venturing.in

Category: India

  • The Genesis Of Jobs

    Speculating whether India can spawn innovative companies like Apple and Google is a favourite parlor game among venture capitalists and entrepreneurs.

    It’s clear that there is staggering talent and creativity in the country, and it seems more a question of when and not if, provided the proper environment is created. Young entrepreneurs and engineers are bubbling with enthusiasm and energy and spending time with them fills one with optimism about the country’s future.On the other hand, a casual scanning of the daily news can be rather depressing. Riots, murders, suicides, mass protests, corruption, political scandals have become so commonplace that they are no longer a surprise. Human tragedies have been turned into mere statistics. While India is touted as a growth engine for the world economy, it also has the largest number of children suffering from malnutrition and among the highest incidences of crimes against women.

    Businesspeople and entrepreneurs are said to make up “India” while farmers, laborers and other low-income groups form the other India, known as Bharat.

    The government tries to put the interests of Bharat before India, calling for inclusive growth and championing job creation programs.

    How can India and Bharat be bridged?

    In a few days, Cupertino, California-based Apple’s hotly-anticipated iPad will hit the market. Led by the legendary Steve Jobs, Apple has upended many industries in the last decade, including personal computing, entertainment, wireless telecommunications and retail. His vision continues to guide strategy and product development at what is arguably the world’s most innovative company. His personal story is just as illuminating for how economic and individual freedom catalyze innovation.

    Steve Jobs was born in 1955 to a Syrian immigrant father at the height of the post-War Baby Boom. Before co-founding Apple in 1976, Jobs dabbled in calligraphy, electronics and psychedelic drugs, even travelling to India in search of spiritual enlightenment in 1974 after dropping out from college. Back then, electronics and computers had no serious hope of becoming as mainstream as they are today, and were the exclusive preserve of hobbyists.

    The vanguard of this group was a motley set of people who styled themselves as the Homebrew Computer Club, which would probably qualify as the first industry association for the computer and electronics business. Steve Jobs was among the early members. From unlikely beginnings, Jobs co-founded the company that became the vanguard of the computer revolution. He did not go to an Ivy League college, nor did he come from an affluent family. In fact, Jobs recounted recently how he’d travel to the local Hare Krishna temple every weekend while in college because he didn’t have enough money to eat.

    It’s not for nothing that America is known as the land of the free. Steve Jobs is one of the best-known examples of how a culture of freedom and openness in America has allowed individuals to prosper based on ability and effort. That culture cannot be replicated quickly or easily. The first step is to boost economic freedom. Much to the disappointment of venture capitalists and others in India Inc., job creation and not economic liberalization has been high on the agenda of the government.

    The distinction between job creation and income growth is not as well understood as it should be. Nobel laureate economist Milton Friedman once visited China at the height of Communism, and was taken to a construction site. He asked why the contractors were not using machinery and modern equipment, and was told that the project was part of a government job creation program. Friedman replied that the spades used by the labor force should be replaced with spoons, and that would increase employment even more! The lesson is that it is easy to “create” jobs, but harder to grow incomes because incomes rise only when productivity increases. Productivity increases when companies compete and innovate.If we are serious about creating jobs, we should focus on creating an environment where people like Jobs prosper. Bharat will become more like India.

    In the current regime, India is being turned into Bharat. Well-intentioned policies that claim to employ the poor are distorting the labor market by incentivizing people to migrate back to villages from cities. The country must urbanize if it has to develop economically, it cannot continue to live in villages.

    Much has been made of India’s demographic dividend. An average of nearly 1 million people will be entering the work force every single month for the next 20 years, a scale unprecedented in human history. The only comparable event is the post-World War II Baby Boom in the US. This is an opportunity, and can be a huge challenge, because all those people will want to be well-fed, educated and productively employed. It would be futile for the government to even try employing so many people. If harnessed properly, this talent pool can transform the Indian economy. If the creativity of this human pool is allowed to flourish, it can change the world. India can produce many Apples and Googles.

    Otherwise, the country will remain impoverished and torn by social strife in coming decades, and will naively celebrate the success of its diaspora, for the best and brightest will simply migrate in search of a better life.

    Dhirubhai Ambani, founder of the Reliance group, famously said once that it was imperative to manage the environment when doing business in India. The environment should be changed so that entrepreneurs like Steve Jobs can create jobs and businesses can focus on managing innovation instead of the environment.

    Originally Published: http://navam.in/1nNU8sm

  • Not Just Luck By Chance

    This is Part 2 in a two-part series on Bollywood and Entrepreneurship. Read the first part here. 

    Conviction: In recent times, one of the best films about the film business was Zoya Akhtar’s Luck By Chance, released in 2009. It tells the story of Vikram Jaisingh, an aspiring actor, and his efforts to make it in Bollywood amidst cut-throat competition. Vikram believes that success and failure are simply choices people make. In a dramatic scene, his girlfriend breaks down when she learns that she has been overlooked for a lead role in a movie she had spent years chasing. Vikram tells her that so far you’ve believed in and relied on others, now believe in yourself.

    He tells her that opportunities are not found, they are created. Apne raaste par chalte raho, chalte raho…dheere dheere saari duniya tumhare raaste par aa jaayegi (Keep traveling your chosen path, gradually the whole world will start following you on that path), says Vikram Jaisingh. Played expertly by Farhan Akhtar, Jaisingh goes on to become a superstar. The movie keeps the viewer guessing whether he was just lucky or “created luck” by sheer hard work, drive and conviction.

    Conviction is indispensable for entrepreneurs, particularly the truly innovative ones. Success is elusive and hard to come by. When starting out, family, friends and everyone around you wish you well but they also harbour doubts. Personal conviction is paramount, but it is also very important for entrepreneurs to have a mentor and guide who has unfailing conviction, someone who can advise and course-correct when required while believing in the dream. While it’s difficult justifying a stressful lifestyle and long work hours indefinitely without showing some accomplishment; as an old saying goes, the distance between madness and genius is only bridged by success.

    Contentment: Clarity, confidence and conviction mutually reinforce each other, eventually leading to breakthroughs. A hint of success and achievement can alter public perceptions. The idea of the personal computer was considered outlandish, but the entrepreneurs who pushed its development are part of business legend today – history is replete with many such examples.

    Success and recognition are accompanied by pitfalls, and they can breed a sense of contentment. Contentment breeds a stasis that can destroy an organization. Again, the role of a mentor who helps maintain the entrepreneur’s focus and passion is critical. Contentment can quickly undo the positive effects of the other three Cs. The biggest risk is not taking enough risks.

    The hunger and drive never really dies in effective entrepreneurs. In the movie Guru, Gurubhai asks his shareholders whether they want to become the largest company in the world, now that the company is the largest in India. Vikram Jaisingh describes a friend working in theater as “content” – after working in theater for several months, he had achieved some success and was unwilling to rock the boat.

    When entrepreneurs combine the first three Cs and ward against the fourth, stars are born.

    Originally Published: http://navam.in/1hyzk5J

  • Guru, Deewar and My Lessons From Bollywood

    I’ve written earlier about the parallels between film-making and entrepreneurship. Much like management guru Philip Kotler’s 4 Cs for marketing, we can also define 4 Cs for entrepreneurship, and these can be illustrated with scenes from Bollywood movies.

     Clarity Intellectual and operational clarity come from continuous effort and relentless application. In Mani Ratnam’s Guru, which is an unofficial biopic of Reliance founder Dhirubhai Ambani, the protagonist Gurukant Desai, also known as Gurubhai, is asked to defend himself from charges of tax evasion and bribery in front of a government investigation panel. Gurubhai begins his speech by asking, Khada ho jaaoon, ya iske liye bhi license chahiye? (Should I stand up, or do I require a license for that too?). He goes on to question the very legitimacy of India’s now-infamous license-quota-permit Raj and government interference in the economy, which strangulated entrepreneurs through the 1970s and 1980s, and continues to constrain entrepreneurial activity today:


    In the full glare of the media and a powerful, antagonistic government commission, Gurubhai unapologetically explains why he did what he did, and how his actions were necessitated by government policy. He is able to hold his own and emerges triumphant because he has an uncommon clarity of purpose. He rejects the charges of government, saying he does not feel the need to apologize for building a world-class business. Agar paisa ban sakta tha, to maine banaya hai (If money could have been made, I made it), he says.Confidence Kishore Biyani, founder of Pantaloon Retail, was asked at the TiE Entrepreneurial Summit in Mumbai last year what he felt like when deep-pocketed companies like Reliance Industries entered the retail industry. Mr. Biyani gave a pithy reply – he recalled the confrontation scene between Amitabh Bachchan and Shashi Kapoor from Yash Chopra’s classic Deewar, released in 1975. Amitabh Bachchan chastises his younger brother for being impractical and idealistic. He tells him that his honesty and commitment have earned him no material gain, to which Shashi Kapoor delivers one of the immortal lines from Indian cinema, Mere paas Maa hai (I have my mother).

    Kishore Biyani, known to be a movie buff, invoked the scene in the context of his response to seemingly unbeatable competition. He paraphrased Mere paas Maa Hai to Mere paas Indian consumer ki understanding hai (I understand how Indian consumers think and behave). That was his competitive advantage, and he was quite unperturbed despite the perceived threat to his business because he knew his strengths and weaknesses well.Entrepreneurs typically don’t have enough resources, they have to be resourceful. Just money doesn’t always do the trick – and this applies as much to startups as it does to large companies attempting to do something path-breaking. It has been several years since Reliance and others entered the retail industry – while Pantaloon has managed to scale and grow profitably, the deep-pocketed contenders continue to struggle.This is part 1 in a 2-part series on Bollywood and Entrepreneurship.

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

  • Choosing Expediency Over Principle

    “This Budget belongs to ‘Aam Aadmi’. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. I have placed my faith in the hands of the people who, I know, can be depended upon to rise to any occasion in national interest. I have placed my faith in the collective conscience of the nation that can be touched to scale undreamt of heights in the coming years.”

    With these words, the Finance Minister concluded the much-ballyhooed budget speech, which my fellow panelist Mahesh Murthy believes doesn’t matter any more.

    While there are plenty of schemes and sops for farmer and agriculturists – over $25 billion, about 10% of the budget, has been allocated to various schemes for rural development – there’s not much that is enthusing for entrepreneurs and investors. In his second budget after a conclusive election victory, the Minister has continued to reward his party’s core constituency and vote bank, not necessarily in ways that would actually empower or ameliorate them.

    The Minister said that disinvestment would allow people to participate in the profits of public sector companies. What he fails to recognize, or chooses not to believe, is that the current program of disinvestment is a misnomer – “monetization” would be a more accurate characterization. The government proposed to sell minority stakes in public sector units to pay for the social sector schemes believed to help the bottom of the pyramid. Privatization and strategic sale of government-owned companies is what is actually beneficial to the economy.

    Loosening government-control over companies results in more efficient management and lower prices for consumers, also freeing up capital for investment in critical areas such as infrastructure. India doesn’t need to borrow money from the World Bank to build roads. The raison d’être for disinvestment is change in management control, which the Minister is not achieving by monetizing minority stakes.

    There are no bold pronouncements and no liberalization. Mahesh is right when he says that in recent years budgets have been predictable and populist. Admittedly, this budget too is rather stale and devoid of vision.

    I don’t think we should be content with a GDP growth rate of 7% or 9%. Our true potential is at 12%-plus, for two reasons – India’s GDP stands at about $1.2 trillion and we are starting from a low base. Secondly, India’s demographic profile is also very amenable to support high-growth rates. But the specter of government-control and short-sighted and politically-driven policy making year after year is holding the country back. We saw glimpses of what is achievable when we had truly reformist and visionary Prime Ministers P.V. Narasimha Rao and Atal Bihari Vajpayee guiding policy-making. They were supported ably by cabinet ministers like Manmohan Singh, Yashwant Sinha and Arun Shourie. Without those years of breakthrough liberalization, nobody would ever think of classifying India as a world-power, and we’ve just scratched the surface.

    But this year’s budget did have some silver linings. I wrote earlier that India’s “offline” market has huge potential, and some of the budget announcements are bound to make the offline market even more attractive.

    The Minister reduced personal income taxes, leaving more money in the pockets of consumers. He also spoke about (finally) allowing foreign direct investment in the retail industry. This can be transformational for the sector. The Indian consumption story looks very strong.

    One of the major new announcements was charging a cess of Rs. 50 per ton of coal. India’s coal consumption, of both domestic and imported coal is over 600 million tons. The Rs 3000 crore ($600 million) revenue from the coal cess is proposed to be invested in a National Clean Energy Fund. The initiative should give a boost to clean technology in India, and while the purpose and goal of the Fund is still unclear, care should to be taken that the government doesn’t take on the role of kingmaker in clean technology.

    I share Mahesh’s concern about how India risks turning towards oligarchic and crony capitalism, where special interests and members of the lucky sperm club are the only ones who get to participate in economic opportunity. The way to tackle that is through meaningful reforms and more liberalization.

    Perhaps entrepreneurs and believers in individual freedom and the market system should organize themselves better, and then we can expect politicians to listen to the collective voice. Paul wrote yesterday that people might wonder if they should pay more attention to Nitin Gadkari, head of the main Opposition party BJP, if the government went too far on populism yet again. Mr. Gadkari has spoken out clearly in favour of free enterprise, but his party discredited itself by staging a walk-out in the middle of the Finance Minister’s speech.

    In sum, Pranab Mukherjee could have delivered more, and the few features that stand out in this budget are mere consolation prizes. The Congress has the electoral mandate, but doesn’t have the political will. Once again, it chose expediency over principle. Another year has been lost, and we continue to be in the dark.

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

  • What The Budget Means For Entrepreneurs

    Finance Minister Pranab Mukherjee will be presenting Union Budget 2010, the annual economic policy statement of the Government of India, on Friday. In most nations, this would be insignificant, but the Budget is probably the most significant annual event for Indian financial markets and economy analysts.

    Most entrepreneurs are quite disconnected from the effects of the Budget, or government policy-making in general. It’s a non-event in the startup and venture world. According to conventional wisdom, weighty policy pronouncements and the politics of policy-making are considered more relevant for industrialists and established businesses, rather than a startup striving to build products, revenue and market share.

    And nothing could be farther from the truth. India’s economy is still heavily shackled by state control despite the liberalization efforts of Prime Ministers P.V. Narasimha Rao and Atal Bihari Vajpayee. We are still far, far away from a true market system, which means that the government wields enormous clout in the economy. Though the effects of the Budget and accompanying policy might not be directly tangible to entrepreneurs, what the finance minister says and does can provide valuable clues to future opportunities.

    For instance, the government’s flagship job creation program, the National Rural Employment Guarantee Scheme (NREGS) announced in the 2005 Budget, has transferred tens of thousands of crores in consumption power to rural areas. Theboom in rural India, and the recent food price inflation, are both partly caused by the NREGS and the government’s other social sector schemes. While such schemes are mainly created for political benefits and winning elections, at the same time investors and entrepreneurs should try to anticipate opportunities presented by policy shifts. There are startups operating in the Indian hinterland in sectors such as solar power, education and retail which have capitalized on the NREGS-driven consumption boom there. Sometimes it makes sense to follow the money.

    Financial inclusion and reforms are the buzz words for this Budget, though the Congress-led UPA’s track record suggests that the former is more important to it than the latter. The Unique Identification Authority of India, led by Infosys co-founder Nandan Nilekani, is slated to get a major funding boost this budget. The goals of the UID project gel nicely with the government’s desire to reach out to the aam aadmi, and the government can likely score some points by showing support for Mr. Nilekani.

    The words reforms and liberalization may sound like economic mumbo-jumbo to most entrepreneurs, so here’swhat they mean: liberalization means minimizing government interference in the market. Telecommunications and the Internet are more liberalized than, say, agriculture that has far more government control and the government decides everything from pricing to distribution. When the market is allowed to function with government only setting and enforcing minimum basic rules, the best products win and the most innovative companies grow.

    India’s economy is still at a developing stage, which makes good policy-making critical for achieving our economic potential. The most outstanding example of prudent policy-making in recent years has been in wireless telecommunications. As Sanjeev Aga, managing director of Idea Cellular, said recently, the New Telecom Policy (NTP) announced in 1999 was a “watershed event” which sowed the seeds for the themeteoric rise of India’s wireless telecoms sector.

    Private equity firm Warburg Pincus invested $80 million for a 20% stake in Bharti Airtel in 1999. Warburg Pincus and Sunil Mittal spotted the opportunity early and the rest, as they say, is history. Bharti’s current market capitalization stands at over $20 billion. Over the course of the last decade, the company has grown by leaps, and has just announced a deal to acquire major telecom assets in Africa The NTP policy’s thrust on competition has ensured that consumers enjoy lower and lower service rates. Mobile telephony has been among the most dynamic sectors, creating wealth and generating employment. Mobile value-added services has been a hotbed for entrepreneurial activity and venture capital investment. None of it would be possible without 1999′s NTP.

    It is important to note that the NTP was not a happy accident of fate. Finance Minister Yashwant Sinha referred to the NTP repeatedly in his budget speeches. Prime Minister Vajpayee and Telecoms Minister Pramod Mahajan deserve full credit for framing visionary policy for the then-sunrise sector, allowing competition and the growth of private enterprise to fulfill the telecom needs of everyone from rickshaw pullers to billionaires.

    For entrepreneurs and venture investors, liberalization and privatization open up opportunities which are otherwise inconceivable. We are in the dark, and simply can’t say what innovation we are missing out on without liberalization. The UPA has been less enthusiastic about liberalization, but this budget may spring surprises. Moreover, the Finance Minister will achieve inclusive growth if he pursues liberalization, like the example of mobile telephony clearly shows. Here’s hoping that Finance Minister Pranab Mukherjee shows us the light on February 26.

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

  • Scrapping The Securities Transaction Tax

    Harsh Gupta and I have co-authored a piece on why India should scrap the Securities Transaction Tax (STT):

    A transaction tax on securities barely hurts the speculator, but makes several trading strategies that provide liquidity and depth to the market unviable because of the artificially introduced layer of friction. Frequent trading can result in so much taxation that all trading profits are swallowed up by the transaction tax.
    STT contributes only around 1.5% of the government’s direct tax revenue, but its impact through destroying market liquidity and depth is outsized. The government’s net collection from STT runs into several thousand crores cumulatively since the tax was implemented. The absolute tax revenue collection through STT is small but significant, and widely dispersed but internecine for the market. While low taxes are always better for traders, consumers and citizens, the government can make up the shortfall by rationalizing the taxation across different types of equity investors.
    More here.

  • The Potential Of India’s Offline Market

    India is a unique economy in many respects. Though Indians conduct cutting-edge and mission-critical research for Fortune 500 corporations, few Indians actually think of building products that compete with them. While the print medium is dying in other parts of the world, leading print publications such as Forbes, Entrepreneur, Harper’s Bazaar, Technology Review and even celebrity gossip rags People and Hello! magazines have launched print editions specially for the Indian market.

    While the rest of the world has seen a boom in online media and social networking, India, which has less than 80 million Internet users in a population of over one billion, has seen meteoric growth in traditional electronic and print media over the decade. As Europe and the US debate the virtues of distributed power and how the electricity grid can be upgraded, India is starting with a clean slate. Large swathes of the country are still far away from grid connectivity or are shrouded in perennial power cuts.

    In a nutshell, the rules and principles which would work in markets in the West do not apply directly to India. Over the last few weeks, I came across a few companies that represent the potential of India’s “offline” market.

    Large parts of India are still not connected to the electricity grid. Sometimes the connectivity is there, but electricity supply is unreliable and inadequate. Bangalore-based Duron Energy has developed a solar-powered domestic lighting solution for exactly such areas. One of the most popular reasons consumers and families are willing to invest in purchasing Duron’s product is to enable their children to read and study after sunset. Duron is competing with the kerosene oil lamp, and is offering a solution to customers at the bottom of the pyramid who would probably never see electricity in their homes for at least a few years, even though a massive government push for infrastructure investment is already underway.

    At IIT Bombay’s Entrepreneurship Summit, there was a company called Five Shells which is developing board games. Yes, board games. Conventional wisdom dictates that board games are dead. After all, we live in the era of Nintendo Wii, PlayStation Portable and Xbox 360. Games these days should be developed exclusively for console systems like the Wii and Xbox, and hand-held devices like the PlayStation Portable, iPod Touch and even the iPhone.

    Except that in India, the conventional wisdom doesn’t quite apply that neatly. Most of the consoles and hand-held devices are priced way beyond the reach of the average Indian. It costs a great deal of money to purchase electronic hardware, which can cost tens of thousands of rupees, and supplement that with game title purchases, which start at a few thousand rupees. In short, the spending required is simply beyond the budget of the average family.

    Hence, there is clearly a huge market for inexpensive and fun board games priced at a few hundred rupees, assuming a small percentage of Indians enjoys playing board games. Moreover, few companies are designing board games keeping in mind India’s history, culture and consumer tastes.

    Why should Indian consumers only have a choice between Risk and Monopoly? Having said that, designing and marketing board games is no mean task. It requires an incisive understanding of consumers tastes and psychology to produce a game that is fun and easy to play. A company like Five Shells would also do well to protect indigenous intellectual property, and should avoid producing cheap knock-offs of game ideas from abroad, focusing on innovation and new ideas instead.

    Another company that is innovating in an allegedly dying industry is ReleaseMyAd. Founded by former Microsoft employee and Wharton School graduate Sharad Lunia, ReleaseMyAd allows customers to take out print classified advertisements in newspapers from across the country using the Internet, eliminating the cumbersome process of finding and coordinating with a local agency. Print classifieds have been transformed from a billion dollar business into a million dollar business by the likes of Craigslist, but in India, print still rules.

    The death of print has been greatly exaggerated. In India, no website comes close to the reach and readership of a newspaper, and the old-media print classifieds market stands at some $300 million. ReleaseMyAd charges nothing extra to consumers for its service, and is in fact growing the market for print classifieds by providing those who wouldn’t otherwise use print classifieds an easy, seamless and transparent way to do so.

    Focusing on technology for the sake of technology can result in missed opportunities. Both entrepreneurs and investors would do well to remember that India is different. Those that build companies addressing this market’s unique and specific needs will be the ones that emerge as big winners.

    Originally Published: http://navam.in/1o9kz9s

  • Aamir Khan and The Pursuit of Excellence

    Film-making is very similar to entrepreneurship. The role of a film producer is analogous to that of a venture capitalist. Good producers, like smart venture capitalists, know that it’s not just about writing a check and it’s not just about big stars and quality music. In the same way, simply providing venture funding or throwing money at a start-up cannot ensure success, and it’s not necessarily a great thing for entrepreneurs to have lots of work experience and domain expertise in their industry. The actors and the director, like entrepreneurs, work to bring the script and business plan to life. More than anything else, making a good film and building a business from scratch both require oodles of creativity.

    Aamir Khan, whose latest film 3 Idiots hit the silver screen recently, has built an awe-inspiring track record as a film producer, director and actor. Khan is consistently inconsistent in an industry known for its formulaic fare. Like venture capitalists, who tend to think and invest in herds, film producers tend to go with “what works” at the box office. Aamir Khan, as actor and more recently as producer and director, has broken new ground with every film, especially since the release of the Oscar-nominated Lagaan in 2001, defying categorization as an action, comedy or romantic actor.

    Mr. Khan achieved considerable commercial success as producer, director and actor in a film about a dyslexic child’s travails with the schooling system, a subject unheard of in Indian cinema. When he has been associated with projects where the story is more formulaic, like in last year’s romantic comedy Jaane Tu Ya Jaane Na and action flick Ghajini, the treatment has been refreshingly different. Mr. Khan has mastered the balance between art and commerce, pleasing the critics and pulling in hordes of audiences at the same time. With 3 Idiots, the cumulative box office collections from his last three films are projected to exceed 5 billion rupees, or $109 million. By Bollywood standards, Aamir Khan is a one-person industry.

    There are several lessons that one can draw from Mr. Khan’s success. The defining characteristics of his approach seem to be his selectivity when committing to a project and his insistence on working with high-quality people. Many venture capitalists tend to make more investments than they can understand or manage, hoping that a few might hit, a philosophy known as “spray and pray.” Producers and actors, too, have followed this approach. Nowadays, all actors like to profess the virtues of selecting the right script and focusing on one film at a time – an approach which, incidentally, was pioneered by Aamir Khan.

    Through his cinema, Mr. Khan has also made subtle political and social pronouncements. His art has been imitating life in India, whether it was the anti-establishment stance and anti-right wing-extremist undertone of 2006’s Rang De Basanti, or 3 Idiots, which talks about how parents pressure children to achieve academic success and the mechanical approach to education at most Indian universities. Pursue excellence and success will follow, the protagonist in 3 Idiots reminds us.

    Mr. Khan’s recent cinema has sensitized millions of parents to let their children become what they want to, rather than forcing them to be doctors, lawyers or engineers. The subtext of why parents would wish so for their children is, however, missing from the narrative.

    In a socialist India with strict government control over economic activity, those vocations were likely the only ones which came with a certain guarantee to a minimum standard of living. Since the liberalization of 1991 and the boost to economic freedom given by the BJP-NDA government from 1998-2004, career opportunities have expanded dramatically. Today, young Indians can be productively employed as radio jockeys, artists or sportspeople. Popular attitudes haven’t caught up with the growth of opportunity and the majority of Indians continue to believe that what you study in college should dictate what you do in life. It is incomprehensible to the pre-1980s generation why someone might choose to study literature, or why an engineer might want to be a photographer. This stems from the perceived or real lack of economic opportunity in “unconventional” career choices, and the solution is economic liberalization.

    Creating an environment that allows people to pursue excellence in a field of their choosing is what makes for a prosperous and happy society. The importance of effective policy design and implementation cannot be over-stated to achieve that end. In that context, last year’s Right to Education bill was a major letdown. It does not allow individuals and communities to run schools as they would deem fit, favoring needless government control instead. It focuses on rationing existing supply instead of sowing the seed for capacity expansion.

    The consequences of such a policy are very damaging, directly affecting the quality of human resources available to startups and established businesses alike.

    Since 2004, there has been virtually no progress on economic liberalization. Without it, India’s true potential will remain untapped. Aamir Khan has started a revolution of sorts in drawing rooms across the country by bringing attention to the state of the schooling and higher education system. The liberalization of the economy and the education sector must go hand in hand. Any other policy is a deliberate denial of opportunity to millions of Indians. Perhaps Aamir Khan would do well to make a film on this impossible topic, and then we can expect life to imitate art.

    Originally Published: http://navam.in/1p68f9H

  • Creating Social Capital In India

    Venture capitalists add value to an enterprise at many levels and are not just financial investors. Good venture capitalists invest in smart entrepreneurs and big opportunities, and also bring to the table their network of relationships and connections. India is a preferred investment destination among emerging markets and has oodles of bright and hungry entrepreneurs who have built world-class companies across industries.

    However, a culture of serial entrepreneurship and mobility of entrepreneurial talent across business sectors is absent. India’s social structure tends to promote business activity between people of the same community, and social class and family birth also influence one’s vocation, resulting in a dearth of what economists call “social capital.”

    In the entrepreneurship and start up world, it’s common to hear people talk enthusiastically about “developing the ecosystem,” which is the same as creating social capital. Early-stage venture investing remains very risky and difficult despite the fact that India is burgeoning with first-rate entrepreneurs. I think this is because of the dearth of social capital – social networks in India are centered around family and identity. A culture of trust which encourages cooperation and profit-motivated, self-interested action has only just begun to take root.

    Dynastic succession is one of the most pervasive and curious characteristics of Indian society, and can be befuddling to a casual observer. Whether it is business, politics, the fine arts or Bollywood, children inevitably do what their parents did, often with strenuous consequences for both the family and society. Some 3000 years have passed since the great war of Kurukshetra took place between the Pandavas and Kauravas to resolve a disagreement over succession and inheritance, and history continues to rhyme.

    Lateral entry into a vocation outside the purview of one’s family and identity remains difficult. As Warren Buffett might put it, capital allocation in India is determined by the “lucky sperm club,” those who are born in certain families and communities.

    Dynastic succession is not the most efficient way to allocate human capital. A poet who could have been an effective politician doesn’t necessarily make that choice, and a financier who could have made a better writer doesn’t pick that path. Talent ends up being sacrificed at the altar of societal norm, precisely because the opportunities for realizing one’s potential in “other” fields are very limited. In economist-speak, a Nash equilibrium exists and the net effect is that society becomes inertial and innovation is stifled.

    The more social capital India can form, the faster the rate of innovation and idea exchange and ultimately, positive change – and this applies as much to politics and Bollywood, as it does to the startup world. We can be sure that such change will be positive because open and vibrant ecosystems allocate resources far more optimally and democratically than the almost-feudal system in existence today.

    How can India create social capital? At the macro level, market competition creates social capital and trust. India is notorious among investment bankers for its low domestic mergers and acquisitions activity relative to the size of its economy, and it’s uncommon for small and medium-sized companies to sell themselves to larger competitors. Alok Kejriwal, entrepreneur and founder of Internet company Contests2win.com, recently told me that the absence of markets that encourage M&A and dearth of liquidity events can be a serious innovation-killer. Entrepreneurs who can’t get a good price for their company won’t sell, and pricing is distorted because of shallow markets and an inertial system that rewards continuity rather than change.

    Not being able to exit even if they want to means that instead of entrepreneurs owning their company, the company owns them.

    The antidote is meaningful economic reforms, which reward productivity gains and encourage competition. India’s legal and economic structures promote inertia, rather than productivity and fluidity. Bollywood, which was recognized as an industry by the BJP-led NDA government in 1998, is one of the most visible and least talked about success stories to benefit from pro-market policy.

    In the last decade, the film industry has become more organized and corporatized. Access to finance has reduced the influence of criminal elements and the infamous underworld. New talent has emerged and an industry which was once dominated by a few families is now far more democratic. Increased efficiency in movie production, distribution and marketing have grown the market for all and it has become possible to produce and release small-budget films which would have otherwise been commercially unviable.

    This growth can be replicated in other sectors. The Congress-led UPA government has reiterated its commitment on this front, but the question is whether it will actually do enough, or hide behind the excuse of protecting India’s “mango people” once again.

    At the micro level, the best way to create social capital is to pursue one’s dreams and ambitions, even if it seems difficult or impossible at first. Getting out of one’s comfort zone and trying new things, forming groups and organizations where none exist, and bringing together like-minded people whose values and ideas are aligned, though seemingly innocuous, can be deeply transformational. The generation of Indians that grew up through the watershed economic reforms of 1991 and the reform efforts of the NDA government from 1999-2004 is now coming of age. As has been captured by movies and popular culture, this generation is more confident, assertive and aspirational. Global investors and India’s “mango people” alike would be better off if they create social capital to dramatically alter India’s curious cultural calculus.

    Originally Published: http://navam.in/1x63b9U