Singapore, Oct 10: Mr Lee Kuan Yew, Minister Mentor, Singapore, on Friday said the PURA model advocated by the former Indian President, Mr A.P.J. Abdul Kalam, will not work in bringing about India’s transformation into a developed country.

Answering a question at a session of ‘PBD Singapore’, he said, “He is a great scientist and a very powerful man. I don’t want to cross swords with him.

“But if you study very carefully how other countries have industrialised and become knowledge economies – Korea, Japan, China and Eastern Europe – you will realise you cannot bring urban amenities to rural areas.

“How can you do it? Where is the manpower? How will you get the best doctors to stay in the rural areas?”

Getting into the area of some “hard headed analysis”, he said one needed to look at the fact that while companies such as Pepsi and Citicorp were headed by Indians, “they are outside India.”

The way to do it, Mr Lee Kuan Yew said, was by rapid urbanisation as Singapore had done it (“we don’t have a single village left in Singapore”), or by planned urbanisation, as China was doing it by moving 10 million villagers to urban areas every year. “Look at Brazil: They are building huge centres, factories for making cars, aeroplanes and all kinds of things.”

Villagers are moving to these centres, he noted.

“If you look at ancient Greece – Socrates and Virgil, were they in the countryside?

“They were in the cities where all services were concentrated.”

(Link thanks to a comment by t.)

As I always argue, Singapore got lucky in the random draw for dictators and drew Lee Kuan Yew; India got unlucky and drew Nehru. (Nehru did not know much but had at least tried to educate himself, though somewhat unsuccessfully. But what he spawned — the whole uneducated khaandaan — would not know which end of a book was the correct end to start from.)

LKY is smart. He understands why urbanization matters. He has practical understanding of it. It’s interesting that Krugman who got the Bank of Sweden Prize in economics (the economics Nobel prize) has done important theoretical work on urbanization.

LKY is also very diplomatic. I like the way he says, “I would not want to cross swords with [Kalam].” Basically he means that it would be an uneven match and it would be unsportsmanlike of LKY to fight Kalam.

I think that Mr APJ Kalam was (and still is) very powerful. His PURA model was flawed from the word go and yet it got a huge amount of press and a lot of attention among the movers and shakers of industry. No one of any importance ever spoke out against it. I did but then my name is nobody. I did develop RISC before PURA came along, though. Here’s a comparison of RISC and PURA (Nov 2006).

RISC and PURA are in some sense diametrically opposed concepts. There is of course a superficial commonality of objective: economic development. But even that superficial commonality disappears once the objective is stated in more details.

PURA’s objective is based on what I would call “village centric development” while RISC is about “urban centric development.” PURA is about distributing economic activity among a group of villages and then connecting these villages so that people are constantly moving from one village to another to get something achieved. (In one version of PURA, I believe they want to connect all villages with bi-directional high speed modern alternative fuel buses — which makes me wonder why not implement PURA in Pune since this metropolis lacks a decent public transportation system.)

RISC concentrates all economic activity of a large number of villages in one location so that it can catalyze economic growth through lowered transaction costs, and economies of scale and scope are achieved. PURA attempts to keep people in 600,000 villages and disperse economic activity around the rural countryside. RISC says that the village as an economic social unit is inherently incompatible with development, and that the rural economy can be helped by urbanizing the population in place. RISC is feasible with limited resources while PURA is only possible if there is about $600 billion spare cash. RISC requires minimal government involvement, while PURA is what can be a license-permit-control-quota bureaucrat’s wet dream.

But once again, it is unsportsmanlike to pitch RISC against PURA.

Let’s get a little more wisdom from LKY. Here’s a bit from a 2005 Der Spiegel interview, “It’s Stupid to be Afraid.” (Thanks t again for the link.)

SPIEGEL: You’ve been the leader of a very successful state for a long time. Returning from your time in China, are you afraid for Singapore’s future?

Mr. Lee: I saw it coming from the late 1980s. Deng Xiaoping started this in 1978. He visited Bangkok, Kuala Lumpur and Singapore in November 1978. I think that visit shocked him because he expected three backward cities. Instead he saw three modern cities and he knew that communism — the politics of the iron rice bowl — did not work. So, at the end of December, he announced his open door policy. He started free trade zones and from there, they extended it and extended it. Now they have joined the WTO and the whole country is a free trade zone.

SPIEGEL: But has China’s success not become dangerous for Singapore?

Mr. Lee: We have watched this transformation and the speed at which it is happening. As many of my people tell me, it’s scary. They learn so fast. Our people set up businesses in Shanghai or Suzhou and they employ Chinese at lower wages than Singapore Chinese. After three years, they say: “Look, I can do that work, I want the same pay.” So it is a very serious challenge for us to move aside and not collide with them. We have to move to areas where they cannot move.

SPIEGEL: Such as?

Mr. Lee: Such as where the rule of law, intellectual property and security of production systems are required, because for them to establish that, it will take 20 to 30 years. We are concentrating on bio medicine, pharmaceuticals and all products requiring protection of intellectual property rights. No pharmaceutical company is going to go have its precious patents disclosed. So that is why they are here in Singapore and not in China.

SPIEGEL: But the Chinese are moving too. They bought parts of IBM and are trying to take over the American oil company Unocal.

Mr. Lee: They are learning. They have learnt takeovers and mergers from the Americans. They know that if they try to sell their computers with a Chinese brand it will take them decades in America, but if they buy IBM, they can inject their technology and low cost into IBM’s brand name, and they will gain access to the market much faster.

SPIEGEL: But how afraid should the West be?

Mr. Lee: It’s stupid to be afraid. It’s going to happen. I console myself this way. Suppose, China had never gone communist in 1949, suppose the Nationalist government had worked with the Americans — China would be the great power in Asia — not Japan, not Korea, not Hong Kong, not Singapore. Because China isolated itself, development took place on the periphery of Asia first.

Further down in the interview, he talks about democracy and why he had to do things differently.

The British came here, never gave me democracy, except when they were about to leave. But I cannot run my system based on their rules. I have to amend it to fit my people’s position. In multiracial societies, you don’t vote in accordance with your economic interests and social interests, you vote in accordance with race and religion. Supposing I’d run their system here, Malays would vote for Muslims, Indians would vote for Indians, Chinese would vote for Chinese. I would have a constant clash in my Parliament which cannot be resolved because the Chinese majority would always overrule them. So I found a formula that changes that…

People voting for narrow sectarian interests — sounds familiar, doesn’t it? Worse yet, how the politicians do their best in India to divide the population on caste, creed and religious lines just so as to get the vote. The wonders of democracy in India are a marvel to behold. A few days ago I saw a full-page ad in the Times of India which declared proudly what Mayawati had done to privilege Muslims over non-Muslims. It was a blatant display of religious discrimination and a shameful admission of the failure of the Indian political system.

Singapore gets Lee Kuan Yew. India gets Nehru and soon enough will have Mayawati. Makes you want to weep.

I have argued against PURA because it makes no economic sense. However I suspect that the recommendation will be overturned and money will be wasted on PURA.

“Vinod Khosla’s Marshall Plan for rural India” is the subtitle of a “How the World Works” article by Andrew Leonard on Salon.com.

I must admit that the article is very well written. Here are some excerpts, for the record:

The daily drumbeat of biofuel headlines has made Vinod Khosla — co-founder of Sun Microsystems, former Kleiner-Perkins venture capitalist, and ethanol evangelist/entrepreneur extraordinaire — a hard man to ignore of late. But Khosla’s massive bet on renewable energy as the answer to climate change and peak oil (and big profits) may not even be his most ambitious scheme to remake the world. In 2002, Khosla co-wrote a paper with development economist Atanu Dey sketching out a plan to boost economic growth in rural India. It’s hard to think bigger than a bid to upgrade the living standards of some 700 million people — as the paper notes, one out of 10 people on this planet is a rural Indian. (Thanks to the India Economy blog for the link.)

Here’s a bit more.

Khosla and Dey’s basic proposal, however, is simple enough that one wonders why it hasn’t been tried before. The authors suggest that in part this is because the cost of connecting people with the right level of infrastructure and associated services was too great. But the same information and communication technologies (ICT) that have enabled Indian programmers to compete on a global stage can now also enable entrepreneurial rural Indians to gain access to the ideas and information necessary to boost their nascent business operations on a local level. “ICT is therefore the enabling technology that empowers the model,” write the authors.

Read it all.

India’s economic growth and development is predicated to a large extent upon the development of its 700-million strong rural population. Currently, the majority of India’s population lives in about 600,000 small villages and are engaged primarily in agriculture and related activities. Since a very large labor force in agriculture necessarily implies very low per capita incomes, a substantial portion of India’s current agricultural labour force has to move to non-agriculture sectors for incomes in all sectors to go up. The challenge is to manage the transition of a large segment – perhaps even 80 percent – of the rural population from a village-centric agricultural-based economy to a city-centric non-agricultural economy, and do so in a reasonable period.

Urbanization and Development

Economic growth is both a cause and consequence of urbanization. By urbanization is meant the dense aggregation of people into economically interacting units (cities and towns) of anywhere between 100,000 people and several million people. Cities are engines of economic growth because they give rise to economies of scale, scope, and aggregation. This is so because infrastructure – buildings, roads, power, telecommunications, water, sanitation, security, maintenance – can be provided economically to larger aggregations of people. Availability of low cost infrastructure in turn makes the availability of a wide range of services possible in cities as opposed to very small villages. It is the aggregation of supply and demand for economic goods and services (and therefore indirectly for infrastructural goods) which account for cities.

Constraints

A set of basic facts define the constraints within which the economic growth and development of India’s rural population must be addressed. Fundamentally, they relate to resource constraints, the nature of infrastructure, and the future trajectory of the geographical distribution of the population.

First, people need access to a wide range of services which allow them to engage in economically productive activities. These services include, at a minimum, market access, educational, health, financial, entertainment, transportation, and communications. It is primarily these services which enhance life and livelihood, and with which any population is concerned with.

Second, the provision of services depend on the availability of infrastructure. Without the foundation of affordable infrastructure, affordable services cannot be provided.

Third, infrastructure investment is ‘lumpy’ – the average cost of provision of infrastructure is inversely related to the scale of the operation.

Fourth, if there were no limitations on the financial and other resources available for providing infrastructure, it would be possible to provide infrastructure at every village. Resource limitations preclude this option.

Fifth, even if the full set of infrastructure were provided at every village, they will not be commercially sustainable as the aggregate derived demand for the infrastructure will be insufficient to make them commercially viable. Clearly, subsidy of infrastructure for 600,000 villages is not an option considering resource constraints.

Finally, while the current geographical distribution of the rural population is into over half a million small villages, the future distribution is a much smaller number of much larger aggregations of people – if the desired future is one where the agriculture sector’s share of GDP is to be significantly smaller relative to manufacturing and services sectors, and if the majority of the labor has to be engaged in non-agricultural activities. In other words, the basic geographical structure of population distribution will eventually undergo a change, whether one likes it or not.

Not Village-centric

It is therefore argued that ‘village-centric’ development is not feasible because of resource limitations and because people naturally tend to migrate out of villages to cities. Furthermore, it not desirable since a vibrant economy depends on the aggregation of the population into units much larger than a small village. In short, investing scarce resources into villages is short-sighted and uneconomical.

Based on the above considerations, a model for rural development has been conceived called RISC – Rural Infrastructure and Services Commons.

The RISC Paradigm

The RISC idea is to bring to the rural population the full set of services that are normally available only in urban locations. It works within the constraints of limited resources by focusing attention to and concentrating investments at specific locations to obtain economies of scale, scope, and agglomeration.

RISC follows the logical trend of moving away from vertically integrated institutions to one of horizontal segmentation and specialization. Thus, conceptually and operationally, a RISC has two levels: the lower one is the infrastructure level (I-level) which provides a reliable, standardized, competitively-priced infrastructure platform consisting of power, broadband telecommunications, and the physical plant (building, water, air-conditioning, sanitation, security). The I-level is achieved by the coordinated and cooperative investment of firms that specialize in the component activities.

The user services level (S-level) is above the I-level. Co-located at the S-level are firms that provide user services such as market making, financial intermediation, education, health, social services, governmental services, entertainment, logistics, etc. The presence of the I-level reduces the cost of the services and therefore the prices that the users face. Economies of scope and agglomeration are obtained by the presence of the variety of different service providers.

Given that rural populations are very poor, it is reasonable to expect that the aggregate demand of a single village for any single service will be very low. However, the aggregate demand for, say, a 100 villages for a single service could be significant. Aggregating the demand for many different kinds of services of the same 100 villages would translate into lot of services. These services would require infrastructural inputs which can be commercially and sustainably supplied. Thus, a RISC would supply to the needs of about 100 surrounding villages.

The total rural population of India can be covered by about 6,000 RISCs each servicing the needs of approximately 100,000 people. Further external economies of scale can be obtained by implementing a few thousand RISC locations across the rural landscape. Access to a RISC for any rural person would be only a ‘bicycle commute’ away.

Operationalizing RISC

The distinction between the I-level and the S-level becomes apparent at the operational level. The I-level is provided by a small number of firms which specialize in the provision of infrastructure. The essential requirement is that the investments from these various firms are coordinated. This resolves the ‘coordination failure’ generally associated with investments that are large, lumpy, which have large lead times in implementation, and have long pay-back periods. These can be private sector or public sector firms.

There is an element of planning in the creation of the I-level. But it is not a top-down, bureaucratic, government imposed centralized planning. It is coordinated investment in various components of the infrastructure so that they all make each other mutually viable. The role of the government is highest at this level.

The government has to facilitate the process of the creation of the I-level first through light-handed regulation. Second, it has to give required tax incentives to the firms. Third, the government may be required to facilitate investment though loan guarantees. Finally, it has to help with the acquisition of land required for the projects. The model does not require the government to directly fund any of the infrastructure.

The firms providing the infrastructure will be basing their investment decisions on adequate return on investment, of course. The infrastructure will be used by, and paid for, the firms which are at the S-level and which provide the services that the users demand.

The composition of firms at the S-level will be almost entirely market-driven. There will be two basic categories of services. First, services which the users are willing and able to pay for. This means that the benefits to the users of the services will be greater than the costs. These are the ‘income-enhancing services’ such as greater market access. Second, services which are not fully priced such as government services and those provided by NGO and charitable entities.

What RISC Does

RISC provides a signal to coordinate the activities of a host of entities: commercial, governmental, NGO’s. It synchronizes investment decisions so as to reduce risk. It essentially acts as a catalyst that starts off a virtuous cycle of introducing efficient modern technology to improve productivity that increases incomes and thus the ability of users to pay for the services, and so on. It creates a mechanism that reduces transaction costs and therefore improves the functions of markets.

Therefore, RISC
* serves as a focal point for the bi-directional flow of information and materials within the rural areas
* clusters economic activities in specific rural locations by facilitating firms’ businesses
* seeds urbanization and urbanize the rural population without socially costly rural to urban migration
* integrates the rural economy with the national and international economy and remove inefficiencies

By providing a full complement of services, RISC creates a ‘mini-city’ which seeds the formation of a city by drawing to it the population from the surrounding villages. Initially, those who need the services will commute to the RISC location but as time goes by, the area around a RISC will naturally evolve into a small city. RISC is the grain of sand around which the pearl of a city can develop.

Development of People, Not Villages

The economic development of the rural population, rather than the development of villages, is the goal. This requires that the population have access to services, which in turn requires the availability of infrastructure. Infrastructure investment is lumpy and cannot be economically provided at the scale appropriate to small villages which are the norm in rural India. Furthermore, looking to the future, the economy of present day rural India cannot continue to be dispersed into 600,000 villages. The population will have to migrate to a much smaller number of larger aggregations. These formation of these aggregations can be catalyzed by the coordinated investment of infrastructure, either in greenfield ventures or in existing locations where there is road or rail connectivity.

RISC is not an attempt at social engineering through centralized planning. Neither is it another model of Internet kiosk or telecenter. It aims to solve a problem by appealing to the profit motives of all participants, be they private sector, NGOs, or the public sector. The good that will surely come out of it can only be attributed to Adam Smith’s invisible hand.

Reference: Dey, Atanu and Vinod Khosla (2003), ‘RISC – Rural Infrastructure and Services Commons’. Full document available at Deeshaa.org and at Khoslaventures.com.

He then went on to ask in what way RISC differs from PURA. My response, for the record:

RISC and PURA are in some sense diametrically opposed concepts. There is of course a superficial commonality of objective: economic development. But even that superficial commonality disappears once the objective is stated in more details.

PURA’s objective is based on what I would call “village centric development” while RISC is about “urban centric development.” PURA is about distributing economic activity among a group of villages and then connecting these villages so that people are constantly moving from one village to another to get something achieved. (In one version of PURA, I believe they want to connect all villages with bi-directional high speed modern alternative fuel buses — which makes me wonder why not implement PURA in Pune since this metropolis lacks a decent public transportation system.)

RISC concentrates all economic activity of a large number of villages in one location so that it can catalyze economic growth through lowered transaction costs, and economies of scale and scope are achieved. PURA attempts to keep people in 600,000 villages and disperse economic activity around the rural countryside. RISC says that the village as an economic social unit is inherently incompatible with development, and that the rural economy can be helped by urbanizing the population in place. RISC is feasible with limited resources while PURA is only possible if there is about $600 billion spare cash. RISC requires minimal government involvement, while PURA is what can be a license-permit-control-quota bureaucrat’s wet dream.

As vehicles of development, PURA and RISC are as similar as trains and planes — they both transport people but they are dissimilar in all other respects such as the principles on which they operate, where they operate, how much they cost, etc.

The underlying reason for the differences between the two models is perhaps that RISC is designed by a development economist, and PURA is what a technologist and educator (Dr PV Indiresan) could come up with and is promoted by a former defense administrator and technologist (Pres APJ Kalam) with very little understanding of the process of development or economics. But then, I guess if I were to design rockets, I would not be any more successful in that venture than non-economists are in designing economic systems.

Which brings me to a point that should be underlined. Our natural world is awesomely complex and our man-made world is becoming increasingly complex. We have come a long way from our hunter-gatherer past, or even our more recent agrarian past. Those were simpler times and it was possible for a non-specialist to make contributions to various fields of human endeavor. Amateurs had a chance because in some sense all people were amateurs. But now it is the age of specialists and specialization. This is not surprising since it is precisely specialization and division of labor that leads to our technologically and scientifically sophisticated world. You have to have medical training for you to be somewhat competent in the practise of medicine; you have to have formal training in law before you can hope to make fundamental and original contribution to the field of law; you have to have studied economics for a fairly extended period before you have a good chance at speaking knowledgeably about it. Of course, studying a subject does not guarantee that one cannot make a fool of oneself in that subject; it only decreases the probability of holding absolutely idiotic views in that subject.

I have noticed that people are especially susceptible to the illusion that on matters economic they are quite well qualified and that they don’t need to study the subject before holding forth on it. Very few would start arguing about the merits of neural-net computers vis a vis quantum computers without having more than a nodding acquaintance with computer science. But when it comes to economic development, many an amateur boldly ventures forth where experts fear to tread. Pony-tailed self-styled gurus hold forth on the subject as do technologists who wouldn’t recognize an economic argument if it came and punched them on the nose.

Does it matter? I think it does. People who are ignorant and are ignorant of their ignorance can, without intending to, cause a great deal of grief to others. One particularly egregious example is that of those who boasted of scaling the commanding heights of the economy after India’s independence. Their ignorance doomed India to a set of policies that made India an economic basket case. Tottering on the brink of disaster, a few policy makers woke up in 1991 and changed course slightly. But we are not out of danger yet.

Beware of monkeys.

It takes nearly two hours by road to get from the Lucknow airport (Kanpur does not have an airport) to the IIT campus in Kalyanpur outside Kanpur city limits. The road is fairly good by Indian standards and just before entering Kanpur city, it crosses the wide expanse of the river Ganga.

It was just a little before midnight when the car turned towards the IIT main gate. I felt a sense of nostalgia and sadness.

The IITK campus main gate is a not imposing. Off the highway, it is nestled among a bunch of ramshackle shops. It is hard to imagine a less dignified entrance to one of the most premier engineering and technology schools of India. The campus is not as shabby as the entrance would make one expect, however. Built in the late 1960’s with American collaboration, it does bear a passing resemblance to some American campuses. The halls of residence, and the academic and administrative buildings are of various vintages, and the dominant theme is exposed-brick and concrete architecture. Situated in the dusty semi-arid plains of the state of Uttar Pradesh (UP), the campus is huge compared to the student population it serves.

It is surprising to note that IITK serves only 2,000 undergraduates and about 1,600 graduate students currently. A couple of decades ago, during my time, it had half that many students. The well-known American campuses, in comparison, serve around 25,000 students. UC Berkeley, the most recent of my various alma maters, has 35,000 students. The UC system with ten campuses has a student enrollment of over 200,000. All the IITs combined do not add up to even one campus of the University of California. Of course, IITs are mainly engineering schools and a fairer comparison would be between the sizes of the engineering schools.

All told, the IITs combined take in less than five thousand students a year. The competition is something fierce. More than 300,000 students take the “Joint Entrance Exam” (JEE) and depending on one’s rank in that test, one gets to choose the campus and the branch of engineering one enters. The test rejects more than 98 out of every 100 who appear for it.

Vistor’s Hostel

I checked into the Visitor’s Hostel (VH, as it is called). It is a sprawling complex of buildings connected with covered walkways enclosing well-kept lawns and housing about 200 visitors. The rooms are big and wasteful of space. Though late into the night, the heat of the day was still trapped inside the room and the window air-conditioner struggled mightily to make the temperature bearable. Like most living quarters in India, the VH was not designed with usability in mind. I find that most Indian construction is ill-suited for India’s climate.

Rural Infrastructure

I was at IITK to participate in a roundtable discussion of sorts on India’s rural infrastructure. There were about 30 participants, mostly from academia and from the government. How do we provide for roads, power, telecommunications, water, sanitation, and other infrastructural elements was the question.

My take on the whole issue boils down to these points:

* First, we must understand why rural infrastructure is the way it is—practically non-existent despite numerous plans and pretty large amounts of spending over the decades
* Second, what are we doing about rural infrastructure? Should we be building for the rural landscape as it exists today or should we be focusing our energies on what rural India should be (and would be) in the future?
* Finally, the model for rural infrastructure growth must include as one of its components the RISC concept outlined by yours truly

One of the participants, Prof PV Indiresan, presented his model of rural development called PURA–“Providing Urban Amenities in Rural Areas” (which you may know is promoted by President APJ Kalam.) The problem I have with PURA is simple: the numbers don’t add up. Per rural resident, the capital investment required is around Rs 100,000. If we had that kind of money to spend on rural development, we would not be a poor country in the first place. And even if we had that kind of resources, it would still be ill-advised since the model is economically wasteful. I argued why in my brief presentation which followed Prof Indiresan’s.

Scattered Economy

India is a dual sector economy: a large rural population (around 70 percent) and a much smaller urban population. The rural population is scattered over 600,000 villages, and the urban population in towns and cities that are severely overcrowded. Development and urbanization of the population are causally linked: each is a cause and consequence of the other. Therefore India’s development depends on the urbanization of India’s rural population.

We need to keep the distinction between the “development of rural people” as opposed to the “development of rural areas” in mind because they have divergent implications.

The existing towns of cities in India are bursting at the seams and cannot handle any more rural-urban migration. The only recourse is to urbanize the rural population in situ. Now urbanization has many facets, one of the most important being that of the density of aggregation of the population. Agglomeration economies arise when lots of people live very close to each other, as in Mumbai, NY City, or Tokyo. That is the reason that cities exist and why living in a city is economically more efficient and more attractive to the average person. You cannot obtain the same benefits if you are living in a village of 1000 people.

The average population of an Indian village is 1,000 or so, and there are 600,000 villages. Can all these 600,000 places be “urbanized”? Yes, if you had a nearly infinite supply of resources, which in our case we have not got. Now ask another question: Do we really want our population to be living in 600,000 little villages, say, 40 years from now? The answer is clearly no because the fragmentation of such a large population is inefficient and a recipe for poverty. What India needs is the transformation of these 600,000 villages (with about 1,000 people on average) to 600 cities (with about one million population each.) It will be a distributed economy but not a scattered one.

RISC

If we should be moving away from 600,000 villages, then we should not be spending scarce resources in trying to keep the status quo as PURA appears to aim to do. The vision should be seed a sufficiently small number of places with adequate infrastructural investments so that the surrounding rural population would be able to benefit from it and which in time will become the core of the new cities we must have in rural areas. That is what my RISC model does and does it without invoking neither the heavy hand of state planning and government spending (and its attendant corruption.)

As I am wont to do, at some point in the discussion I was provocative and basically said that the reason government intervention has failed for so long was simply because the government is ridden with people who are immoral, corrupt, short-sighted, and stupid. Besides that, I noted the practical and theoretical impossibility of the success of any command and control economy. This did not go down too well with one high-ranking government bureaucrat. In his defense of the government, he made the incredible claim that the public sector incumbent firms (BSNL, MTNL) were responsible for the amazing telecommunications revolution and that too against all the attempts by the private sector entrants to not play by the rules. As they say, ulta chor kotwal ko daatey.

Later that day, many participants told me that they agreed with my position. One lady, who was full of praise for PURA, after my presentation said that she is going to re-examine her conviction.

My official visit to IITK ended with the end of the workshop. The next day I was there as an ex-student wandering the campus recalling those days when I was much younger, much stupider, and much less cynical.

[Continue?]

Rural India needs affordable services – from education to market access, from telecom to healthcare, from financial intermediation to entertainment. The key issue in rural India is the non-availability of services at affordable prices. Linked to this is the lack of perceived opportunities in rural areas. These twin factors create a situation in which few want to do business in rural India.

It also leads to the exodus of people from rural areas to urban slums, which stretch the resources in the cities and towns even further. In other words, rural India is caught in a trap that it seems difficult to get out of.

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

This standardised infrastructure reduces the costs of operation for service providers in rural India. From the point of view of the rural populace, there is one place where it can get multiple services – services which were hitherto not available or too expensive.

Take, for instance, his view on energy.

One of the biggest challenges in India in the cities as well as rural areas is the availability of reliable power. Even as India goes about trying to set up gigantic power plants and revamp transmission to bridge the deficit, there is a need to think very differently about the power situation. Since there is little legacy in most parts of India (especially the rural sector), are there new options that can be looked at for providing power rapidly and cost-effectively across India?

He introduces his ideas on ICT thus:

Information and Communication Technologies (ICT) have been the dominant factor for the productivity growth in the developed markets. The problem with the current ICT is their cost – the dollar-denominated pricing makes it affordable to only a small segment of the business and consumer segment in India. While competition has ensured that talk on cellphones is now among the cheapest in India, the same is not the case in computing given that two virtual monopolies (Intel and Microsoft) control the two most critical components.

For India to develop, there is an increasing emphasis on the need to build out the physical infrastructure – roads, ports, airports, power and the like. But there is the need for a parallel digital infrastructure – high-speed networks, access terminals, software and content. While the telecom carriers are now building out the high-speed networks, not enough attention has been paid in the other areas. This needs to change.

What India needs is an affordable computing and communications platform, one that dramatically brings down the cost without compromising on the performance or utility. Luckily, many of the components are now coming together to make this happen. What is needed is for us to adopt these innovations to build the equivalent of “tech utilities” which make “commputing” (as Om Malik put it) a reality for the next markets.

Regarding market access, he starts off with

Information abounds around us, but if it is not available at the right time to support decision-making, then its value is limited. The Internet helped bring ease the distribution of information globally. In India, too, we have benefited significantly over the past decade. But a lot more needs to be done to take the benefits of information access to larger numbers across India. The need is to leapfrog from the request-reply (1-way) web to the publish-subscribe (2-way web).

He stresses the need for distribution hubs and writes:

Small- and medium-sized enterprises (SMEs) and Rural India are the twin engines for India’s economic growth and development. SMEs need technology solutions which can help them build their digital infrastructure as they search for global opportunities and seek to make operations more efficient. Rural India needs an array of services at affordable price points. The common thread is the need for distribution hubs which aggregate products and services. While SMEs need the equivalent of Tech 7-11s, Rural India needs RISC (Rural Infrastructure and Services Commons).

He elaborates on the subject of RISC as distribution hubs (caution: shameless self-promotion follows):

RISC (Rural Infrastructure and Services Commons) is an economic model for the transformation of Rural India, proposed by Atanu Dey.

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

Atanu and Vinod Khosla co-authored a paper on RISC in August 2003. The monograph outlines the challenges in dealing with rural India and a framework to solve the many inter-linked problems to build a new “urbanised” rural India.

All of the above is just the tip of the proverbial iceberg. Much lies below the surface and for us to be able to transform India, a great deal of energy will be required. India is like a super huge supertanker. Changing course, leave alone reversing direction, will take a lot of blood, sweat and tears. No single entity can do it. It will require coordination, cooperation, competition, and sheer blind luck. It will require the private sector, the public sector, the government, the households, the NGOs, etc etc. The motivations will be equally diverse. For profit, for fame, for self-gratification, for power, or whatever. Somehow if the vision is shared, though our means and skills be different, every one of us can make it happen.

How to create a shared vision is of course where the challenge lies.

Thank you very much for sending me the RISC model.

I have read it with interest and entirely agree that India has very little chance of being a major player in world without integrating the rural economy. Having said that and having been trying in our own small way to integrate the rural areas which we are working with in our sugar factories, I am beginning to believe that we need to get some help from specialists who understand the social anthropology of our people. I do not know if any one else in your team feels the same way.

I could not agree more with Mr. Subbiah that the cultural context of our economy is extremely fundamental to our economic development and therefore having the insights of cultural anthropologists is important.

In a sense, economics and anthropology are intricately linked because humans are cultural creatures and our aspirations and our drives are shaped by the culture that surrounds us. Our thinking is bounded by the limits that culture places on us and any fundamental shift in our thinking has to accompany, if not be induced by, a cultural shift.

Fortunately, we are immensely pliable creatures and given sufficient reason to change, we change. India’s economic woes can be traced to at least some extent our culture of acceptance of the status quo and a fatalistic acceptance of what is instead of striving to improve our lot. We need to expound a new vision and spread it throughout the nation so that we start to acknowledge our potential and thereby take the first step to realize it.

Change in the way we think about the problems we confront is critical because the same sort of thinking that has created the problems cannot possibly get us to the solutions. It is the avowed goal of our team at Deeshaa to think very deeply about the source of our problems to understand what it was that created them. Then we proceed from that understanding to the next step, that of creating a solution that is not mired in the old mistaken ways of thinking. Finally, we propagate the solution to all corners of the country, the first step of which is to implement the solution as prototypes to demonstrate that the proposed solution is feasible.

It is a bit of a cliche to remark that our resources are limited while our wants are unlimited. To say that resources are limited is an incredible understatement when considered in the context of rural India — 700 million people and most of them below the poverty line even by Indian standards, leave alone global standards.

There is what can be called the first degree of poverty — the absence of resources. To make matters worse, we have a second degree of poverty: the inability to efficiently use what little there is. Though there is no escaping the first degree of poverty, there are ways of preventing the second degree of poverty.

This is what motivates me: what can be done with the limited resources so as to make the best use of them. It is depressing to note the almost unimaginable waste. I will give only one example here. But it is only one of the hundreds of such examples — all of which add up to create an almost inescapable prison that the economy is chained within.

Here is a news item:

BSNL lost Rs 9,000 crore (Rs 90 billion) for providing telephones in villages and remote areas, between its corporatisation in October, 2000 and December 31, 2002.

In a little over 2 years, it lost nearly $2 billion. It is a staggering amount. What does that really mean? Expenses exceeded revenue by $2 billion! Why did this happen? Largely because the use of the telephones did not generate sufficient benefit to the users to justify to them a level of usage that would pay for the capital and on-going costs of providing the telephones. It costs orders of magnitude more investment per rural telephone line than it costs to provide an urban line. The rural telephones are rarely used — if they are working at all in the first place.

So what are we doing wasting $1,000,000,000 each year in putting up these lines? We have village public telephones in about 300,000 villages (out of about 600,000 villages in total.) That is, we lost about $3000 per village PER YEAR. Imagine the alternative uses of that money for a village. It could easily fund a primary school. Imagine 300,000 public schools. Imagine the number of teachers you could employ. Imagine the number of children who would benefit. Imagine the multiplier effect on the economy of having a few hundred thousand additional literate people. And now compare that to the utter waste of installing dead phones in villages.

Why are we doing this? Is it because some brain-dead bureaucrat in Delhi decided that? Has he thought through the welfare implications of that policy? Is there an alternative policy? Instead of incurring a loss of $3000 per village per year, how about aggregating that for 100 villages, and using $300,000 to provide a comprehensive telecommunications center that WORKS and that actually recoups the investment though user fees?

Let me argue by analogy: imagine, just as we have the scheme of village public telephone (VPT), that we had a ‘village transportation system‘ (VTS) where we decided that each village will have one Maruti at the cost of Rs 4,00,000. Of course, lacking maintenance facilities, spares, contention about who can ride it and when, it just sits there and rots. But we have spent Rs 400K on this car, and in the 100 villages we have spent Rs 40 million to provide each with a car.

Alternatively, if we had used the Rs 40 million for this:

20 minibuses @ Rs 1 million each — Rs 20 million
40 drivers @ Rs 100K salary per driver per year — Rs 4 million
Maintenance and fuel subsidy — Rs 5 million

I could go on but you get the picture: PUBLIC TRANSPORTATION that works. A reliable bus service twice a day.

Economies of scale kick in. Fact is that Americans can afford to neglect public transportation; we cannot. So also, Americans can afford to have 2 PCs per capita — one at home and one at work; we cannot. We have to use our limited resources efficiently and intensively. That can only be done if we use scale economies and create minimum economically viable units. Thinly distributing limited resources is not the way to do this.

Given limited resources, we have to put them to that use which has the maximum return on investment. Computing for the masses is a great idea. But can we afford that right now? Probably not. What we can do, and should do, is to bring computing to those that are most capable of benefiting from it.

It is a war out there, as they say. In that context, the concept of triage is very important. The big dic defines triage as “the sorting of and allocation of treatment to patients esp. in battle and disaster victims according to a system of priorities designed to maximize the number of survivors.”

Trying to do everything for everyone at the same time leads to nothing being accomplished at all.

So my thesis is this: build a bridge across the digital divide but don’t try to get everyone across the divide all at once. It cannot be done because the bridge we can afford to build will have a limited capacity. Try to get all of them on board at once, and we all end up at the bottom of the divide.

The solution is to provide a consistent solution that will be useful for at least some part of the rural population, rather than a solution that is all pervasive but of little use to anyone.

A RISC is located away from the majority of the population. You have to get on your bicycle and pedal for an hour to get there. But when you do, you find that you have come to a mini-city where you get everything that you need — internet access, telecommunications, market services, distance education, agricultural extension, banking, health services, …