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Bus. Std: Transforming Rural India, the Hub Way

June 17th, 2004 · No Comments

My latest column in Business Standard:

If there was one message which rang out loud and clear in the recent elections, it was that the poor of India want a better life. They voted for change dispensing with those in power. This was not so much about anti-incumbency as anti-incompetency. Even as India makes strides in some sectors, much of the country and its people remain frozen in time. They will have to make do with the promise of free electricity if the state governments ever get around to generating it. Bharat wants its own revolution one built around development and opportunities, not handouts and freebies.

So, let’s play a game of strategy. You are the Indian Chief Minister who has just won the local mandate. Success is defined as getting re-elected in five years time (let us assume there are no mid-term polls). How do you do it?

A look at the history books offers no relief. Eminent reform-minded brethren of yours like Digvijay Singh in Madhya Pradesh, Chandrababu Naidu in Andhra Pradesh, SM Krishna in Karnataka all failed in the last round of the game which took place. Do you think reform or do you think populism? Do you think short-term or long-term? Do you think caste politics or computer policies? Do you think social development or infrastructure development?

As you think, let me give you my thoughts. The need of the hour in India is, very clearly, the transformation of rural India not between two generations, but between two elections. Agreed, this is not something which can be done overnight. But let us remember, that there is five year’s time that you have. The right steps taken in the beginning can make a big difference in that period. The problem in India has been that few are willing to think that far ahead as they caught up in day-to-day politics and month-by-month survival.

What you need to do is to create a platform for rural development. It is not about providing free food and electricity which will only sap the economy further, but about creating a framework in which peoples incomes increase to a point where they can pay for food and electricity. To use an old adage, Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime.

Rural India needs affordable services from education to market access, from telecom to healthcare, from financial intermediation to entertainment. The key issue in rural India is the non-availability of the services at affordable prices. Linked to this is the lack of perceived opportunities in rural areas. These twin factors create a situation in which few want to do business in rural India. It also leads to the exodus of people from rural areas into urban slums, which stretch the resources in the cities and towns even further. In other words, rural India is caught in a trap that it seems difficult to get out of. Which meansare you doomed to lose the next elections?

No! There is an alternative and for that we have to turn to a model proposed by Atanu Dey and Vinod Khosla. This model, called Rural Infrastructure and Services Commons (RISC), holds the potential to transform rural India for a capital investment (not necessarily by the government) of no more than Rs 200 per person. The model recognises the fact that resources are limited, and we can get the maximum leverage by concentrating investment rather than by distributing it at uneconomical levels.

What Dey and Khosla propose is the creation of 5,000 rural hubs across India, each catering to a population of about 100,000 or about 100 villages, such that the hub is no more than a bicycle-commute distance away for people in the villages. These hubs are about 10,000 square foot in size, built at a cost of about Rs 2 crore each. They have state-of-the-art infrastructure including 24×7 electricity, broadband connectivity, security and sanitation.

This standardised infrastructure reduces the costs of operation for service providers in rural India. From the point of view of the rural populace, there is one place in which they can get multiple services services which were hitherto not available or too expensive. This also creates the platform for budding entrepreneurs to make rural supply and demand chains more efficient, much the same way as the programming interface of an operating system allows software developers to build higher-level constructs without worrying about the low-level plumbing.

Says Atanu Dey: Fundamentally, the specific market failure that RISC addresses is that of coordination failure. RISC is designed to coordinate the activities of a host of entitiescommercial, governmental, NGOs. It synchronises investment decisions so as to reduce risk. It essentially acts as a catalyst that starts off a virtuous cycle of introducing efficient modern technology to improve productivity that increases incomes and thus the ability of users to pay for the services, and so on. It creates a mechanism that reduces transaction costs and therefore improves the functions of markets.

The total investment of about Rs 10,000 crores is very little money in the Indian context today. The multiplier effect that it can have on rural India is dramatic. More importantly, it will get you elected. We all win, right?

You can download the paper via a link from the Deeshaa website.

Tags: Bus. Std. (ICE World) Column

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