Khanna is the Jorge Paulo Lemann Professor at Harvard Business
School and author of “Billions of Entrepreneurs: How China
and India are Reshaping their Futures and Yours,” published
in the Harvard Business School Press.
India’s economic rise is the story du jour. But for all
its much-delayed embrace of globalization, 70 percent of India’s
citizens remain condemned to rural isolation, unable to link
to the global networks that could catapult them from poverty.
A major part of the solution to this dilemma lies in leveraging
India’s entrepreneurial classes and willing foreign investors
to link urban markets with their rural farming hinterlands.
This private-sector catalyst is different from that used in
China in its state-led 1980s agricultural reform.
Recently, I trudged through the slush of a government-run food
auction yard, or mandi, in Bangalore, off shoring capital of
the world: Piles of produce lay everywhere, rotting in the sun
and competing with mangy dogs and scampering mice for my attention.
Huddles of impecunious farmers, wearing the traditional dhoti,
wore resigned looks. A government agent, pen tucked behind ear,
offered a pittance for the produce on display.
The farmers’ day began in the pre-dawn hours, with multi-mode
transport to the auction yard — ramshackle buses, bullock
carts, trucks, even tractors chugging along the narrow, so-called
“highways.” Produce unloaded, the farmers accept
whatever they get since every day away from the farm is lost
income. After snatching a few hours’ sleep in a shady
corner, they retrace their steps home.
India’s awkwardly named Agricultural Produce Marketing
Committees (APMC) Act mandates that agricultural products be
purchased through such wholesale yards, making the mandi a monopoly
controlled by local political interests, a perversion of the
original purpose of freeing poor farmers from moneylenders’
clutches. Farmers remain exploited, just by someone else now.
The hapless farmers’ urban sojourn is a continuation of
the rural nightmare of a daily hand-to-mouth struggle. Policymakers
have neglected Indian villages in the decades since the nation’s
independence: 89 percent of rural households do not own telephones;
52 percent do not have any domestic power connection. The average
brownout in India is three hours per day during non-monsoon
months, 17 hours daily during the monsoon. The average village
is 2 kilometers away from an all-weather road, and 20 percent
of rural habitations have partial or no access to a safe drinking-water
The contrast with rural China is stark. Around the time I visited
Bangalore, I crisscrossed parts of Henan province – the
name means “south of the Yellow River,” or Huanghe.
The province, one of China’s most populous, is home to
more than 100 million people. I started in Zhengzhou, the capital,
a major industrial center and railway junction, and traveled
to Chengguan, a county government seat, scrupulously clean,
with municipal services apparent even in the pre-dawn hours.
I then headed to the small Qiu village, population no more than
a few thousand. Paved roads leading to the cornfields at the
village’s edge were in better condition than the Massachusetts
Turnpike and other highways I know at home. The village itself
indicated if not prosperity, then at least the absence of the
desperation of many Indian villages.
Ambedkar, framer of India’s Constitution and a critic
of Gandhi’s model of village-centered development, famously
said in 1948, “What is the village but a sink of localism,
a den of ignorance, narrow mindedness and communalism?”
Indeed, for all the talk of India shining, there’s been
scant progress in the villages.
The development paths of other countries explain why this is
serious. Usually, agricultural development in rural areas generates
economic surpluses, which catalyze light manufacturing in rural
and semi-urban areas, and ultimately industrialization in the
urban areas. The economic surplus allows reinvestment in new
technology and releases human capital for broader-based development.
China followed this path post-1978, as did Indonesia as early
as 1966 and, more recently, Vietnam in 1989.
The Indian government, for all its official worship of Gandhi,
failed to invest adequately in villages. With corporate India
and civil society, the track record is brighter. For example,
the Self-Employed Women’s Association (SEWA), centered
in Gujarat, has empowered hundreds of thousands of women through
a myriad of small projects catering to health, elementary education
and economic self-sufficiency by providing them small loans
to start productive livelihoods. Companies like Hindustan Unilever
and ITC (Indian Tobacco Company), among others, have long had
distribution networks into village India, providing some investment,
goods and services in areas beyond the government’s reach.
Particularly encouraging are joint ventures such as those between
SEWA and ITC. Corporate muscle multiplies the benefits that
civil society can bring to rural India.
Alas, though, these efforts are too little, too late. The state
government has not always supported SEWA, perhaps sometimes
feeling threatened by the unified block of votes its large membership
base represents. Organized investment in the retail and wholesale
sector has often met its match at the hands of the unorganized
trade that it would likely supplant: Witness protests against
both indigenous retailers like Reliance Fresh and German wholesaling
giant Metro Cash and Carry. Retail trade employs 8 percent of
India’s population, the largest employer after agriculture.
There are more than 12 million small retailers in India, 96
percent of whom are small mom-and-pop stores, each occupying
less than 500 square feet, creating the highest retail-outlet
density per capita in the world. In India’s democracy,
small retailers count for many votes, and so local politicians
support the inefficient distribution system against more efficient
modern retail and wholesale formats, even at the expense of
Mandis, in a sense, perpetuate system-wide inefficiency, and
unorganized retail does not have the wherewithal to attack the
system forthwith. The farmer continues to be beholden to the
local monopolist for distributing his produce. One study suggests
that tomato farmers in Karnataka, for example, received rupees
2 per kilogram, compared to the end-user price of rupees 8.20.
Thus, the misery of the villages continues apace.
Well-meaning pundits assert that the government should “do
something.” Indeed, the highest echelons of the government
concur. India’s finance minister, P. Chidambaram, has
spoken out against the APMC Act, recognizing it as an unfortunate
anachronism. But even this august personage’s ability
to dictate to the local satraps is limited.
In these circumstances, the most expedient course of action
is to search for multipliers of civic action and grassroots
movements that empower villagers. After all, modern China’s
economic revolution started in the reform of its village enterprises,
the result of an unwitting experiment in individual accountability
by farmers in Anhui province. The Croesus-like riches in the
form of foreign direct investment followed China’s rural
So India should take a page from China’s book and fix
its villages, but not by trying to do it China’s way.
China’s strong government forced the rapid dissemination
of the Anhui experiment. India’s weak state cannot accomplish
anything remotely comparable. Rather, India should play to its
private-sector strengths. Corporations need a seat at the table
of village reform. India’s vibrant indigenous entrepreneurial
class – unlike China’s counterpart, largely decimated
by the socialist experiment and the Cultural Revolution –
must be courted. Reliance Fresh is an indigenous example in
India. Even multinationals should be welcomed, the task is so
enormous. Metro Cash and Carry is an example, and joint ventures
between indigenous entrepreneurs like Bharti Enterprises and
multinationals like Wal-Mart can complete the private-investment
picture. A modern agricultural supply chain linking the village
tomato farmer to his urban market could reduce waste by 25 percent
and end-user prices by 21 percent.
Only then will the 70 percent living in villages begin to share
in India, allegedly “rising” today.
Friedman interviewed by Nayan Chandra
River Ganges by Anita Roy
Play in the Garbage Fields of the Lord by Anita Roy
with permission from
YaleGlobal Online © 2008 Yale Center
for the Study of Globalization."