The Indian Paradox

I recently had the opportunity to meet and attend a talk by R. Gopalakrishnan at Berkeley. He is the Executive Director of Tata Sons, one of the largest industrial conglomerates in India with annual revenues of over $22 billion, Chairman of Rallis India and Vice Chairman of Tata Chemicals. The talk was titled “Mega Trends in India” and the tag line was “India is more than just IT”. I found his insights extremely impressive and thought provoking.

The central theme of the talk was how unconventional the Indian story is and about how most things in India seem so topsy-turvy. He focused on explaining what is going on in India as a set of paradoxes that completely defied logic and conventional wisdom.

Paradox #1
Even though India is a developing country, the consumption patterns of the domestic population actually mirror those of developed western economies. Nearly 60% of India’s GDP is attributable to consumption, resembling the spending behavior of the Americans. The growth in India is actually fueled by domestic consumption and spending, defying the conventional wisdom that the road to prosperity for developing nations has to pass through a phase of heavy focus on building an export oriented economy. This is also in stark contrast to the other strong success story in Asia, namely that of China that continues to run massive trade surpluses through solid exports, low domestic consumption and high personal savings rates. A marketer’s dream is a society that consumes.

Interesting fact: India Inc. has spent more money buying foreign companies than the total foreign direct investment that has flown into India, which again defies the perception of India as a poor, developing, agriculture-based economy.

Paradox #2
Urbanization in India has been through the transformation of villages into towns and towns into cities; not as much driven by migration of villagers into larger urban areas, as has been the case with other developing countries. Mr. Gopalakrishnan attributed this to the entrepreneurial spirit of the common man in India and the technological progress that has leveled the playing field and opened up new opportunities to people in even the remotest corners of the world.

He also added that studies have shown that when urbanization reaches 50%, there is usually an acceleration in the subsequent rate of growth and development. India is apparently just about 3 years away from this tipping point.

Paradox #3
The reform process that today’s developed countries have progressed through apparently went through the following stages:

Land/Agriculture > Light Manufacturing > Infrastructure > Heavy Industries > Services

While the rest of the developed countries went from left to right, India is traversing in exactly the opposite direction. The services sector is already quite mature with the presence of large players in financial services, insurance etc. Heavy manufacturing is just beginning to take off with the consolidation of steel and automobile manufacturing plants, for example. The focus is also shifting to infrastructure improvements with the government targeting to spend almost 8% of GDP in this area compared to the current 3% level.

Paradox #4
The final paradox he talked about had to do with the stages of evolution that societies in developed countries went through. He noted the following sequence of evolution:

Capitalism > Constitutional Liberalism > Full Franchise Democracy

Constitutional Liberalism here refers to things such as property rights, intellectual property protection etc.

The argument here was that countries such as the United States and Great Britain progressed from left to right (for example, women did not have voting rights until 1920 in the U.S. even though there were fully functional capital markets in place), whereas India is making the journey from right to left.

Overall, it was a fascinating event and time well spent. Mr. Gopalakrishnan is an intellectual and an unusual combination of a savvy businessperson, inspiring speaker, pragmatic optimist, a true patriot (without being jingoistic) and a social reformist all combined into one single package. India could definitely use more people of his caliber.