacity. But we would argue that independent of this assumption (and even if scale economics did not decrease above a certain size and the megacity was economically optimal), the socially optimal and feasible size is at the RISC scale with ACCESS for all villagers within a bicycle commute. We need to stop the rural urban migration and the megacity/megaslum phenomenon because of its significant costs.

  • Atanu Dey and Khosla suggest that RISC is a kind-of Marshall Plan for rural India:

    The Marshall Plan for the reconstruction of Western Europe after the devastating effects of the Second World War was proposed by the US Secretary of State George Marshall in 1947 in a commencement address at Harvard College that many consider to be one of the most transforming speech of modern times. For the next four years, participating countries were gives grants and loans amounting to $17 billion (about $100 billion in current dollars) that were used to restore their industrial and agricultural production. The countries registered increases in their gross national product ranging from 15 to 25 percent.

    While there was a component of humanitarianism in the Marshall Plan, the motivation was not entirely altruistic. The US had a compelling interest in the economic and political stability of Europe as a means to its own security and prosperity. People in the US feared the return of financial troubles and unemployment of the 1930s. The Marshall Plan was intended to increase US prosperity as well by boosting exports and thus increasing employment for Americans from bankers to farmers. Much of the money Europeans received was spent on goods produced by the US and so the US economy flourished. The Marshall Plan delivered gains through the trade links that were forged between the US and Europe.

    In a sense, rural India requires a sort of Marshall Plan in which the resources of urban India are mobilized to the mutual benefit of both areas.

    Tomorrow: Distribution Hubs (continued)


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