How digital infrastructure is transforming middle India

Neither skill nor knowledge in isolation can generate income. It is the ability to channel both into creating products and/or services that customers are willing to pay for that creates jobs. The magical linkage between the two is the ‘market connection’, the engine that drives the economy.

In the last two decades, creative use of technology has generated these market connections in a way no one could have possibly imagined. Economic activity, like traffic on a busy highway, faces bottlenecks that create gridlocks and needs the right triggers to unlock these bottlenecks.

For decades, such bottlenecks had collectively gridlocked India into a ‘middle-income trap’. Getting out of this middle-income trap needed strategic breakthroughs in terms of both technology and policy.

THE MAGICAL CONFLUENCE 

In order for India to mature, the following two goals had to be met:

a) increasing income and consumption; and b) creating items and services that varied customer segments would value at prices that would provide a profit for the producers of these goods and services.

Both would compliment each other and hence were equally important.

In the last two decades, three factors came together that have the potential to help India break out of its middle-income trap: Aadhaar, cellphones, and broadband. While each was remarkable in its own right, the combination would be transformative. The most significant innovations to emerge from this convergence would be online platforms and payments.

The use of online platforms facilitated the finding and matching of demand and supply. Plumbers, for example, can no longer rely on word of mouth to get new customers. Prior to the development of platforms, inefficiencies in matching demand and supply forced consumers to accept subpar services offered by poorly skilled individuals.

While these platforms did not produce a new product or service, they 'industrialised' existing ones, and industrialisation enabled seamless consumption while also creating formal mechanisms to increase services and service capabilities. And herein lies the power of 'debottlenecking' a severe bottleneck.

This debottlenecking enabled free market forces to take over and establish systemic patterns and scale. By removing a single significant bottleneck, a virtuous cycle of 'revenue growth' for service providers is activated, which leads to 'new consumption,' which leads to the creation of more goods and service providers.

In a nutshell, these platforms reduced barriers to consumption and production, which is a necessary lubricant for the wheels of economic activity. They also reduced feedback cycles, which are potent triggers in a free market.

Another breakthrough that changed the course of India's development was online payments. India benefited from the late mover advantage, which was aided by certain astute strategic decisions. This digital infrastructure is basically free and serves as a terrific accelerator of product innovation for tech-savvy entrepreneurs who are familiar with Middle India.

We are at the start of a major wave of innovation, which will primarily affect healthcare, food and agriculture, logistics, and financial services. Each mega-market is set to experience significant upheaval as old barriers to entry crumble, allowing new entrants in. A new generation of startup founders is combining entrepreneurial talents, technological capacity, deep customer insights, and developing new business models to overcome old barriers to reaching and serving hundreds of millions of Indians.

IN CONCLUSION

TThe COVID-19 crisis has expedited the digital momentum in the critical Middle India sectors of healthcare, food and agriculture, logistics, and financial services by three to five years. It has compelled irreversible consumer, commercial, and governmental transformations that would have lasted considerably longer and taken an unpredictable path. Regulatory changes that allow cross-state selling of agricultural produce, digital health processes such as video consultation at hospitals, and digital onboarding and streamlining of financial transactions are just a few of the behavioral and regulatory changes that have occurred in recent months.

Despite the best intentions and understanding, digital infrastructure has enabled innovators to construct enterprises that were previously unimaginable. I believe that founders who truly understand the newly emerging consumers from Middle India and can harness technology to provide low-cost solutions through efficient business models may build highly differentiated and scalable enterprises.

Middle India consumes in 'Chotaa packs' and purchases from reliable suppliers. A low cost of distribution is required for success in middle India. Chinni Krishnan, a farmer turned entrepreneur from Cuddalore, was the first to truly comprehend the mindset of the Indian consumer and began selling things like shampoo and talcum powder in small sachets. The concept was a big success. He was sure that sachets will be the future after watching people who had never used a product before experiment with it due of the cost of a small pack size. The term'sachet' is a metaphor for'small pack size' and a solution to the desires of individuals at the bottom and middle of the pyramid. Trust, cheap customer acquisition and distribution expenses, and a real product that fulfills a real need at an affordable price would be critical to success in middle India.