The Silver Lining in India's Infrastructure Gap

The Silver Lining in India’s Infrastructure Gap posits that India’s poor infrastructure face force it to develop more lucrative Knowledge Economy assets.

India is often described as a mixed proposition with respect to its future promise. Although few would question its brilliance as a “burgeoning technology economy,” most people temper this with somber remarks about its lack of “infrastructure.” However, I will argue that India’s limitations with physical infrastructure will actually help India get further ahead than if it didn’t have such problems.

In the popular view (see Indian Raj and its quote of The Houston Chronicle), India’s technology expertise, language skills and legal sensibilities are its trump cards, but this is compromised by its lack of roads, transportation of all kinds, network infrastructure, electricity, and so on. High tech companies have to build their own generators and network infrastructure, and leading providers have created islands of world class capability to assure their global clients that they don’t depend on the country’s infrastructure. China, on the other hand, is generally seen as a paragon of world-class infrastructure, especially physical infrastructure. Woe is India.

Not so fast. By no means do I want to minimize India’s difficulties with physical infrastructure, which unquestionably threaten the very high technology industry for which India is so admired. However, let’s look at “economy building” more closely for a moment—from a bits and bytes perspective.

If you were going to build an economy today, what kind would you build?

I would build a knowledge-oriented economy because knowledge/information offerings will produce the most value in the years ahead. Because India is constrained by physical infrastructure, it is being forced to gravitate toward Knowledge Economy offerings, and its efforts to build physical infrastructure will generally support that trend.

China, on the other hand, is investing extensively in the Industrial Economy, which is far more dependent on physical infrastructure because it’s a bits economy. If we accept that the world is transitioning from an Industrial Economy to a Knowledge Economy, India will be forced to build the economy of the future, not the past. Seen from this point of view, China’s investment in physical infrastructure may be crowding out investment in Knowledge Economy endeavors. Party leadership may be locked into an Industrial Economy vision because industrial power was the paragon of the modern nation state at communism’s inflection point.

There’s no question that industrial production will continue to be vital, even as the Knowledge Economy eclipses the Industrial Economy, but its portion of relative value will continue to fall. Taking the example of the Agrarian-Industrial Economy transition, today the relative value of agricultural goods has fallen to the point where it is extremely difficult for producers to survive, and agriculture is controlled and protected everywhere to safeguard the means of production. Today, the Industrial Economy is in crisis because it faces overcapacity and commoditization everywhere. China and India are seen as a godsend due to their potential demand for Industrial Economy goods. These hopes are in vain in the long term, however; the fact is, the means of industrial production have vastly outstripped the means to consume. Moving forward, differentiation will be achieved through information more than the underlying product, which is often a commodity (for a more detailed argument, see How the Knowledge Economy Will Transform Markets and the Producer/Consumer Relationship).

In the global Knowledge Economy, the trend is the collaboration and interdependence of specialists. In such an environment, a country will maximize its influence in the network if it recognizes its specialty(ies) and executes on it (them) well. One of my favorite modern examples of such focus of execution is Japan, which executed extremely well and became the second largest (industrial) economy in the world, a position it retains today.

Going back to India, its vaunted advantages of language, legal system and deep appreciation of engineering are excellent ingredients to build a knowledge-based advantage in a global economy on a pervasive network.

India’s physical infrastructure constraints will serve to strengthen its focus on building a bytes economy precisely because it can’t manage bits very well.

It should focus its industrial efforts on highly differentiated products that draw on its knowledge expertise.. and that minimize the role of bits in their value proposition. For example, if health care ends up being a huge industry in India, target the manufacturing of medical equipment. Ask world leader GE Healthcare what they are doing to increase value delivered to hospitals. According to Brandon Savage, Chief Medical Officer and GM of Global Marketing, getting information (from the machines) seamlessly into the provider workflow is a key means of differentiation (see “Innovation Strategies at GE Healthcare Integrated IT Solutions“). It’s a quintessential example of information carrying the value of the product.

I’ll close with a related “economy building” example. As I wrote in my review of TiE Chicago, Technology and Economic Value Creation, Chicago’s longstanding angst regarding its failure to build a Silicon Valley on the prairie actually stands testament to its diverse economy. Boston’s Route 128 and North Carolina’s Research Triangle are two examples of the technology economy building success after which Chicago has long lusted. But a key reason for their success was that their alternatives were far more limited. They were forced to focus, they got involved before the payoff was legendary, and they succeeded. Chicago had too many other things going for it to focus on building a technology economy, so its energies were dissipated.

India will look back one day and be grateful for its difficulties with physical infrastructure.