Full Text of S K Munjal’s Speech

Honourable Prime Minister, Dr Manmohan Singh; Chief Minister of Andhra Pradesh, Dr Rajasekhara Reddy; His Excellency, the Governor of Andhra Pradesh, Rameshwar Thakur; Rajat Gupta; Dean Rao; Professor Viswanadham; Members of the Governing Board; guests; members of the media; students; ladies and gentlemen, I would like to offer a personal thanks to the Prime Minister for taking out time from his extremely busy schedule to address the ISB on a day which is very special to us. Mr. Prime Minister, you are here not only for the 50th anniversary of ASCI in Hyderabad, but also for the 5th anniversary of the ISB. For all of us attached or involved in any manner with the ISB, this is a very special day. Thank you very much.

I would also like to thank you on behalf of Hero MindMine Institute. It is an independent think-tank set up to address issues important to India, Indian economy and Indians, as India goes on to become a much more global nation. This institute was promoted by Hero MindMine, which is one of India’s leading learning and training company. In this think-tank, we do multiple activities, and are guided by an advisory board made up of outstanding individuals such as Mr Narayana Murthy, Mr Deepak Parekh, along with few other leading individuals from industry and academia. We also have four knowledge partners who work with us, namely - the ISB, IIM Lucknow, IIT Delhi, MDI Gurgaon. With each, we are pursuing ideas and research in different areas. At the ISB, we are working actively not just in logistics, but how logistics can help develop rural India, which is increasingly getting recognised as the key to long term and sustainable growth for India. In fact, the theme for today’s talk is ‘Connecting and Sustaining Bharat for India’s Growth.’

We have seen you Mr Prime Minister, over the last few years, repeatedly urging us in the industry to look closely at the growth, not just the top end of the spectrum, not just for Indian business to become globally competitive, but inside India, and at the vast potential which resides in six hundred thousand plus villages of India. We are all aware that close to 70% of the population of India lives in the rural areas, and 54% depend on agriculture as the primary source of income. Since agriculture currently contributes only close to 20% in the economy, this mix is obviously not sustainable. Something needs to change. Thus, we attempt to look not just at the more traditional forms of enhancing economy and systems in rural areas, but at more contemporary tools, knowledge and also at experimentation about what may work in today’s wide world.

It has often been recognised that logistics can change the fortunes of nations. A German military officer once remarked that logistics is the fallen chain of armoured warfare. But then, Germany lost the war because their logistics planning was not as good as their enemies. During the `44 - '45 campaign in Europe, for example, each US division consumed about 650 tonnes of food, gas, ammunition and other supplies per day. This was roughly about three times that Germans could manage to get for their army. The result is, of course, well known. Just as in an army, companies and countries that don’t have logistical support for their products, people, processes and services, eventually lose competitiveness and run out of steam.

Recently, Mr Prime Minister, you graced us with your presence at Haridwar, where you laid the foundation stone forf the new plant that Hero Honda is setting up. I can tell you that when that plant was being designed, it was a tough choice selecting the location. There are more than 1000 trucks which move in and out of the plant everyday. When we did select Haridwar, we surveyed how connectivity works by road, by rail, by air. You are aware that requests came from the government and also the industry, to improve the connectivity of that area in order to enhance competitiveness. The inability to connect with rural India because of poor logistics infrastructure is clearly costing India’s manufacturing sector dearly. Not only because it deprives companies of millions of potential customers, but also of potential lucrative supply of low cost sources.

The existing market structure and rudimentary supply chains in rural India provide very few incentives for farmers to standardise and grade their products, and to grow better quality. The same is also true for rural artisans. Locally available traditional skills are stagnated over the years for want of fresh inputs on design, product diversification, raw material, new technologies, and marketing support, which in turn has led to poor scale of economies. This is the very set of problems we are attempting to address in the rural business hub initiative. Mr Prime Minister, you personally launched this initiative at a conference at Vignan Bhavan, where you had all the Panchayati Raj institutions gathered together in Delhi. The project was taken up as a partnership by the ministry of Panchayati Raj and CII. It is probably India’s first PPPP, not just Public Private Partnership but Public Private Panchayat Partnership. It is a unique model which brings industry to work with the rural areas and the Panchayat to set up businesses in the rural areas based on local skills and local communities. The idea is to build sustainable economic activity which will help rural areas to grow in a healthy manner, and provide job opportunities, growth and markets for the rest of India.

In fact, many of us believe that this is the world’s largest growth market, waiting to happen. Our report shows that more than 50 MoUs have been signed on the rural business hub initiative, and a number of them have been activated already. We have another hundred plus in the pipeline which should get signed in the next 3 to 4 months. I should mention here that within the government, we have a large number of schemes addressing rural development and other initiatives, but there is no funding or resource currently allocated to rural business hubs, probably because it is a new initiative, or maybe because it was not part of what the Planning Commission had in the Five Year Plan. I would recommend that either your office or the Planning Commission look into this as a potential initiative of entrepreneurship in rural areas, which is clearly present, but needs that spark. We need to see rural India through new eyes, new price points, and alternative supply chains which will address rural needs.

Durable relationships need to be developed with NGOs, Self Help groups and microfinance institutions, in order to penetrate rural India. In fact, this is not a one-sided story. It’s truly a win-win situation. The industry’s interest is more long term - to develop these areas into viable markets. For rural areas, there is a natural interest to improve the economies, and thereby providing greater opportunities.

However, along with infrastructure creation, there is a need to create integrated value added chains. A McKinsey study in 2006, estimated that such value chains can result in a 15 - 20% increase in per capita income, and add 0.6 - 0.8% growth in rural GDP. At the Hero group, we have tried to bring in economic growth and social growth in areas where we have set up our own manufacturing facilities.

In fact, this is a unique partnership that we have built with a number of companies. We have Escorts Heart Institute working with us on the healthcare side, HCL to supply computers, NIIT to supply IT training, DPS schools to provide teachers to each of these villages, and the Rural Development Centre of our foundation, run by our family, which is providing vocational training and knowledge in setting up small enterprises. Clean drinking water has already been set up in all these villages, and hard metal road connections have been built. This is an initiative which will be part of the mission on inclusive growth.

There are also three other integrated development projects which aim to cover 35 - 40 villages. We believe this will be a unique pilot, which will be scalable, and will allow active and sustainable business activities, taking care of the environment in the bargain. We, of course, admit that the start has been slow and modest because the size of the task ahead of us is absolutely huge. Given the magnitude, and also the country’s rural urban divide, this appears the only way for us to go. At a public forum two years ago, Mr Prime Minister, you had stressed on the need for increasing productive capacity of small farms and small businesses. You had pointed out that Gandhi’s vision of centralised productions is not only an ethical idea but also a viable economic option. That, Sir, is what we are trying to prove.

The program that CII has undertaken with the ministry of the Panchayati Raj, has the right kind of experimentation, the right energy and resources, which can truly help us to energise large parts of rural areas, and bring them into the economic mainstream. I can give you just a couple of examples. One of the projects recently undertaken by India’s largest shoe maker is in the area of leather cluster in Nalanda in Bihar to get members of the Ravidas community to produce shoe uppers for them. The shoe company, provides the design, the knowhow technology, and market connections. This again is a win-win for both. Similarly, ITC has entered into a MoU with 11 local food processes and farmers in Uttaranchal to develop regions which will produce apple products that ITC will market. Likewise, another MoU was signed in Karnataka which planned to setup biogas plants and provide local distribution of power within the villages. The Panchayats will be responsible for the operation of electric supplies in that region.

I am also glad to report that a number of institutions like Jetro of Japan and IFC Washington have shown interest to get involved. In fact, we are signing an agreement with IFC in 2 days from now. They would partner us in an initiative in the North-East states of India. This is an area which will be getting special attention under the programme. I would like to close here by just repeating the wish list that we have made. We certainly want rural development, and all the other initiatives that you have started, to go on. However, there is a need to streamline some of the programmes in order to work better together. There is a need to access existing programmes, which people are not yet quite aware of. There is a need to provide additional resources into some of the more productive schemes like mission on inclusive growth and rural business hub. This, we believe, will be a true example of Public Panchayat Private Partnership, which would create a India that all of us hope for, and dream of.

Just as Rajat spoke of the ISB as a vision which is partially achieved, and has a long way to go, ours is a similar story. We have a vision, like many, of an India which is dynamic, not just in the cities, but every single part of this nation, every geographic region of the nation. With your advice, the guidance of many of our industry partners, support of the NGOs, and all those involved in this project, I believe that this is an initiative which is here to stay.