United Prosperity Team Blog
Insight on the latest happenings by the United Prosperity team.
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Bhalchander: It is my great pleasure and honor to have with us today Nandan Nilekani, author of the recently published book Imagining India – Ideas for the new century, and Co-Chairman and Co-founder of Infosys Technologies. Nandan’s work and accomplishments have been recognized worldwide and he has 
received numerous honors and awards. In 2006, Nandan was conferred the Padma Bhushan, one of the highest civilian honors awarded by the Government of India. Most recently, Nandan was nominated to the list of 100 most influential people in the world by Time magazine.
Congratulations on your new book, Imagining India - Ideas for the new century. It is an extremely well researched, wonderfully articulated and truly thought provoking work. You have sparked a new discussion which all of us must actively engage in. And thank you very much for taking time from your busy schedule to be with us.
Nandan Nilekani: Thank you. I’m glad to be here.
Bhalchander: We have several questions for you, many of them from twitters all over the world. The first question is from Raj Melville, Boston, USA. How does one retrain & retain today’s rural India to help feed the increasing food demand?
Nandan Nilekani: I think rural India is in reality, well-placed to meet our growing food demand. But right now, our agricultural productivity is low because of a very weak support environment - ineffective water and electricity supply, a badly built subsidy system, and weak connectivity to our cities and markets. We have for instance, ignored irrigation and groundwater replenishment - nearly two-thirds of our farmed land depend on solely rains for water. Our subsidy system - that subsidises water-intensive crops such as rice and wheat - encourages farmers in arid regions as well to grow these crops, since it lowers their risk. This means that our farms have not diversified, and we are not growing crops suited to regional climates.
Particularly tragic is the amount of produce our farmers lose due to our weaknesses in transport. Fully one-third of our produce gets spoilt while being transported to markets, because we lack the cold chain infrastructure we need. These infra weaknesses - bad roads, unconnected villages - also isolate our farmers, limit their knowledge of best practices; and since they are so disconnected from our markets, they cannot find out quickly and easily what prices are, and what consumers are buying.
So the reason our farm growth has averaged just 2% or lower is because of a disastrous combination of our above weaknesses. I would say that addressing these would solve a large part of our supply problems.
Bhalchander: The next question is from Andreas Kopp, Munich. What should a young college graduate do to make his way to change the world?
Nandan Nilekani: The role of the youth is critical, and you tend to see that countries grow fastest when they have a larger proportion of their population that is young. I think graduates and students need to think beyond a first job in the corporate world. If you have a good idea and if you are a young entrepreneur for instance, you have a high chance for success - you have enthusiasm, and innovation on your side. And such entrepreneurs are critical for growth and development. In India, I’ve seen young entrepreneurs who are making quite an impact - Sriram Raghavan, who heads COMAT, and Jignesh Desai, who heads MCX, come to mind. And then there are the young people who take up and join various social causes: pushing governments towards more transparency and disclosure, tackling environmental issues, and driving reform. Even if you are not directly involved in politics and public policy, the third sector does allow committed people to make a difference. And of course, an effective way to ensure forward looking development is to have more young leaders in politics: governments need to be invigorated from within as well as without.
Bhalchander: The next question is from Andreas Kopp, Munich, Germany and Trevor Rotzien, Seattle, USA. In his recent book, Creating a World without Poverty - Social Business and the Future of Capitalism, Nobel Laureate Prof. Muhammad Yunus talks of a new form of business – social business. In Prof. Yunus’s own words: “A social business is not a charity. It is a non-loss, non-dividend company with a social objective. It aims to maximize the positive impact on society while earning enough to cover its costs, and, if possible, generate a surplus to help the business grow. The owner never intends to take any profit for himself.” What are your thoughts on social business? Can a wave of social businesses as Prof. Yunus envisions help solve some of the pressing challenges India faces?
Nandan Nilekani: From what I’ve seen, some NGOs that work in India do function as ’social businesses’. That said, I think too many of us indiscriminately tar the idea of ‘profit’ being bad for the social sector. Its good for all kinds of organizations to create surplus for a rainy day. Two organizations that made a huge difference to poverty in India were the Rockefeller and Ford Foundations - they financed the research efforts that led to the Green Revolution. Their money came from corporate profit. The Bill and Melinda Gates Foundation is now doing some incredible work in Africa. We can’t diminish such efforts because they were funded by corporate profit.
And for better or for worse, more people are motivated by profit than by philanthropy. The question is whether such for-profit efforts are effective in the social sector, and from what I’ve seen, I would say yes - paired with sensible regulation, it helps bring excellence to the forefront in the social sector. In India, businesses targeted at the poor have managed to deliver them low-cost services more effectively than some NGOs. Arvind Eye Hospital specializes in low-cost eye operations for the poor. For-profit micro-finance institutions are doing remarkably well in Tamil Nadu and Karnataka.
Bhalchander: We have a question from Vijay Sankaran, Mumbai, India. How is Indian IT helping bridge the digital divide?
Nandan Nilekani: The real impact is right now with ICT rather than just IT - a combination of information and communication technologies. Mobile phone penetration for instance, has made a big difference to farmers, especially combined with voice services that inform them of crop prices, and weather information. And while internet penetration is still very low, community kiosks built by companies such as ITC and Comat have brought some semblance of connectivity to the villages and rural towns.
Bhalchander: The Tata Nano has generated unprecedented enthusiasm. Building on the theme of innovation for the masses Vijay Sankaran, Mumbai, India and Atul S Kulkarni, Duluth, USA would like to know when will Infosys and the other large Indian IT companies make the common Indian their customer? When will Indian IT build a Nano?
Nandan Nilekani: In my opinion, Indian software for the common man will come through an instrument that is more like the mobile phone than the computer. This should hopefully take not more than another five years.
Bhalchander: You mention in your book that people regardless of income levels should have access to health facilities, clean water, basic infrastructure, jobs, capital, social security and good schools for their children. But projects in almost each of these areas have long gestation periods and low financial returns to investors. How do you propose that we mobilize the risk-tolerant and patient capital in a reasonable time frame to initiate and implement these projects successfully?
Nandan Nilekani: I have detailed the approach in my book - health and schools can be approached with a combination of voucher systems, and in highly rural areas, with government support for private initiatives in the early years. I don’t think these take long gestation periods. Neither does clean water and basic infrastructure - if there is popular pressure for it. Taking indirect subsidies out of the equation and replacing them with direct subsidies makes people focus more on markets, which in turn, forces pressure on governments to improve connectivity and access to basic services. Once the pressure is there, the response tends to be immediate.
Bhalchander: In part II and part III of your book, you talk about areas where a lot of work needs to be – schools, our cities, infrastructure, creating a single market, environment and so on. There has been slow progress in most of these areas. With the impending elections, if you were to recommend a few easily understood points whose implementation the voters should demand from the government and politicians in a time bound manner, what would they be?
Nandan Nilekani: I would suggest, 1) Money in your hands - direct subsidies. In the form of cash to an account held by each citizen, which would replace the creaky indirect system of ration shops and subsidized rice/fertilizer/kerosene. 2) School vouchers, which give poor students the option of attending either private or government schools. These two alone would bring more cash into the hands of citizens, and give them access to markets. And it would as a result, create more pressure towards better infra that connects markets, and less red tape in education.
Bhalchander: The World Bank estimates that 456 million Indians (42% of the total Indian population) now live under the global poverty line of $1.25 per day (PPP). Most of them are perhaps impatient for progress. What would be your message to them?
Nandan Nilekani: I would say, that we must use the democratic process to break barriers to access. We are in a vastly imperfect system, where votes are channeled to vote banks and interest groups, which in turn harden the status quo. Instead, if voters focus on the issues of access to education, direct subsidies, infrastructure, and breaking down barriers in labour markets, then we’d see progress come faster.
Bhalchander: Your tone in the book is one of cautious hope, which largely echoes the general sentiment of the public. But while concluding the book, you state that the government and ministers do not talk the language of hope. How do you propose that the people at large get them to speak the language of hope?
Nandan Nilekani: A big problem here is that the leaders in the government are of a different generation, and bound to age old interest groups. For a different language, we need younger leaders - this is beginning to happen - as well as reformers who simplify the language of reforms so that people can understand them: when reformers speak of direct subsidies, vouchers, universal health and pension plans, and a more decentralised approach to environment and energy, I think they will find that much of the poor is on their side.
Bhalchander: The last question is from Ashok Parameswaran from New York, USA. How do you balance your time between work and philanthropy? And what are your future plans?
Nandan Nilekani: My efforts in philanthropy don’t take much time because I have quite a few people that I trust running the day to day operations of it. I’ve been fortunate in that I have some very brilliant, dedicated people managing my non-profit interests.
Bhalchander: Thank you very much for being with us. We wish you success in spreading your ideas and impacting policy for a renewed India.
Note to readers: This blog post is almost twice my usual post and I was feeling a bit guilty about it. But then, I read Seth Godin’s post today and it makes me feel much better.
As we have been trying to raise funds for running United Prosperity, we have realized how hard it is. We had applied to the Echoing Green Foundation last year. They received more than 1500 applications for 20 Fellowships each valued at around $68,000. Based on the feedback we received, my assessment as to why we did not get funded was that United Prosperity as a venture is complex and some of the Echoing Green evaluators did not want to risk their donation of $68,000 on a venture which seems extremely complicated.
Early this year, I was also talking to a Venture Capitalist who invests mostly in for-profit social ventures. He was quite willing to invest a comparable amount in United Prosperity provided we could turn it into a for-profit venture, which could give him a multifold return on his investment in due course.
This soon made me realize that we have reasonably good amount of commercial capital available for reasonably good and sometimes bad business plans, but ‘social capital’ or capital whose primary purpose is to ‘do good’ with little or no financial returns to investors seems to be in severe short supply.
But then, the need or market for ‘doing good’ is so large, how do we expect non-profits or social ventures to build infrastructure and IT systems to do good in a scalable manner when the ‘social capital’ to build such scalable infrastructure is unavailable? That seems to be the challenge most social ventures face.
I think there are a few ways one could make such ‘capital’ available:
- Collect the available social capital in a scalable manner over the internet: Organizations like Kiva,Wokai, donorschoose.org and ours are doing that.
- Reuse the social capital: Money given as a donation is used once. But as a Kiva loan or United Prosperity guarantee, the same ‘social capital’ gets reused with multiple entrepreneurs.
- Use some amount of ‘social capital’ which bears slightly higher risk to free up additional commercial capital: With United Prosperity, the ‘social capital’ provided by social guarantors frees up additional commercial capital with banks.
But still there is a problem. Other than the already stretched government grants, most of the ‘social capital’ available in the world comes from donations from individuals directly or through grant making Foundations set up by philanthropists or corporations. And most of the leading philanthropists such as Bill Gates, Warren Buffet, Michael Dell or Pierre Omidyar have made their money from business. i.e. It is commercial capital which is eventually being turned to social capital thanks to the generosity and public spiritedness of individuals. The same holds true with United Prosperity or Kiva – Our guarantors or Kiva lenders earn their income through commercial means and then choose to help poor entrepreneurs.
There is also an another interesting observation. Commercial capital seems to have the ability to take risks and multiply itself and expand the scope of commerce. Social capital seems to be incapable of multiplying itself and rapidly expanding the scope of ‘doing good’. To take our unsuccessful fund raising example, the VC with ‘commercial capital’ was willing to take risks and invest in United Prosperity but Echoing Green with ‘social capital’ was perhaps worried that United Prosperity will never see the light of the day in a reasonable time and unwilling to support us.
Overall, all of us are in a situation where we have to rely on ‘commercial capital’ to transform itself into ‘social capital’ and do good for society. If our businesses are not robust and successful, we will have fewer high net-worth individuals and lesser ‘commercial capital’ getting transformed to ‘social capital’. Thus the importance of the role of business and the generosity of individuals is unquestioned in society but one major question is unanswered: Why cannot we get ‘social capital’ to multiply itself just like ‘commercial capital’?
I think it can and it should if we want to ‘do good’ in a scalable way. One way Prof. Yunus talks about in hisNobel lecture and his recent book ‘Creating a world without poverty: Social business and the future of capitalism’ is through a new type of organization called as the ‘social business’.
As per Prof. Yunus in his Nobel Lecture, “Social business will be a new kind of business introduced in the market place with the objective of making a difference in the world. Investors in the social business could get back their investment, but will not take any dividend from the company. Profit would be ploughed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a non-loss, non-dividend company. Once social business is recognized in law, many existing companies will come forward to create social businesses in addition to their foundation activities. Many activists from the non-profit sector will also find this an attractive option. Unlike the non-profit sector where one needs to collect donations to keep activities going, a social business will be self-sustaining and create surplus for expansion since it is a non-loss enterprise. Social business will go into a new type of capital market of its own, to raise capital.”
At this point, we need to raise around $2 Million of startup capital to sustain our operations over the next four years. If we are to raise capital as a social business, we will seek out non-dividend paying equity (or a 0% interest loan). We will find public-spirited investors who will put in the new non-dividend paying equity and provide stewardship to the organization. And at some point, when United Prosperity achieves break-even from its operations, we might be able to buyback the equity from the investors. Or the investors may even be able to sell the equity to other later stage more risk-averse investors at a premium. Prof. Yunus also talks of a social stock market where such social stocks may be listed. Social business and social stock market have the ability to increase the pool of social capital available in the world and increase the scope of doing good. The Tactical Philanthropy blog had a post on a Non-Profit IPO in Canada. I don’t know if the Non-profit raised donations or raised equity. But who knows, social business and social stock markets may become a reality faster than we think.
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