Reimagining India: Unlocking the Potential of Asia’s Next Superpower (27 page)

Consider, for example, the number and amount of “angel” investments—that is, those made by high-net-worth individuals, who operate either individually or in groups, to provide fledgling firms with capital and sometimes mentoring and networking help. In 2011, Indian angels
invested only about $20 million in around fifty deals, compared to $390 million invested by angels in Canada (a country with less than 3 percent of India’s population), according to the report; meanwhile, in the United States, angels funded a whopping sixty thousand deals. The report shows how poorly India also fares in comparisons of venture capital—that is, institutional investors that pool funds from wealthy individuals for management by professionals with experience in nurturing entrepreneurs. The amount invested annually by such firms in the United States is about twenty-five times the amount invested by their Indian counterparts. Likewise, India lacks a sufficient number of incubators, which provide entrepreneurs with infrastructure (e.g., office space) and services such as mentoring. Only 159 such institutions currently exist in the country; many times that many are needed.

To be sure, determined and worldly Indian entrepreneurs can find financing overseas if it’s unavailable at home. At InMobi, we benefited from an initial investment of $500,000 from the Mumbai Angels, a network of wealthy Mumbai-based Indians, but when we took our most ambitious plans to Indian venture-capital firms in 2007, we were shown the door everywhere we went. It was shocking—only one potential angel even agreed to a second meeting. Thanks to familiarity with Silicon Valley, I hopped a plane for the U.S. West Coast, and we were able to raise about $7 million from marquee investors—which was followed later by a much bigger investment from Japan’s SoftBank. But not all Indian businesspeople with a vision will be able to tap foreign funders—and they shouldn’t have to.

There are plenty of sensible recommendations in most government and industry reports of what the Indian government, universities, and other institutions should do to foster more entrepreneurship. But perhaps the most exciting development I see on the horizon is the emergence of new technologies that will enable Indian entrepreneurs to think big—and think global.

The wide adoption of technology frameworks like cloud computing
has made many more markets immediately accessible around the world. Tiny start-ups can now service and support customers in remote geographical locations at much lower costs than ever before.

It was the chance to build a truly global business that gave InMobi its commercial viability. By the time we took the business to market, mobile devices had become ubiquitous around the world, and businesses had begun to experiment with mobile ads. Our potential customer base was thus much bigger than the population of Internet-enabled cell-phone users in India in 2007. We concluded, too, that we shouldn’t target the established markets of the West; instead, we would focus on the developing world, where mobile penetration was skyrocketing. Indeed, that was why we based ourselves in Bangalore—it provided better access to the emerging markets we wanted to serve as well as the high-quality talent we wanted to hire.

Of course, start-ups in other countries can take advantage of cloud computing and the other new connectivity-enhancing technologies. But given India’s reservoir of technological expertise—and the relatively low cost of tapping it—I believe the number of companies like InMobi could burgeon in the years to come. If a systematic effort is made to strengthen the ecosystem supporting entrepreneurship, India could become the world’s next start-up nation.

1
. 
Online and Upcoming: The Internet’s Impact on India,
December 2012,
www.mckinsey.com/locations/india/mckinseyonindia/pdf/Executive_Summary_Online_and_upcoming_The_Internet_impact_on_India.pdf
.

2
. Since 2008, McKinsey has done wide-ranging surveys aimed at understanding changing consumer digital behavior. We have looked at six emerging Asian markets (China, India, Indonesia, Malaysia, the Philippines, and Vietnam). This data forms the basis of much of the analysis. In India, we interviewed more than five thousand people in twenty different cities.

A Technology Solution for India’s Identity Crisis

By Nandan Nilekani

Stepping Back from the Precipice

By Vikram Singh Mehta

Health Care for All

By K. Srinath Reddy

The Ed-Tech Revolution

By Salman Khan and Shantanu Sinha

Who Needs Classrooms?

By Madhav Chavan

The Creaky Wheels of Indian Justice

By Zia Mody

India’s Infrastruggles

By Rajiv Lall

Making Sense of Census Towns

By Sukumar Ranganathan

It Takes More Than a Village

By Sonalde Desai

India’s Farms: Harvesting the Future

By Barnik C. Maitra and Adil Zainulbhai

A Roadmap for Energy Security

By Anil Agarwal

Day of the Locust

By Ramachandra Guha

Nandan Nilekani

Nandan Nilekani is chairman of the Unique Identification Authority of India and cofounder and former CEO of Infosys.

In rich countries, the emergence of powerful new digital technologies combined with new capacities for creating, organizing, and analyzing vast quantities of data have aroused widespread concerns about privacy and the right of individuals to preserve their anonymity. But for most of the 1.2 billion people who live in India, those are curious preoccupations. Hundreds of millions of Indians born in poverty or outside the nation’s large metropolitan centers have exactly the opposite problem: They cannot prove their formal identity. No official records hold their names, and therefore they can’t prove who they are. Their existence may be a physical reality, but the fact that it has not been translated into ones and zeros and recorded in any officially recognized database effectively strips them of their access to government benefits and services.

Imagine you are a twenty-year-old man who has migrated to Delhi from a distant village in Assam in the hopes of eking out a living as a street sweeper or construction worker. You were born at home without a birth certificate. Your parents have given you your name but have not registered it with any government office. You know the name of your village and have your memories of your family and neighbors there. You may have a card issued by a local government for some particular purpose such as food rations or receiving a pension. But beyond that, your formal identity as recognized by the state is tenuous. You hold no nationally
valid portable or reliable proof of who you are. You aren’t even sure you’re really twenty.

This ambiguity hardly mattered to previous generations of rural Indians, who lived their entire lives in the same village surrounded by people who knew them and could vouch for them. But in the rapidly urbanizing India of today, lack of proper identification bars millions of Indians from gaining access to health care, education, and basic government services, and may preclude them from claiming benefit payments to which they are entitled. Lack of an ID may even prevent them from opening a bank account or renting a mobile phone.

Fortunately, technology offers India the opportunity to dismantle many of these oppressive obstacles. Our nation has embarked on one of the world’s great social experiments, aimed at giving every resident of India who wants one a nationally accepted, unique identity number that public agencies, banks, and private companies can use with ease and confidence. In the process, we are relying on the latest technology—chiefly fingerprint and iris-recognition technologies. This is a far more secure and portable system than the use of physical cards, because a person’s fingerprints and irises are readily amenable to online verification, and the technology, if carefully administered, is all but impervious to fake and duplicate identities. And people don’t have to worry about losing the card or forgetting to bring it with them.

That is the promise of the Aadhaar project (
aadhaar
means “foundation” in Hindi), also known as UID (for Unique Identification), which the prime minister launched in 2010. As the person heading the organization entrusted with implementing this project, I am all too aware that the journey has just begun, and that concerted effort, coordination, and hard-nosed implementation will be required over the next few years. Aadhaar is using biometric technology for the purpose of development, inclusiveness, and poverty alleviation. Success is imperative. There is much hope that this innovative use of technology for development will prove a game changer—transforming the prospects of India’s least fortunate residents and, indeed, the nation as a whole

Aadhaar is progressing at a rate that has surprised skeptics, with
more than 380 million Indians enrolled and 320 million unique twelve-digit numbers issued as of spring 2013. It is already beginning to show results, as some enrollees have opened their first bank accounts, acquired mobile-phone connections, and obtained more of the services they rightly expect from public agencies. As word of Aadhaar’s advantages spreads, hundreds of millions more will become eager to participate. We are on track to enroll six hundred million—half the population—by 2014, and hope to enroll the rest of the country in the years that follow.

This is a very complex undertaking, requiring an extensive infrastructure. At thousands of enrollment centers around the country, people are lining up to have specially trained personnel take their photos, fingerprints, and eye images, which go to central servers for digital checking to make sure nobody gets more than one ID. The potential for mistakes and falsification is not completely absent, and we use the latest data analytics tools to constantly review evident errors. The system must be capable of handling high throughput (one million Aadhaars per day), at near-perfect levels of accuracy (detecting duplicates at better than a 99.9 percent rate) and a very large scale (a database potentially of 1.2 billion people). Based on the analyses conducted so far, we are confident that the enrollment system is proving to be reliable, accurate, and scalable.

The Indian government spends about $60 billion a year on subsidy programs involving products such as food, fertilizer, and petroleum. In theory, the poor are able to obtain inexpensive food at nearly half a million Fair Price Shops around the country. But studies show that these programs often have leakages, thus leading to anomalies in benefits reaching the intended beneficiaries. India’s own Planning Commission found in 2008 that more than one-third of subsidized grain supposedly destined for the poor went to better-off households instead, due in large part to fraud and corruption. Errors in delivery and identification resulted
in even greater losses of subsidized grain. The failure of benefits to reach intended beneficiaries has hindered full implementation of the National Rural Employment Guarantee, a program aimed at providing each poor household in rural areas with a certain amount of work.

Such siphoning off of public funds will become much more difficult once the identities of both public employees and eligible recipients become traceable at each step of the subsidy-dispensing process. Of course, those who are unjustly enriching themselves under the current system will lose out. But the genuinely poor will gain much more by getting the benefits and subsidies they deserve under the law.

Aadhaar can thus revolutionize the way public services are delivered as well as dramatically enhance the inclusiveness of Indian society. One of the most important features of the program is that it will enable people to confirm that they have received the services they are supposed to get, or prove that they have not, and give them multiple ways of accessing the public service system—including the filing of grievances. If a poor person can obtain subsidized food only from a designated ration shop, or purchase subsidized fuel only from a designated petroleum dealer, the potential for being cheated or extorted is high, because bargaining power lies mainly with the supplier. But through the use of technology, modern supply chain management, and electronic payments, any registered dealer could sell food and fuel in ways that would ensure the fair and proper processing of subsidized purchases. This provision of choice will empower consumers rather than suppliers, which will go a long way toward eliminating petty corruption.

With the aim of further reducing the amount of “leakage” in the system, the government is moving toward direct transfer of benefits to individuals, sending subsidies or entitlement payments directly to Aadhaar-enabled bank accounts. Suppose, for example, that the market price
of propane gas is 900 rupees per canister and the subsidized price is 400 rupees. Instead of providing the gas at the subsidized price, the government can directly deposit the 500-rupee difference into the account of a purchaser who qualifies for the subsidy.