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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.