India has been singularly unlucky in the sense that its movers and shakers don’t seem to get what it takes for the economy to prosper. Therefore it comes as a terribly pleasant surprise when one comes across a M&S who apparently gets it. Not only does the man get it, he gets it in spades and how.
Mukesh Ambani apparently gets it.
The 17th July edition of Newsweek International carries a must-read article on Mukesh “Mr Big” Ambani’s Makeover Plan for the Nation. The article says that Mukesh
has finalized plans to invest more than $11 billion over the next decade to build two new satellite cities outside creaking, overcrowded Mumbai and Delhi. He foresees these metropolises emerging within just four years, each with a population of 5 million people making $5,000 a year, on average (or seven times India’s norm), and hosting top multinational companies. And that is all pretty simple—a development on steroids—compared with the idea that really gets Ambani going.
Ambani’s favorite scheme aims to revolutionize in one swoop two of India’s largest but most backward sectors: farming and retail. . . . Ambani plans to invest $5 billion by 2011 to put both the farms and the stores on the road to modernity, connect them through a distribution system guided by the latest logistics technology, and create enough of a surplus to generate $20 billion in agricultural exports annually.
Further down in the article, it says
Ambani wants to build a chain of both small and supersize stores across India, creating 1 million jobs and reaching $25 billion in annual sales, all by 2011. If his plan succeeds, he says, consumers will get fresher food at lower prices, rural incomes will soar, farmers will become active consumers, and Reliance will become “a WalMart in India.”
To transform Indian farmers into quality suppliers for his new retail chain, Ambani plans to create 1,600 farm-supply hubs across India, providing technical know-how and credit, selling seeds, fertilizer and fuel, and buying produce. He also plans to build some 85 logistics centers to move food to retail outlets and to ports and airports for export.
See why I say that it appears as if the man gets it?
First, he talks about creating cities. Cities are the engines of growth since it is an urbanized population which has the productive capacity to create economic wealth and thus lead to development. India’s largely rural population has to be urbanized and since the existing cities are basically incapable of absorbing the population, new cities have to be developed.
Second, he talks about transforming agriculture by raising its productivity. Building a large number of farm-supply hubs will make the supply chain for agricultural inputs more efficient. Raising agricultural productivity will not only increase production but will also release farm labor which can then migrate to the cities and produce non-agricultural goods and services.
Third, the farm output will be more efficiently brought to the market. It is estimated that around 40 percent of farm produce never reaches the consumer. Introducing efficiencies in the supply chain of farm output and retailing it efficiently will translate into lower prices for consumers and higher realized prices for the farmers. This in turn will increase farm incomes so that the remaining rural population would be able to effectively demand more non-agricultural goods and services — the same stuff that is being produced by the labor released by the farms.
This is along the lines of Irma Adelman recommended long ago: Agricultural Demand Led Industrialization, or ADLI.
The important point to note is that the schemes that Mukeshbhai is concentrating on has, prima facie, nothing to do with development, leave alone development of rural India. But in effect that is precisely what will happen. The answer to India’s rural economic development lies in cities. It is the urbanization of the rural population which will help rural development, not the so-called “development of villages” as I have argued for a while.
To a large extent, the 1,600 farm-supply hubs are approximations of RISC. RISC are the seeds of a mini-city in the rural area. With about 5,000 of these, you can effectively aggregate the 600,000 villages into productive mini-cities.
The approach that Reliance is taking is commendable because it is private sector driven and does not involve the government directly. Indirectly, of course, the government has to acquiese to the plan. Not just that, it is possible that the government will give away quite a bit of the land needed for these new Reliance cities at below-market prices. Yes, Reliance has power and it will only grow. But the question we need to ask is this: is it better that the land gets utilized and wealth created, and even though some of that immense wealth will go to enhance the Ambani fortunes, than the alternative where the land sits around doing precisely nothing and millions of people don’t get to lead a better life? I think the answer is a no-brainer (unless of course the answer is from a no-brainer communist), “Yes, better that someone creates wealth and takes a chunk of it if it means that lots of people will also grow rich, than the alternative.”