venturing.in

Category: Essays

  • Big Government

    Harsh and I have co-authored a piece on the size of the Union Government:

    Food, steel, communications, aviation, agriculture, petroleum, renewable energy, shipping, chemicals, tourism, coal, power, science & technology, broadcasting, textiles, mining, and housing. These are not just some of the fast-growing sectors in the Indian economy, but also the names of Union government ministries.
    Each has its own budget, its own minister, and often a junior minister too. More importantly, in a narrow bid to protect its turf, every ministry becomes the biggest impediment to reform in that sector. Worse, government-granted monopolies in key sectors such as rail transport and coal mining are an unseen but substantial drag on the growth of the economy.
    More here.

     

  • India Learns To Innovate

    India is regarded as the world’s outsourcing center and a production powerhouse for generic drugs. Information technology and pharmaceutical companies have lent the India story a rich layer thanks to their reputations for efficiency. Aside from creating hundreds of thousands of jobs at home, these industries have helped train a domestic labor force that suffers at the hands of a broken higher-education system. Above all, Indians who have worked at these companies have been filled with a confidence to strike out on their own, and the seeds of cutting-edge innovation are now taking root in the Indian economy.

    For a long time, India’s economy was starved for capital. Its best scientific talent went abroad because there were no opportunities at home. Monopolistic companies found their products to be in permanent demand because of artificial shortages created by government policy, so they never felt the need to invest in innovation. But business realities have changed dramatically over the last decade as India transforms into an urbanized, industrial economy. An increasingly discerning consumer base and competition in the marketplace are forcing companies to innovate for the home market. One example is Tata Motors, the builder of the $2,500 Nano car, which changed automobile design fundamentally and invented new ways for automobile manufacturing. Nano factories use “smart” technologies and automation to manage supply chains in real-time and minimize the consumption of energy and resources during production.

    Economic turmoil in developed nations and stringent immigration policies have made the prospect of returning home more attractive for expatriate Indians. Vivek Wadhwa, who researches innovation, showed that more than 60 percent of the returnees to India cited better economic opportunities as a key reason for making the shift. These individuals bring with them not just experience and skills, but a culture and professional network that is catalyzing innovation in India. Indeed, moving up the value chain this way is imperative for the economy to maintain its growth momentum and create jobs.

    Seeing the quality of people flocking to India, global investors have eagerly set up shop. India has never seen the availability of so much financial risk capital — yet it isn’t enough, and it is spread rather unevenly. Many investors believe that India is still limited when it comes to product innovation and are hesitant to back innovation-driven ventures. Instead, they choose to play it safe by focusing on outsourcing-oriented businesses, a formula that has been known to work well.

    As an entrepreneur and venture capitalist in India, I see that my nation is at a tipping point. India has always failed to achieve its potential when it comes to commercializing technology, but with the return of talent from abroad and the emergence of a large domestic market, it now has momentum.

    I have found that companies that create knowledge and commercialize scientific research can attract engineers and scientists from across the globe. Two companies that I’ve invested in include founders who used to be expatriates.

    India can be a chaotic and difficult place to do business, consistently getting a low ranking in the World Bank’s reports on the ease of doing business. Opening bank accounts or working with the government’s tax and regulatory agencies entail mounds of paperwork and can drag on for weeks. Still, it makes sense to invest in innovation because of India’s superior capital efficiency, which mitigates financial risks. Niranjan Rajadhyaksha, an economist, has shown in his book “The Rise of India” that India requires four units of capital to generate one unit of output, while China consumes five units of capital to produce one unit of output.

    There are lessons here for policymakers as well — competition for talent and capital is now global. Nations that champion openness and freedom will be able to compete and prosper, while those that remain insular will fall behind. A lot remains to be done to cultivate such an environment in India. Outdated labor laws constrain the development of manufacturing, and the higher-education system needs large investments for expansion along with a boost in autonomy.

    India has rapidly moved on from its rigidly socialist past, setting the stage for more openness and freedom. An older colleague in his sixties remarked to me that my generation of Indians was fortunate to be able to build companies from the ground up. In earlier times, India’s economy remained so tightly controlled by the government that this would have simply been impossible. The government can encourage entrepreneurship by making it easier to run businesses, enhancing access to finance and building transportation infrastructure and new cities.

    India doesn’t have to be just the world’s back office. It can also be the innovation engine.

    Originally Published: The New York Times International Weekly

  • Our Nation As A Startup

    Doing business in India can be overwhelming for somebody accustomed to working in a more hospitable business environment. The World Bank’s Doing Business study ranks India 134th worldwide for ease of doing business, behind lesser-talked- about nations such as Tanzania and Ghana.

    Besides the well-documented inadequacy of physical infrastructure, archaic corporate and taxation laws are yet to catch up with modern ways of structuring and operating new ventures. Yet India is able to register high rates of economic growth year after year.

    U.S. President Barack Obama’s contention that India has already arrived is magnanimous — India is a startup with high potential but hasn’t made it yet into the pantheon of world powers. Like a startup, India is chaotic and unpredictable.

    Democracy adds another twist in the tale. As the last three months have shown, Indian politics can turn on a dime and the perception of political stability can give way very quickly. India’s business model is contrary to how other Asian economies have developed: India continues to be services-driven and domestically-oriented instead of being heavy on export-led manufacturing.

    This approach shielded the economy during the financial crisis. With growth driven by high-quality entrepreneurs who have been able to deliver despite a suspicious and often obstructionist state, it’s no wonder that investors continue to be bullish on India and tend to overlook major political and geopolitical risks.

    But high growth brings with it many quandaries. Though a happy problem to have, a growing enterprise faces its own management challenges. At the very least, the capacity of India’s executives and government to manage growth has been somewhat disappointing. India chose (some would argue that it stumbled upon) a bottom-up development model based upon entrepreneurship.

    We are now reaching a stage in the economic cycle where we need to push the envelop further, not negate the strategy that has served us very well over the last two decades. India saw two bursts of significant reform, from 1991 to 1996 under Prime Minister P.V. Narasimha Rao and again from 1998 to 2004 under Prime Minister A.B. Vajpayee. Since 2004, there has been virtually no reform initiated by the Congress-led United Progressive Alliance government in areas such as labor law, where the current regime is constraining growth in manufacturing. This is impairing the quality of India’s economic growth and limiting job creation.

    Recently, Steve Jobs said that his company, Apple, is the world’s largest startup. It’s an interesting view given that Apple’s market capitalization, which is close to $300 billion, makes it one of the most valuable companies in the world. Apple also has zero debt and tens of billions of dollars in cash. From the brink of bankruptcy and irrelevance in 1998, Apple’s financial and competitive strength is now the envy of the technology industry.

    When Mr. Jobs returned as Apple’s CEO, he had a straightforward mantra: To rebuild Apple as a pioneering innovator and rescue it from the morass of creating “me-too” products, as he put it. He felt that the company he founded had forgotten what it stood for. This was audacious for a company struggling to stay on its feet.

    Indian administrators and policy-makers should also remember how high rates of economic growth have been achieved in the first place. Like a startup which has achieved a fit between product and market fit and is ready to scale up, India needs to continue providing its entrepreneurs with the space and environment to operate.

    Apple lost its mojo because it abandoned the strategy that made it what it was. Curiously, that strategy itself was not rigid and inflexible but one of continuous innovation, where Apple would make its products irrelevant before its competitors could. A return to this thinking has ensured the company’s rise through the 2000s. India, too, needs to return to policies that have transformed its economy from anemic to blistering growth.

    In Hindu philosophy, The Upanishads talk of the concept of “Atmanam Viddhi,” which roughly translates as “knowing oneself.” It turns out that self-knowledge is also a sound business strategy — to reach where you want to go, it’s first important to know how you got to where you are.

    The government must realize what it is that has delivered high rates of economic growth. Negating the ideas and policies that are driving India’s economic development by delaying the next round of economic reforms could prove to be immensely damaging to India’s economic prospects. India needs a visionary leader to step up and push through some of the changes that most agree need to be implemented — but few have the political courage to execute — or else an opportunity may be lost again.

    Originally Published:  http://navam.in/1m5k6AE

  • Connecting The Two Indias

    Much has been made of the theory that there are “two Indias” – one that is experiencing rapid economic growth and progress, and the other that is being “left behind”, so to speak. The political rhetoric of these two images of India does find some resonance with an ever-increasing middle class which is usually at odds to explain this newly-found prosperity.

    It has also never been more important to understand what caused the shift from anemic rates of economic growth to sustained economic performance, and more importantly, hope and positivity about the future – so much so that India is now witnessing a reversal of the brain drain, with the best talent flocking to it. This reverse brain drain will partly address the human capital needs that India will have as it moves to the next cycle of innovation-driven growth.

    Most people agree that it was economic liberalization that unshackled India’s potential, but not all recognize what that means. The process of economic liberalization started in the summer of 1991 under Prime Minister P.V. Narasimha Rao and was carried forward by successive governments through that decade. Under the NDA Government led by Prime Minister A.B. Vajpayee, the liberalization push reached a new high. Government-owned companies were sold off for the first time in India’s history.

    Much of the corruption we are witnessing in the housing finance sector would be eliminated if India’s financial industry allowed a more expansive role for private players, for corruption and government discretionary powers go hand in hand. Take away discretion, and corruption too would be eliminated.

    The first step that should be taken to bridge the two Indias is to offer connectivity so that they can talk to each other. Roads and telephones, and increasingly high-speed Internet access and low-cost civil aviation, are the basic building blocks and tools required for the formation of what economists term “social capital”, without which we won’t be able to break the cycle of extremism and discrimination based on identity and religion. Bihar Chief Minister’s Nitish Kumar’s resounding victory should be seen in this context.

    Have you wondered why the religion- and caste-based politics of the 1980s and 1990s is losing currency in the new, emerging India? Part of the reason is increased access and connectivity that is binding the nation together like never before. Today, Indians can travel across the country via road or air, explore the cultures and diversity that make India so unique and interact with fellow citizens from other parts of India. Never before has this been possible for an “ordinary” Indian before in our history, and it has an immense qualitative impact on creating a common sense of nationhood.

    Roads, telephones, the Internet and aviation enable people to do business with and talk to each other. This basic infrastructure forms the bedrock on which economic development can take place, and development alone is the panacea for religious and identity-based extremism.

    This too is driven by governance and public policy. During the NDA term, over 4.5 crore telephone connections were made in 5 years, compared to 2.3 crore the previous 50 years. The Highways Ministry built over 25,000 km of roads and highways, compared to less than 600 km (that’s not a typo) in the previous 50 years. In 2003-2004, for the first time India’s GDP growth rate exceeded 8%, a feat the then-Leader of the Opposition had termed “Mungeri laal ke haseen sapnay”, in response to the Government’s projection.

    Today, 8% growth is considered to be a given and India’s true potential stands at 12%-plus.

    Since 2004, the liberalization process has come to a virtual standstill. We cannot bridge the two Indias merely by populist economics of taxation and redistribution – what we need is massive amounts of wealth creation and liberalization to harness our demographic dividend.

    A few days ago, editor of Outlook magazine Vinod Mehta was on television describing India as having a free-market capitalist economy. This is typical of the discourse in the mainstream media – nothing could be further from the truth. I have said before that there are large, important sectors of the economy such as railways, banking and mining that are still nationalized. Till they remain in the grip of the government, our economic performance will be constrained and we’ll never eradicate poverty and identity-based fundamentalism.

    India has only taken baby steps towards a market-based economic system. There is no doubt that there are a large number of Indians who continue to suffer glaring poverty, but the cure is not less liberalization but more.

    The longer our government delays liberalization and the more excuses it invents, the longer India will continue to be poor and the more fuel identity fundamentalists will gather. Only markets can connect the two Indias and transform the poorer India into a prosperous India, not government largesse.

    Originally Published: http://navam.in/1pzv6wN

  • Does India Need A Telecom Ministry?

    Telecom Minister A. Raja finally resigned yesterday after what seemed like doggedly denying wrongdoing and corruption in 2G spectrum allocation. The media has been jubilant about having an impact on the Government, claiming credit for exposé after exposé that has forced ministers to quit.

    But something has been lost in translation – is it good for Indian citizens if the government maximized revenue at all costs when allocating spectrum to telecommunication companies? What is the purpose and role of government, and how should the government allocate public property such as spectrum, land or mines when rights to it are not properly defined?

    We need to look at the history of the mobile telephony boom in India to answer these questions. In 1998, India had a tele-density of 1.8%, or less than 2 out of 100 people had telephones. In old movies, it’s common to see people shouting into the phone to be audible to the person on the other end. “Trunk calls” had to be booked well in advance, and were unaffordable for most Indians. International calling was prohibitively expensive.

    Today, India’s tele-density number stands at over 60%, and calling rates are among the lowest in the world. The sheer magnitude of growth is mind-numbing – India has added twice as many telephones as the total population of the United States in only 10 years. How was this possible?

    Contrary to what Rahul Gandhi would have us believe, the New Telecom Policy of 1999 opened the floodgates for explosive growth. The Government at that time did not choose revenue maximization via licence issue, but went for revenue-sharing to nurture a market where investment was considered highly risky. India in 1999 was not the magnet for capital it is today. In fact, the outgoing Telecoms Minister has also praised the 1999 New Telecom Policy. The Government back then also cut taxes on the import of mobile phones and made it easier for companies to procure communications equipment.

    Which brings us to the next question – if one puts aside for a moment charges of personal corruption against the Minister, was Raja’s policy of not maximizing revenue a flawed one? We should remember that the purpose of the government is not to maximize revenues at any cost, just because it can – government should be a facilitator of private enterprise and a regulator of markets. We should be concerned when the Finance Minister says that he has an infinite appetite for taxes.

    It seems like Raja issued licences at a heavy discount and engaged in under-the-table dealings to enrich himself. Aside from personal profiteering by Raja, the policy of carrying on the 1999 New Telecom Policy was more sensible relative to maximizing the government’s revenue. A case can be made that since many of the risks in the telecoms sector have now been mitigated, Raja should have pursued a revenue-neutral policy, offsetting capital raised via auction with tax breaks given to telecommunication companies, if one agrees that the purpose of the policy is to increase telephone accessibility to obtain full tele-density as soon as possible.

    Commentary that the 3G and broadband auctions raised vast sums of money for “the people of India” and the “national exchequer” is hogwash, because that money has been taken from the people of India in the first place. In fact, lower-income groups and the aam aadmi now likely have been priced out as consumers of 3G data services, because the Government made it very expensive to start up. Even entrepreneur Sunil Bharti Mittal has said that the 3G auction design was faulty.

    The consumers of cellular and broadband services and shareholders of telecom companies have paid the money to the Government of India. Please don’t believe anybody who says Raja caused a loss to the “national exchequer”,  because that money would probably have come from YOUR pocket! The contention that government knows better than citizens what they should be doing with their money is paternalistic and false.

    It’s important to understand this because just the way India did not have enough telephones 10 years ago, there are many other products and services which the economy requires and consumers will demand. There are also fundamental needs such as access to health care and finance. The government simply cannot provide for all these products, services and needs given the speed and efficiency with which they have to be delivered besides the himalayan scale. Younger people cannot recall the days when it took years to get a telephone connection. Sectors such as retail, banking, rail transportation and mining could use a healthy dose of liberalization, and that’ll pave the way for entrepreneurs to step in.

    Raja deserved to go because of what is likely serious personal impropriety. Before panning Raja for not taking enough money from the people of India, we should think about why it is not great for the government to maximize revenue at all times and all costs, and what the alternative policy should be. This issue is bound to come up again in a different sphere, and the media, the Opposition in Parliament as well as individual citizen-voters should think it through rather than shooting from the hip. Finally, Telecom Ministry should be disbanded and the sector’s regulation mandated fully to TRAI. Do we really need a separate Ministry for it? It’s time to put the “A” back in TRAI, which stands for Telecom Regulatory Authority of India.

    Originally Published: http://navam.in/2rqIAyg

  • Watering The Seeds Of Growth

    Both Indian industry and the government agree that the economy needs a spurt of innovation. While industry has produced innovations such as the Tata Nano, the government has proposed to create dedicated venture funds for start-ups in certain areas. A coal cess was introduced in this year’s Union Budget with its proceeds earmarked for a clean energy fund. In July, the government said it is considering setting up a Rs3,000 crore venture fund to encourage innovation-driven pharmaceutical start-ups.

    While these are welcome steps, some key issues need to be kept in perspective for such initiatives to be successful. First, the government has to facilitate creation of the right ecosystem. Second, it has to adopt effective mechanisms for injecting public funds into the ecosystem.

    Under the highly successful US model for technology commercialization, it’s the universities that have been the fountainheads for innovation. Stanford, Harvard and the Massachusetts Institute of Technology have all successfully moved technologies from the laboratory to the market, producing companies such as Bose Corp., Akamai, Genentech, Genzyme and Google, which have created tens of billions of dollars in value. It’s important to note that the enterprise capacity of universities and research institutions is a function of the broader economic system in which they exist, and the culture and policies this system cultivates.

    While India is gradually moving towards a similar knowledge-based market economy, the culture of encouraging scientists to commercialize inventions is yet absent; in many cases, they are even debarred from starting ventures. Rules and guidelines governing the entrepreneurial involvement of scientists with new ventures are loosely framed or absent. With a few exceptions, processes for managing intellectual property and the know-how to structure intellectual property deal terms that facilitate long-term monetization are lacking even in some of the top-ranked institutions. These gaps need to be bridged urgently to develop a vibrant start-up ecosystem.

    A frequent complaint among technology-driven, product-oriented start-up founders is the dearth of seed financing for such ventures. Along with a supportive ecosystem, early-stage financing and venture capital are critical for nurturing innovation. For instance, the Deshpande Center at MIT has provided $10 million as catalyst grants to over 80 start-ups in the US over the last eight years. Twelve of them have built a total market value of over $180 million and created more than 200 jobs. A key element of the grant programme is the mentoring provided by seasoned entrepreneurs.

    Effective venture capitalists not only provide finance, they also contribute proactively to the development of a start-up. They work as partners with start-up founders in building a business, providing visibility to new ventures and access to the right contacts through their business networks. This can be decisive when hiring senior management or raising growth capital. In a nutshell, venture capitalists create within the start-up ecosystem what economists term social capital.

    All this means that the government’s proposed funding scheme has to be able to meet such standards. Otherwise, it will be unable to fulfil its mandate of nurturing innovative start-ups.

    Yet, seductive as it may sound, government bureaucrats directing the precise allocation of seed capital may not work out as well in practice. Besides the opportunity for nepotism and rent seeking, there’s little evidence to suggest that governments can manage money well. That’s why one idea worth considering here is that professional, independent fund managers should be engaged to manage the proposed government funds.

    An alternative mechanism is for the government to invest in existing venture funds—public pension funds or financial institutions could do the actual investing—which share a similar vision for nurturing start-up innovation. In venture capital parlance, the government could play the role of a limited partner, or LP, in venture capital funds that would have the mandate—and a proven track record—of investing in high-risk innovation in specified domains.

    In fact, this could even stoke the local venture capital industry. So far, it’s primarily foreign investors who have backed Indian venture funds. India’s private and government financial institutions, major corporations and high networth families haven’t nearly invested in venture funds on the scale that they should. The symbiotic inclusion of Indian investors will be transformational for India’s start-up ecosystem. Industry stalwarts could inform the investment decision-making process at funds and allow start-ups to tap networks and best practices suited to the Indian context, improving investment decisions, start-up operating performance and capital allocation across the economy.

    The stakes are very high. If the government’s initiative is not able to show success, the essential mission of nurturing innovative start-ups would also be tainted. This would be undesirable for both Indian industry and the aam aadmi. Research published by the Kauffman Foundation in July has shown that start-ups are not just major contributors to an economy, but the only contributors to net job creation and job growth.

    If India is to become a knowledge economy and translate its scientific prowess into equitable, sustainable economic growth, it is imperative that policymakers make the right choices to nurture India’s nascent start-up ecosystem, and structure any proposed funding initiative optimally.

    (Co-authored with Dr Shiladitya Sengupta.)

    Originally Published: http://navam.in/1iTBmYU

  • Transforming India Into A Destination For The Best Scientific Talent

    I spent the weekend attending the Young Investigator Meeting in Boston (YIM). Held at the Harvard-MIT Broad Institute and organized by a group of energetic and enthusiastic scientists, YIM Boston brought together scientists, policy makers and the heads of some of India’s top science and technology institutions. Among those in attendance were leaders from institutions like the newly-established Translational Health Science & Technology Institute, IISERs, Bangalore’s NCBS, Tata Memorial Centre-affiliated ACTREC and senior representatives from the Government’s Department of Biotechnology. There were attendees from all over the US and India, and even a few who had flown down from Europe just for the 3-day conference.

    Dr. Raghunath Mashelkar, former director-general of the Council for Scientific and Industrial Research, set the tone by delivering a rousing and inspirational address about India’s rise as a scientific powerhouse. Young scientists interested in moving to India presented their research to some of the best researchers in the world, and got an opportunity to meet with potential future colleagues and peers to help them make decisions about making the move – and they were not just Indians.

    Peter Zwart from the Lawrence Berkeley National Laboratory in California said it was exasperating to be asked the question why he wanted to go to India, saying that it was becoming a destination to do cutting-edge work and there were compelling professional reasons to shift base. Yamuna Krishnan from NCBS, a young scientist who moved back to India 5 years ago, narrated her experience of setting up a research laboratory from scratch. She spoke with infectious enthusiasm and passion for doing top-notch science, and her talk found resonance with the audience. Dr TS Rao from the Department of Biotechnology took a number of questions on funding availability and described the government’s plan to fund scientific research.

    The event ended with a session on commercializing science and moving inventions from the laboratory to the market. MIT’s Jeff Karp spoke about what it takes to build startups, outlining breakthrough science, a seminal published paper and a blocking patent as the key ingredients that can make for a successful venture. Shiladitya Sengupta of Harvard Medical School, who has co-founded three companies, talked about wealth creation via technology commercialization as a way to attract the best brains into scientific research and the importance of developing a cogent business plan before approaching venture capitalists.

    There were several researchers who expressed an interest in starting companies, and this is very exciting news. The quality of talent considering moving to India is simply mind-blowing. For the first time in the history of our nation, we have the combination of well-funded research institutions, top-notch human capital and the availability of financial capital to back innovation-driven ventures. This makes for a very potent mix. The stars are aligning, and if our government continues on the path of higher-education reforms and economic liberalization, the sky is the limit for what Indian science and technology can achieve both in terms of fundamental research and technology commercialization.

    Originally Published: http://navam.in/UaMX0s

  • Reinventing The Wheel For India

    AFP/Getty Images
    India currently has just one automotive company, Tata Motors, in the global top 20, while China has three in the top 20.

    The transportation sector in India is witnessing rapid growth as India urbanizes and the economy continues to expand. Car sales for July recorded a jump of 38% from a year earlier, rising to an all-time high. Delhi, Bangalore, Mumbai and Kolkata are all building up mass-transit systems. The national capital has just opened a swanky new airport terminal and the civil aviation industry has never been more competitive.

    Consumers today have lots of choices in how they choose to get around. This is a far cry from the earlier times when government carriers dominated the skies and entry into the automotive industry was heavily regulated and just a handful of players allowed to manufacture cars. With the exception of railways, which continue to be a government monopoly, every sector of transportation is witnessing a vibrancy never seen before in India.

    The upward shift in the standard and quality of transportation in India is one of the most visible and tangible benefits bestowed by economic growth. The problem – and investment opportunity – is that we have only scratched the surface.

    India currently has just one automotive company, Tata Motors, in the global top 20, while China has three in the top 20 and ten in the top 30. Interestingly, many of China’s large automotive firms are home-grown, while international auto companies like Suzuki, Honda and Hyundai dominate the Indian market.

    Vast regions of the country are yet to be connected by roads and airports. Conventional approaches and legacy technology cannot meet all the new demand. The 300 millionth car to be sold in India may not even run on petrol or diesel. There is a need for innovation to ensure that transportation capacity scales in step with mushrooming demand in every sector, be it aviation, passenger cars, commercial vehicles or mass transit.

    Relying only on technologies and ideas from the West is not feasible, since there has never been a transportation need of this scale in the developed economies. Indian policy-makers and entrepreneurs must think for themselves.

    Investing in auto startups and building companies in the transportation sector is certainly not for the fainthearted. Building an auto company from scratch is extremely difficult. Most investors would balk at the idea of funding a car company, given the capital investment required to manufacture cars. But it is all but impossible for an entrepreneur to start up without financing.

    Tesla Motors, the electric car company funded by leading Silicon Valley VC firms and built by PayPal co-founder Elon Musk went public recently in the first IPO by a US-based automotive company since Ford Motor Co. in 1956. Mr. Musk staked his considerable personal wealth behind the venture, using his own money when institutional funding was difficult to obtain. Without Musk’s calculated gamble, Tesla wouldn’t have survived.

    There are other ways of entering the industry. I met Dilip Chhabria, the founder of automotive design firm DC Design, at an event organized by IIM Calcutta last week and he said the time was right for investors to form a consortium to acquire the rights to rebuild and redesign the Ambassador, an iconic car produced by Hindustan Motors, the one-time market leader that is now struggling financially.

    One should remember that while the precedents which are the basis of the negativity about automotive startups are from abroad, the Indian context and market represent a new dynamic – and that can make all the difference. The structural factors driving the growth of India’s automotive market are not going away anytime soon. Rather than facing a headwind, there will be a tailwind assisting those venturing into the Indian automotive industry.

    While this doesn’t imply that any automotive startup will do well, high capital requirements should not be a deterrent to investing in the opportunity presented by the Indian auto sector at this stage of India’s growth cycle.

    Originally Published: http://navam.in/TcuDmV

  • Billionaires Should Fund Startup Countries

    Every Independence Day, one’s thoughts inevitably veer around to the abject poverty and destitution that consumes most of India. After more than 60 years of Independence, why do we continue to have widespread poverty? Watching “Peepli Live” — a fantastic satire on the state of politics, the mainstream media and the urban-rural divide in India — crystallized those thoughts even more, giving a vivid visual representation to what most urban citizens of India only see in passing on news channels.

    As the film shows, much of the poverty is caused by the poor incentives and choices enforced by India’s socialist economic system. Year after year, decade after decade, the government creates more and more schemes, and they all fail to uplift the poor. In fact, the schemes keep poor people poor.

    Clearly, there is need for a new approach. We all know what that approach is, but the execution is lacking because there is no political will to follow up on it — India has seen no substantial reforms since 2004. There has never been a more pressing need for economic liberalization.

    Recently, Bill Gates and Warren Buffett have been personally reaching out to the world’s wealthiest individuals, requesting and cajoling them to join the Giving Pledge. The Giving Pledge, initiated by the two, has been attracting a lot of media attention thanks to its high-profile backers. The Pledge requires billionaires to publicly commit to “give away” half of their wealth during their lifetimes.

    Both billionaires plan to visit Asian nations over the next year to convince billionaires in the region to take the Pledge. Gates and Buffett are redefining the standard for philanthropy by their example, and they have been compared to Andrew Carnegie and John D Rockefeller for the sheer scale of their charity.

    But there is a small difference — Carnegie and Rockefeller built institutions of lasting significance, like the University of Chicago, Carnegie Mellon University, Rockefeller University, the Council on Foreign Relations and the Carnegie Endowment for International Peace. Andrew Carnegie is still remembered for building countless libraries. Rockefeller built institutions that continue to push the boundaries of research in medicine, natural sciences and social sciences, and define the public discourse in matters of government policy. The impact of their philanthropy has been outsize, transformational and incalculable.

    In India, the Tatas have played a seminal role in giving to the nation institutions such as the Indian Institute of Science, Tata Institute of Social Sciences, Bhabha Atomic Research Centre, Tata Memorial Hospital, Tata Institute of Fundamental Research and National Centre for Performing Arts. For over 100 years, Tata scholarships have helped meritorious students fulfil their academic potential. Without the Tatas, India wouldn’t be the India we know.

    The best way to support charity in India is to always buy Tata products, for the primary holding company of the group has been majority-owned for several decades by the philanthropic Tata trusts.

    While Gates and Buffett have noble intentions, their strategy can be made more effective. In many cases, the Gates Foundation and other foundations will be allocating billions of dollars to solve political problems with charity. Charity cannot fix what are essentially failures of governance. Billions of dollars of aid cannot get rid of AIDS, malaria and other infectious diseases in African countries, just as government support for farmers has failed to uplift them in our country.

    What is the solution — how can a rich person be charitable, support market economics and yet help the poorest of the poor?

    Stanford economist Paul Romer has been the most vocal proponent of an idea known as charter cities, also called startup countries by some. In a nutshell, a charter city is governed by its own rules, laws, regulations and institutions — its own “charter”, rather than those of the parent nation. A charter city would be much like a new business development unit within a large company. Leased by China to the United Kingdom for 99 years, Hong Kong may be taken as an example of the first-ever startup country. While China suffered under Chairman Mao, Hong Kong prospered because of the different rules adopted by its government.

    We have made massive strides in wealth creation, and now we are at a stage where individuals are wealthy enough to lease land from nations and build them with new rules and institutions as a strategy for economic development. Creating charter cities and startup nations maybe be among the most effective ways to improve the standard of living of vast swaths of humanity who are trapped in nations governed by inept and corrupt leaders.

    The model allows for a way to circumvent politics and regime change via war while promising economic development — and it may be the 21st Century equivalent of the kind of philanthropy that Carnegie, Rockefeller and Tata have pursued.

    Originally Published: http://navam.in/1tHjOnQ