India @ 75

C.K.Prahalad
Paul and Ruth McCracken Distinguished University Professor The University of Michigan

September 23, 2007

C.K. Prahalad

My Vision for India @ 75

Actively Shape the Emerging World Order Through Economic Strength Technological Vitality Moral Leadership
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The Potential of India

C.K. Prahalad

What India can be in 2022

1. Worlds Largest Pool of Trained Manpower: 200 million college graduates (~16%) 500 million trained, skilled workforce (~40%) Universal Literacy 2. Worlds Leaders in Industry and Commerce 30 of Fortune 100 from India 3. India Accounts for 10 % of World Trade A broad scope of products and services 4. India as a Source of Global Innovations New Businesses, New Forms of Organization, New Technologies
C.K. Prahalad

What India can be in 2022

5. Focus on the Bottom of the Pyramid as a

Source of Innovations for the World

(Leaders in Health, Education, Energy, Transportation, Sustainable Development for all)

6. A Flowering of Art, Literature, and Science

( 10 Nobel Prize Winners from India)

7. A New Moral Voice for People Around the World

India as a country where Universality and Inclusiveness is widely practiced. India becomes the most Benchmarked country for its capacity to accept and benefit from its diversity
C.K. Prahalad

If this is the Prize, How do We get at it?

Do We have to Start with Some Principles?

C.K. Prahalad

Principle Number # 1:
The Essence of Entrepreneurial Transformation
Situation A Resources Low Situation B High

Aspirations

High

Low

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Principle Number # 1
Aspiration > Resources
Aspiration

Leverage Resources

Change the Game

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Principle # 2: Fold the Future In

Extrapolation Budgeting Orientation

2007
Fold the Future in Innovation Orientation

2017/22

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Principle # 2: Fold the Future In

2007

2017/22

*Clarity to Direction *Willingness to Discover *Clear Milestones *Speed and Stamina: 400 meters at a time but a Marathon
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Principle # 3: Focus on Next Practices

Well Known Practices

Best Practices

Next Practices Amplify Weak Signals

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Focus on Here and Now:

Tactical, Blocking and Tackling.

Focus on New Opportunities:

Aspiration > Resources, Folding the Future in, Focus on Next Practices Thinking Differently about the Here and Now
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All three principles are based on developing a Distinct Point of View about Opportunities

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India: Potential Vs. Reality

1. Incrementalism will not work. We Need a Radical Rethink of Policies and Practices 2. Key to becoming a Developed Nation: Shared Commitment to Goals Creativity and Innovation Focus on Entrepreneurship

3. The Essence of Entrepreneurship: Aspiration > Resources

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The Emerging Context: 2005- 2017/22

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Agenda for the Session:

1. The Emerging Issues: 2007-2022 a. Abject Poverty to Income Inequality b. Income levels to Life Style Measures c. Unique needs to Universality of Aspirations d. Affordability to BOP to Impact on Price-Perf. e. Low Tech. to Universal Access to High Tech. f. From BOP to Straddle the Pyramid g. Provisioning Products and Jobs to Environment 2. The Emergence of a New Model of Development?
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The Paradox of Rapid Economic Development.

Rapid Movement of People Away from Abject Poverty ($ 1/day)
China India

Increasing Income Inequalities (e.g. G- Coeff.)

China India

The Emergence of Social Tensions

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Measures of Inequality:
Gini coefficient:
USA 1985- 1986 1989- 1991 1995 -1996 1999 -2001 2006 41.6 42.7 45.0 46.3 46.9 China 22.4 34.1 39.0 42.0 47.0 India 32.0 32.1 33.8 36.0 39.5 Brazil S Africa 59.3 64.0 60.2 59.6 57.2

59.0+

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Measures of Inequality:
Gini coefficient:
USA 1985- 1986 1989- 1991 1995 -1996 1999 -2001 2006 41.6 42.7 45.0 46.3 46.9 China 22.4 34.1 39.0 42.0 47.0 India 32.0 32.1 33.8 36.0 39.5 Brazil S Africa 59.3 64.0 60.2 59.6 57.2

59.0+

GDP/capita PPP
2005 Rank in HD Index (177)

$ 43,555
8

7,600
81

3,700
121

8,600 13,000
69 126

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Where Should Our Focus be

1. Increasing Income
Number out of abject poverty

2. Income Inequality:
National Rural- Urban Within a State/ Region Ethnic backgrounds

3. Income Mobility
Opportunities for Moving up Hope
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Inclusive Growth Means

1. Elimination of Abject Poverty ($1/day?) 2. Reducing Income Inequalities (G-coeff.?) 3. 4. 5. 6. Eliminating unequal access to opportunities Changing Life Style inequalities Reducing inequalities in Choice Reducing inequalities in Share of Voice

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Inclusive Growth Means

1. Elimination of Abject Poverty ($1/day?) 2. Reducing Income Inequalities (G-coeff.?) 3. 4. 5. 6. Eliminating unequal access to opportunities Changing Life Style inequalities Reducing inequalities in Choice Reducing inequalities in Share of Voice

Redistribution of Wealth Vs. Wealth Creation ? Public Policy Focus Vs. Entrepreneurship/Market Focus ?
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Key Assumptions in My Thesis

Antidote to Poverty/Inequality: Wealth Creation and Growth Wealth Creation and Growth: Entrepreneurship and Innovation Entrepreneurship and Innovation: Good Governance , Reduced Transaction Costs Good Governance: Shared Goals and Political Will To Solve Persistent Problems
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The Critical Question: Is Globalization Good or Bad for the Poor? vs. How to Make Globalization Work for the Benefit of All? (e.g. India: Inclusive Growth ; China: Harmonious Society)
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Is Per Capita Income the Appropriate Measure of BOP Opportunity?

1. Per Capita Income vs. Family Income $ 2/day = $ 10/day (family of 5) = $ 3,650/year $ 3,650/ Year is Rs. 146,000/Year
2. Is Life Style Measure a Better way to understand BOP? How People Live (how they spend their income) not just Where they Live not just per capita Income Levels
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LSM 1-3 (25.8%)

Visualizing LSMs

LSM 4-6 (23.3%)

LSM 7-9 (21.5%)

LSM 10-12 (15.0%)

LSM 13-15 (9.4%)

LSM 16-18 (4.0%)

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Dense Urban Dwellings (Slums) will become the Dominant habitat for Humanity

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We see the Emergence of.

1. Urbanization and BOP:
The Rural Urban Mix (Latin America vs. SE Asia) 2. The Emergence of Life Style Measures of BOP The Emergence of Universality of Aspirations The Poor in Shanghai, Mumbai and Sao Paulo

3. Rapid Increases in Income and Aspirations Demand for a higher quality of life at lower costs Dramatic changes in Price-Performance Levels
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The Changing Value Equation

Rich

Price

Middle Class

BOP Performance (Functional+ Emotional)

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Price-Performance Envelopes are Changing Faster than anyone Expected

1970 80 1. 2. Transistors/chip Decrease in size of micro-devices Computing power Cost per MIPs($1000) DNA sequencing cost ($/BASE PAIR) Magnetic data storage (bits/dollar) 103 10-1 90 106 2006 109 10 -6 1015 1M 0.05 1011

3. 4. 5.
6.

1011 1
10 104

Source: Ray Kurzwell

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C.K. Prahalad

The Changing Value Equation

$ 30 Cataract Surgery $35 DVD Player $ 30 Cell Phone $ 0.01 Shampoo in a Sachet $ 2,000 car $ 20 hotel Room Price Middle Class ?

Rich ?

BOP Performance (Functional+ Emotional)

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What are the Implications.

BOP Market: New Price-Perf. Levels for All Straddle the Pyramid ?

Access to High Tech. for all

Explosive Growth In Market Size, Scale of Operations

Environmental Demands

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The Focus on Price-Perf. Forces

1. 2. 3. 4. Scale: Local Responsiveness and Global Standards Focus on Costs Access to New Markets: Knowledge and Trust Technical and Social Insights

Emergence of a New Social Compact for Business: Collaboration with CSO; Private Public Partnerships
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Let us Look at Data From Around the World

1. GDP/Capita in PPP terms
( Source: World fact Book, 2002)

2. Human Development Index ( Source: UNDP, 2003) 3. Quality of Governance: Corruption

( Source: Transparency International, 2002)

Selected 25 Countries from Very Rich to Very Poor

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Human Development Index (HDI) vs. Corruption Perception Index (CPI)

C PI ( 2 0 0 2 )

H D I vs. C P I
10 9

H D I v s . C PI e q u a tio n

Corruption Perception Index, 2002

8 7 6 5 4 3 2 1 0

Dishonest

20

40

60

80

100

120

140

160

Hum a n De v. Inde x , 2 0 0 3

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Corruption Perception Index (CPI) vs. Purchasing Power Parity (PPP)

PPP ( 2 0 0 1 )

C P I vs. P P P

USA C PI v s
USA

PPI e q u a t io n

P urchasing P ow er P arity,2002

$40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $-

India

10

Dishonest

Honest

C o rru p tio n P e rc e p tio n In d e x , 2 0 0 2

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Human Development Index (HDI) vs. Purchasing Power Parity (PPP)

HDI vs. PPP (2001)
$40,000 PPP (2001) HDI vs. PPP equation

PPP per capita, 2002

$35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 20 40 60 80 100 120 140 160

Focus on Individual

Lack of focus on Individual

Human Dev. Index, 2003

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My Takeaways:
1. Human Development is not about More Resources but less Corruption in the Deployment of Resources
2. Good Governance (less corruption) leads to High Levels of GDP/Capita; not the other way around 3. Focus on Human Development (Focus on Individuals) and not Groups Rights Leads to Rapid Economic Development (GDP/Capita)

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India as a Developed Nation: What is the Trajectory?

2003
GDP/Capita $ 2,500 (PPP)

2020
GDP/Capita $ 25,000 (PPP)

Rank in HDI 127/175

CPI Rank

2.7/10.0

Rank in HDI 20/175

CPI Rank 7.0/10.0

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How do we Correct the Trajectory?

Technological and Economic Accomplishment High 2022

?
2007 1947

Low Low High Commitment to Rights of the Individual, National Character, Universal Principles
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What are the Prerequisites:

1. Change in Mental Models

2. Data Driven not Dogma Driven Debate

3. Individual Rights not Group Rights

4. Principles not Rituals

5. Corruption is Treated as Treason

6. Focus on Performance, Accountability

7. Imagination not Resources
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What Impact Does Poverty Alleviation have on the Environment?

1 Billion Micro Consumers Urbanization Creation of New Jobs- Micro producers

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Deaths from global warming will double in just 25 years -- to 300,000 people a year. Global sea levels could rise by more than 20 feet with the loss of shelf ice in Greenland and Antarctica, devastating coastal areas worldwide.

Global warming is here !

The number of Category 4 and 5 hurricanes has almost doubled in the last 30 years. Malaria has spread to higher altitudes in places like the Colombian Andes, 7,000 feet above sea level. The flow of ice from glaciers in Greenland has more than doubled over the past decade. At least 279 species of plants and animals are already responding to global warming, moving closer to the poles.

Heat waves will be more frequent and more intense.

Droughts and wildfires will occur more often. The Arctic Ocean could be ice free in summer by 2050. More than a million species worldwide could be driven to extinction by 2050.

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Sustainability is multi-dimensional:

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BOP Experiences Environmental Impacts First

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The Impact on Ecosystems

Data and Analysis from World Resources Institute

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C.K. Prahalad

Millennium Assessment Findings How ecosystems have changed Types of ecosystem services
Provisioning
Goods produced or provided by ecosystems
Purdue University

Regulating
Benefits obtained from regulation of natural processes
NASA

Cultural
Non-material benefits from ecosystems

WomenAid.org

African AIDS Action

LSUP

CEH Wallingford

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Millennium Assessment Findings How ecosystems have changed

Bottom line: ecosystem service trends over past 50 years
Enhanced
Provisioning
Crops Livestock Aquaculture

Degraded
Capture fisheries Wild foods Wood fuel Genetic resources Biochemicals Fresh water
Air quality regulation Climate regulation Erosion regulation Water purification Pest regulation Pollination Natural hazard regulation Spiritual & religious Aesthetic values

Mixed
Timber Fiber

Regulating

Carbon sequestration

Water regulation Disease regulation

Cultural

Recreation & ecotourism

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Many Dimensions of Eco Systems will become Stressed

1. Water:
Quality of Water Availability, access Usage Mix: Agriculture, Industry, home

2. Energy
Fossil Fuels and Substitutes Regressive to progressive Fuels 3. Health
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The Bottom Line..

Poverty Alleviation, Sustainable Development, Inclusive Growth are Intimately Interlinked.

Our Current Developmental Models Energy, Water, Packaging, and Waste/capita- are Inappropriate

New Breakthrough Innovations is not an Option The Emerging Markets must become a Source of Innovations
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Phase II of Indias Development

The Emerging Issues: 2007-2020 a. Abject Poverty to Income Inequality b. Income levels to Life Style Measures c. Unique needs to Universality of Aspirations d. Affordability to BOP to Impact on Price-Perf. e. Low Tech. to Universal Access to High Tech. f. From BOP to Straddle the Pyramid g. Provisioning Products and Jobs to Environment

The Emergence of a New Development Paradigm?

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What are the Dominant Themes: 2007-2015/2022

1. 2. 3. 4. 5. 6. Primarily Market Based Solutions Social Equity in Development Rule of Law, Individual Rights Scale New Price- Performance Levels Ecologically Sustainable Development

Embrace the Imperatives of Poverty Alleviation

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The Sandbox for Economic Development

Global Scale

Innovations within These Constraints

Market Based
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The Sandbox for Economic Development

Global Scale

Accountability for Performance Business, Politicians, Civil Society, Bureaucrats

Market Based
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The Emerging World Order: My View in 1989

World Scale Domestic Market Small Domestic Market China India, Brazil Local Firms USA, (2000) Europe, Japan China
India S.Korea, Taiwan Finland Switzerland

Global Firms
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The Poor of India are Ready for this Journey: Are The Leaders Ready?

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India as a Developed Nation: The Recipe

.
T ough fate s tan ds in th e w ay, s tren uous effort yields ready fru it. h Labor recom pen s es w h at fate den ies .
Thirukkural 619

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Transformation Requires:
Imagination Passion Courage Humanity Humility Intellect Luck !
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