Nobel Prize winning economist Robert Lucas had remarked that once you
start thinking about economic growth, it is hard to think of anything
else. What are the causes of economic growth and how can the process
be enabled is a question that has obsessively occupied some of the
best minds in the world of economics and commerce.

The question takes on an unparalled urgency and importance when applied
to the rural Indian economy because it presents an enormous challenge,
and, consequently, presents an equally great opportunity for making a
difference in the lives of hundreds of millions of people. India’s
economic development is predicated upon India’s rural
development because around 700 million Indians live in rural India. An
astonishing one out of every ten living humans lives in rural India.

Rapid progress in GDP growth and globalization in the last decade has
primarily impacted the urban economy. While software exports, business
process outsourcing, etc, have helped urban economic growth, it has
done relatively little for the rural economy.

Without rural economic development, India has little chance of
achieving growth rates required to become a developed nation.
Furthermore, economic development is both a cause and a consequence of
urbanization. Clearly, in the Indian context, urbanization through
further rural to urban migration is both unsustainable and socially
disruptive. Therefore urbanization of the rural population will have
to be achieved in the rural areas.

Rural India is caught in what is called a development trap. Because of
lack of economic opportunities, incomes are low. Therefore they are
unable to pay for goods and services that would enable them to increase
their incomes. This leads to low demand for goods and services.
Consequently, firms don’t find it profitable to do business in rural
India. This leads to the inadequate provision of infrastructure, which
in turn leads to lack of economic opportunities, and so on.

It is important to recognize that human capital is the scarce resource
globally. Fortunately India is lavishly endowed with immense human capital.
However, physical capital is in relatively short supply in India. The
challenge therefore is to use the limited capital most efficiently to
break out of the poverty trap by integrating the rural
economy with the urban Indian economy and indeed the global economy.

Various models for rural economic growth have been proposed and
implemented. Vinod Khosla and I have proposed a model which harnesses
the power of the information and communications technology (ICT)
revolution to accelerate rural economic growth. The model called Rural
Infrastructure & Services Commons (RISC) has the potential for
achieving the multi-faceted goals of sustainable development. It uses
limited resources efficiently by focusing them in specific locations
that are accessible to a sufficiently large rural population, such as
that of 100 villages.

RISC provides the benefits of urbanization by making available to
rural populations the full set of services and amenities that are
normally available in urban areas. It brings the benefits of ICT and
the increased access to global markets that globalization promises.
The model recognizes that rural populations face a number of
inter-related gaps, not just the celebrated digital divide. Bridging
them simultaneously with a holistic solution is more likely to succeed
than any partial intervention can.

The model facilitates the coordination of the investment decisions of the
private sector, the public sector, NGOs, and multilateral lending
institutions. To achieve its goal, the model strikes a number of
balances — between the local and the global, between planned
infrastructure investment and market-driven service provision, between
specialization and standardization. It does not require government
subsidies for its continued operation, although the government does
have a role in providing some critical functions such as risk
alleviation, loan assistance, and enacting enabling legislation.

A typical RISC installation would provide services for about 100,000
rural people. These services, mostly but not all provided competitively
by a large number of for-profit firms, will range from education, health,
market making, financial intermediation, entertainment to government
services, social services, etc. Since all services themselves require
the infrastructural services such as power, telecommunications, water,
physical plant, etc., large specialized firms will provide the
infrastructure.

RISC obtains urbanization economies, which arise from the agglomeration
of populations and infrastructure facilities. By installing RISCs
to serve the rural populations of an entire state, economies of scale
and scope are also obtained. Scale economies would be significant at
each level of the model. At the infrastructure level, there are
transaction costs associated with the necessary coordination between
the firms providing the core infrastructural services. At the services
level, the cost of the services will be inversely proportional to the
quantity demanded and supplied.

A RISC provides a complete set of services and functions. Each service
provider itself is a customer of other services co-located on the RISC.
The banker uses the internet and postal services, and the internet
service provider uses the banking and postal services, and so on. They
make each other mutually viable and even possible. All these economies
essentially lower the cost of service provision and, in a competitive
market, makes them more affordable.

At a certain level of abstraction, the proximate causes of poverty can
be seen as two gaps: the ideas gap and the objects gap. The objects
gap
is the lack of physical resources – too little land, too little capital
stock, etc – that contribute to persistent poverty. The ideas
gap is
the lack of knowledge about how to make the best use of the resources
available. Fortunately, the cost of knowledge goods has dropped
precipitously due to the revolution in information and communications
technologies. Bridging the ideas gap is a much easier task than ever
before. RISC uses ICT intensively towards that end.

The transition from the concept to the actual implementation of the
RISC model requires co-ordination of investment decision of the
government and the large firms that provide the infrastructural
elements. It is a non-trivial but surmountable challenge provided the
political will and the vision exists among policy makers, private
sector leaders, leading investors, and opinion makers.