The businessman Ratan Tata once said that it was a desire to develop an inexpensive family car for India’s middle class, which catalysed the idea of the ‘Nano’ car. However, this noble mission failed, not due to technological reasons, but because human vanity made potential customers reject a car advertised as ‘cheap’.
Compared to other small cars, like the cramped and noisy Fiat Topolino or bug Fiat, Tata Nano is an engineering wonder. Tata started by looking at everything afresh, applying what some analysts call frugal engineering with a willingness to challenge conventional wisdom. For example, the Nano replaced steel with aluminium which made the car very light and fuel-efficient: Tata Motors has 34 patents associated with the design of Nano. What Nano has done has not been achieved by any car manufacturer globally: it is the world’s first. Nano proves that we can design and manufacture very high technology products of high quality at low prices.
Nano was a paradigm shift: a fundamental change in conceptual models. First, we associate high technology with high cost. Then, we associate India with poor quality in manufactured products. India is not an innovative economy, lagging in the generation of patents. Only a few globally path-breaking products have come from India. We haven’t invented many new industries (except for IT Services). The reason is obvious: innovation is quite expensive. New products demand significant investments in money, skills and other resources which Indian companies can’t afford. Public investment in science and higher education is lacking. Capital is expensive.
Contrast this lack of apparent innovation with a faux innovation: Jugaad; improvised, flexible solutions offering a low-cost, quick, and creative fix to local problems. Jugaad in itself is pretty innovative, in a weird sense of the word. Given the institutional vacuum and resource constraints of most emerging markets, it is natural that most have their versions of Jugaad. Jaipur Foot allowed poor Indians to walk on good quality, affordable prosthetics since 1968. Mitticool was the clay fridge developed after the 2001 Gujarat earthquake. Its builders were aware of what was to operate in terms of the financial and infrastructure constraints. These agile entrepreneurs tapped into traditional knowledge sources and readily available materials and created cost-effective solutions to local problems. Along the way, some of the products have entered Western markets. GE’s portable electrocardiogram and ultrasound machines are examples.
A company in Anand builds automatic milk collection and accounting systems that incorporate a milk analyser to provide data on six parameters of milk and monitor adulteration. In addition to big dairy companies such as Amul and Nestle India, this has a market in countries like Kenya, Uganda, Vietnam and Nepal. A wood-burning stove has been reinvented for the village housewife to make more heat and less smoke for about 700 rupees. There is a water-purification system for the slum family struggling to get clean water: Swach costing Rs. 2000. Heart monitors cost one-tenth of what they do elsewhere for rural health clinics, whose patients can’t spend much. Godrej developed a refrigerator that runs on a cooling chip and fan similar to those used in computers, totally avoiding a potentially vulnerable compressor. It utilises high-end insulation to stay cool for hours without power. By reducing the number of parts to around 20 instead of the 200 that go into regular refrigerators, Godrej sells it for only Rs. 3000, which is less than one-third of the price of a traditional small fridge.
The Mangalyaan mission of ISRO to send a spacecraft to Mars used home-grown technologies, thereby bringing down the cost to $74 million. Cheaper than what it costs to produce a Hollywood movie.
An exciting book, Frugal Innovation: A New Business Paradigm by Navi Radjou, Jaideep Prabhu, and Simone Ahuja, puts these developments in perspective. Frugal innovation is the process of maximising business and social value while minimising resources. Frugal innovation is a strategy appropriate for an Age of Austerity in which consumers, employees, and governments demand affordable, sustainable, high-quality products. Frugal innovation is also an attitude that perceives resource constraints as an opportunity and not as a challenge.
Nikhil Prasad Ojha and Dinkar Ayilavarapu (LiveMint, Jun 07 2016) writes that India does well in refining business models. India’s mobile telecom growth came out of a change in how telecom companies approached capital expenditure. Vijay Govindarajan (Harvard Business Review Sept 2016) describes Bharti Airtel’s innovative business model, which converted fixed costs in capital expenditure to a variable charge based on capacity usage. Bharti dramatically lowered its costs through outsourcing arrangements while ensuring high quality for customers since vendors had world-class competencies in their domains. This model has been globalised, especially in other emerging markets. Likewise, in the FMCG sector, new go-to-market models (adopted by Unilever) have increased rural penetration by flooding the market with cheap, single-use sachets. As a result, the pace of innovation in India is finally quickening.
Part of this is global — the world is more innovative now than ever before. Prosperity allows us to spend more on innovation. The rest is primarily due to the post-1991 reforms, which unleashed the market’s animal spirits and spurred a more robust private sector to rise to the challenge of addressing the needs of increasingly demanding consumers while operating in what is, even now, a middle-income country. As with our growth, it is unlikely that India will take the same path to innovation which the West took and China emulated. But India will likely emerge as an innovative economy in the long run, partly due to economic growth and the easing of some traditional constraints, but also due to the different nature of our development. And that is where our heritage of frugal innovation will become essential.