Wednesday, November 26, 2014

India’s Frugal Dynamism

NEW DELHI – India’s sliding economy has inspired gloom and doom far and wide, but increasingly bearish sentiment is misplaced. India still offers hope, but, to understand why, you have to leave macroeconomic indicators aside and go micro. To take one example: Google the phrase “frugal innovation,” and the first 20 search results all relate to India.

Indian companies have long recognized the opportunities in meeting previously overlooked demand at the “bottom of the pyramid.” Shampoo sachets originated in India more than two decades ago, creating a market for a product that the poor had never before been able to afford. Indians without the space or money to buy a whole bottle of shampoo for 100 rupees could spend five for a sachet that they’d use once or twice.

But India’s leadership in “frugal innovation” goes beyond downsizing: it involves starting with the needs of poor consumers – itself a novel term (who knew the poor could be consumers?) – and working backwards. Instead of complicating or refining their products, Indian innovators strip them down to their bare essentials, making them affordable, accessible, durable, and effective.

Indians are natural leaders in frugal innovation, imbued as they are with the jugaad system of developing makeshift but workable solutions from limited resources. Jugaad essentially conveys a way of life, a worldview that embodies the quality of making do with what you have to meet your needs.

But jugaad is not about pirating products or making cheap imitations of global brands. It is about innovation – finding inexpensive solutions, often improvised on the fly, within the constraints of a resource-starved developing country full of poor people. An Indian villager constructs a makeshift vehicle to transport his livestock and goods by rigging a wooden cart with an irrigation hand pump that serves as an engine. That’s jugaad.

Common machines and household objects are reincarnated in ways that their original manufacturers never intended. Everything is reusable or reimaginable. If you cannot afford your mobile phone bills, you invent the concept of the “missed call” – a brief ring that is not answered but that signals your need to speak to the recipient.

Indian ingenuity has produced a startling number of world-beating innovations, none more impressive than the Tata Nano, which, at $2,000, costs roughly the same as a high-end DVD player in a Western luxury car. Of course, there’s no DVD player in the Nano (and no radio, either, in the basic model); but its innovations (which have garnered 34 patents) are not merely the result of doing away with frills (including power brakes, air conditioning, and side-view mirrors). Reducing the use of steel by inventing an aluminium engine; increasing space by moving the wheels to the edge of the chassis; and relying on a modular design that enables the car to be assembled from kits proved conclusively that you could do more with less.

Then there’s the GE MAC 400, a hand-held electrocardiogram (ECG) device that costs $800 (the cheapest alternative costs more than $2,000), and the Tata Swachh, a $24 water purifier (ten times cheaper than its nearest competitor). The GE MAC 400 uses just four buttons, rather than the usual dozen, and a tiny portable printer, making it small enough to fit into a satchel and even run on batteries; it has reduced the cost of an ECG to just $1 per patient. The Swachh uses rice husks (one of India’s most common waste products) to purify water. Given that some five million Indians die of cardiovascular diseases every year, more than a quarter of them under 65, and that about two million die from drinking contaminated water, these innovations’ value is apparent.

Many other examples of frugal innovation are already in the market, including a low-cost fuel-efficient mini-truck, an inexpensive mini-tractor being sold profitably in the United States, a battery-powered refrigerator, a $100 electricity inverter, and a $12 solar lamp.

Moreover, medical innovations are widespread. An Indian company has invented a cheaper Hepatitis B vaccine, bringing down the price from $15 per injection to less than $0.10. Insulin’s price has fallen by 40%, thanks to India’s leading biotech firm. A Bangalore company’s diagnostic tool to test for tuberculosis and infectious diseases costs $200, compared to $10,000 for comparable equipment in the West.

Late last year, India’s government unveiled a handheld computer that will cost only 2,250 rupees (about $40). “Aakash” has a resistive seven-inch touch screen, like Apple’s iPad. It comes in a rugged plastic casing, has two gigabytes of flash memory, two USB ports, headphone and video output jacks, and Wi-Fi capability.

Aakash uses the Android 2.2 operating system and consumes a meager two watts of power, which is supplied by an internal lithium-ion battery that can be charged using a solar-powered charger. And the government will subsidize 50% of the cost to students, so a young Indian just has to pay $20 to have his own tablet. The initial reviews are good.

Even the financial sector has seen innovation. Just three years ago, there were only 15 million bank accounts in a country of 1.2 billion people. Indians concluded that if people won’t come to the banks, the banks should go to the people. The result has been the creation of brigades of traveling tellers with hand-held devices, who have converted the living rooms of village homes into makeshift branches, taking deposits as low as a dollar. More than 50 million new bank accounts have been established, bringing India’s rural poor into the modern financial system.

Frugal innovation pervades the Indian economy. It is one of the reasons why there is more dynamism in the Indian economy than those who look only at the macroeconomic data believe. Sometimes it is important to stop looking at the forest and focus on the trees.

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    1. CommentedVaradarajan Seshamani

      This - the Akash (Government) tablet PC - was not an example of frugal innovation or 'Jugaad', but of the excercise of an immense power of government money to execute the ideas of people who were playing with Government money to doi what they wanted to do - which is to create something that had no place in the market. Calling this Jugaad woulkd be an insult to the true innovators, who spend their last money to create something for the market, which the market also wants - in the way that the product gets created. No private party would have ever made the tablet that the government brought out, because no user really wants a watered down machine. If the powerful people concerned had spent a few minutes in a gujli, they would have understood that even an orphanage does not want cast-offs in computiong equipment - they want the best for less. They do not want cheap, but perfoemance - but inexpensive. You have to be down at the grass roots to understand what this means.

    2. CommentedKunal Kundu

      It is important to note that it is innovations of these nature that ensures that India is still able to grow despite the government. Unlike China where the government is the biggest growth facilitator, in case of India even a neutral government would have been a boon. But unfortunately they ensure that they end up putting way too many impediments in India's forward journey.

    3. CommentedKurt Star

      In the US we have had little bottles of shampoo for far longer than a couple decades, same thing with aluminum engines. I know many people that used a similar "missed call trick" going back to pay phones. With my experience going back for 30 years with metal working equiptment, Indian equiptment while sturdy and reliable has never seemed to innovate while Japanese, Taiwanese and Korean manufactures have become leaders in that time period. The fact that a nation with millions of computer scientists isn't putting together an indigenous operating system for it's $40 tablet, I think is telling.

      Also, seeing how India's been such a relatively closed economy for such a long time, might jugaad sound a bit like juche?

      Besides the Nano being a sales failure, Tata has moved hard and fast into the world of luxury vehicles!

        CommentedPrabuddha Chaudhuri

        Why shampoos, I have also seen whiskies in small bottles. But we are missing the whole point here. These shampoo sachets, liquid sanitisers are dirt cheap. They come at no more than a couple of rupees!

    4. CommentedAtul Mehta

      The Government of India should be in the business of governing instead trying to emulate Apple Inc. That said, the Aakash tablet is a first good start. But what is a kid to do with a painfully slow tablet without educational applications or content such as eBooks on it? There was and still is one killer app -- the Internet Browser -- from a minimalistic point of view. However, content and reliable access to content are much more important considerations than just focusing on the cost of the device. If Kapil Sibal had initiated a project to bring lots of Wikipedia kiosks to public libraries, if not every nook and corner, that would have a deeper impact from a learning perspective. If there were inexpensive offline Wikipedia reader type devices, that would help make knowledge reach out to kids in villages. Furthermore, hardware technology keeps changing so it would be much better for the Government of India to work with competing local private technology companies who specialize in the business of making eBook readers instead of trying to accomplish such feats through an entrenched bureaucracy which outsources the manufacturing to Montreal-based DataWind and then tries to steal the thunder. From a governance perspective, it would be much better to take a close look at upgrading the government's role as a facilitator of private enterprise.

    5. CommentedU V

      Good article, but explained only one view - Jugaad. I am afraid that as an Indian I have clearly seen the havoc created with just over-simplifying this issue. There is another mindset which we Indians always keep in parallel - "Chalta hai", i.e. "it works" and which has resulted in a corrupted, lop-sided and uneven growth in our country. IT industry is a big example. People in this industry have become too complacent instead to really innovate and grow up the pyramid. I think we need to mention that mindset as well, and make a clear distinction b/w the two.

    6. CommentedTobias Engelmeier

      While the ability to invent for survival and the entrepreneurial spirit in India is certainly impressive, I am skeptical about making "Jugaad" a way of life. It often papers over issues that can and should be addressed more systematically. Living in Delhi, I often had this discussion about traffic: is this elegant swarm intelligence or just pure, highly inefficient chaos? I feel, it is the latter. Also, the Nano and the Aakash, while bold propositions, have so far (unfortunately) not been commercially successful. Otherwise, I agree with Shashi Tharoor: frugal innovations (rather than Jugaad) are a great opportunity in India. Whether it is enough to deflect the macro picture and lead to real income growth amongst the poor, I don't know.

    7. CommentedArtur Costa

      Excellent! A solution for people in Portugal.

    8. CommentedAntony John

      Frugal mindset has its advantages. But the way it is practiced matters. For example in India, many companies push small businesses (not even an SME) to deliver with frugal margins. The small businesses get stuck in a rut, cause they don't have sufficient cash flows to create new products and grow. The larger corporate buyers have the advantage here.

      Competition between the small business for this diminutive pie results in the profit margins getting squeezed further and further till their quality drops and eventually those companies suffer painful deaths. Companies in this precarious stage, then resorts to plagiarizing and copying tech etc..

      A large part of our workforce are employed in these small businesses and during business downturns, they bear the burden of so called "Frugal" engineering. I have had first hand experience of this vicious cycle during the 2009 down-turn and how it effected small businesses in Coimbatore. "Frugal" engineering should not become a divide and squeeze tactic in the market.

      And respectfully, I beg to see this dynamism translating to innovation at a scale one sees in the west. The growth in technologies in the west was largely driven by good profit margins and innovations in credit instruments that made capital available all the way to the small single shop owner.

      It is indeed of advantage for overspending western firms with overpriced products, to rope in their largesse in terms of employee pay and get more productivity out by pitting talent from third world against other teams across the globe.

    9. CommentedSujil Kodathoor

      Always interesting to read about Jugaad.

      Necessity gives birth to all inventions and India has lots of needs to be met. This same condition also creates ideal grounds for breeding innovation. With such unmet needs clearly Jugaad does pave way to new innovative solutions. If we can systematically promote such innovation drivers in our education, institutions, policies it not only can fuels economy but also a sustainable living for the future generations. Living within the means of limited resources globally will be one of the biggest challenges we face.

      Frugal lifestyle and thinking don't translate well into aspiring middle class for example how the Tata Nano did not catch on in the market as predicted. So such innovations should be more than juts frugal lifestyle but fostered as better living. But examples Jugaad is all over and we need to drive this in the right direction because it can be a huge driver for change in how we look at things. For example the economy as we see it today, here is a look at the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy by Robert Neuwirth describing unlicensed and unregulated as world's second largest economy.

      As nation growing so rapidly yet struggling to pull huge amounts of her populating our of poverty there is bound to be a lot of Jugaad yet to come. There needs to be a lot more effort on promoting frugal innovation. In India with a huge population consisting of the growing middle class frugal innovation for better lifestyles can be an important aspect for a sustainable future and an example to rest of the globe.

    10. Commentedprashanth kamath

      Avinash Agarwal: This is inverted logic. The so called juggad economy is a response to widespread corrupt regulation. It is like a man first robs his neighbor and then takes credit for lending the neighbor a stove.
      Yep, there is a huge Indian industrial sector dedicated to power inverters, UPS (both storage and release of electric power - when the grid fails). Also there is an industry to for petrol/ kerosene/ diesel run portable generators catering to the same shortfall of power grid.
      You have new English words: inverter, UPS - Uninterrupted Power Supply - a noun, sinusoidal, rectangular (current supply graph), i.e. you have UPS with sinusoidal wave current output and cheaper ones with rectangular output.
      Yeah, break a window pane, fix it and add to the GDP!

    11. CommentedMarc Laventurier

      As India expands its' network of generally outstanding Indian Institutes of Technology, let's hope they don't produce any more cheerleaders molded from (happy male) gobar.

    12. CommentedAvinash Agarwal

      This is inverted logic. The so called juggad economy is a response to widespread corrupt regulation. It is like a man first robs his neighbor and then takes credit for lending the neighbor a stove.

    13. CommentedRahool Gadkari

      Dr. Tharoor - I am a huge fan of your writing and have been an avid reader of your posts on Project Syndicate for a while now. Having said that, I'm quite disappointed by this post, it merely lists out a dozen or more Indian innovations. With 300 million poor, it is hardly a surprise that Indian innovators come up with cost effective solutions for the poor. Isn't innovation just a product of necessity? I would have loved to hear your thoughts on how jugaad can become a socially inclusive concept and how frugal innovation can be incentivized to help foster a more creative environment in our country.

      Looking forward to your other posts. Your book - The Elephant, The Tiger and the Cell Phone was one of best books on India that I've ever read! Thank you!

      P.S. - The 1st 20 google search's don't relate to India when you're not searching through an Indian IP address.

    14. CommentedNavi Radjou

      Shashi: you are right on. In our new book JUGAAD INNOVATION, my coauthors and I explore how Western firms can adopt the Jugaad mindset to innovate faster, better, and cheaper in today's complex, resource-constrained world. Check it out:

      And here is an HBR article on how Carlos Ghosn, CEO, Renault-Nissan, is pioneering frugal innovation in West:

      Navi Radjou
      Coauthor, Jugaad Innovation