Distribution and Disruption

At the dawn of the sixteenth century, India accounted for a quarter of the world’s GDP and anchored a trade network that crisscrossed the world—traces of Indian spices have been found at medieval Viking gravesites. The world was connected, but distribution was slow: it could take a year for a consignment of pepper to travel from Southern India to Northern Europe. Moreover, tariffs, pirates, and lost ships and caravans drove up costs, ensuring that cotton, silk, pepper and cardamom were accessible only to the richest Europeans.

A wave of technological change was to disrupt this world. It started with a Portuguese captain leading a squadron of three ships round the tip of Africa and across the Indian Ocean to Calicut in search of Indian spices. Distribution improved first—while the round trip from Lisbon to Calicut still took eleven months improvements in European ship-building, navigation and firearms over the next few decades, meant that the volume and frequency of trade increased. Steady supply and lower prices democratized access to erstwhile luxuries, setting off a consumption boom. By the end of the seventeenth century England alone was importing a million-and-a-half pieces of cotton cloth from India every year, and Chinese tea mixed with Jamaican sugar, had become cheaper, and more popular, than locally brewed beer.

The fruits of the Industrial Revolution that followed this wave of globalization accrued disproportionately to Western Europe. Steam-powered mills in England could produce cloth at a faster rate and, using evolving shipping and railway networks, and supply to customers in India at a lower cost than local handloom weavers. While improved distribution meant European products could reach global markets, democratization of technology and its benefits was much slower. Starved of capital by a colonial administration focused on profit, India found itself passed over by development. From being an exporter of handicrafts, India became an importer of manufactured products, and by the early twentieth century, India’s share of global GDP had dropped below 3 percent.

In the last few decades, a new wave of technological development has flattened the world, reshaping the way goods and services are distributed. Democratization of high-performance computing, high-speed telecom networks, and interoperable software systems has enabled businesses around the world to leverage India’s educated workforce and low wages, making it an office to the world: India exports more services today than Saudi Arabia does oil. Fueled by the development of export-oriented services and manufacturing industries, and the impact of a young population on domestic consumption, the Indian economy has grown over ten-fold over the last three decades to catch up with its one-time colonizer, the UK, in size. Foreign capital has begun flowing in to supplement domestic investment, making India the fastest-growing large economy in the world.

Three shifts have underpinned an ongoing digital transformation of India: rapid rollout of mobile telephony accompanied by some of the lowest data costs in the world—championed by private players led by Jio—has resulted in over 800 million Indians owning a smartphone and accessing the internet daily; a digital identity platform—anchored by the government-issued Aadhar—covers a billion adults and enables seamless distribution of a range of public and commercial services; and finally, a unified payments interface riding on universal digital identities and ubiquitous data networks, has put India at the forefront of digital payments globally—forty percent of global digital transactions today take place in India— transforming access to digital commerce for Indian consumers, and supporting innovation across the startup ecosystem.

The first wave of digital businesses has surfed these shifts, creating several multi-billion-dollar outcomes for investors; most however, focus only on the top 6-7 percent of the population or serve foreign markets. The next wave of innovation will go deeper, activating a billion consumers and transforming millions of small businesses.

India is vast, and distribution has traditionally been complex—technology reduces friction, enabling efficient distribution of products and services to over 19,000 post-codes across the country. Millions of consumers outside the largest cities, with growing disposable income, are beginning not just to consume new grocery and apparel brands, but also buy insurance, invest in mutual funds, and avail of diagnostic services. Democratizing access—reducing entry-costs and creating ‘bite-sized’ products—will be the next killer app: over 400 million Indians form a consuming class that aspires to middle class lifestyles while remaining cost-conscious. Consumer businesses have already ‘sachetized’ shampoos and packaged snacks to capture this cost-conscious audience; innovators in other industries will leverage technology to disrupt their chosen markets.

The next twenty-five years will see an economic shift the like of which will perhaps never be repeated, as 500 million Indians join the global middle class, and the Indian market becomes larger than Germany, Japan and the UK combined. Massive fortunes were built over the two centuries when wealth flowed away from India; the next quarter-century, during which India recaptures some of its original share, could see new fortunes being built.