The Auto-Rickshaw Economy

“Indian Economy’s mascot needs to be the Autorickshaw. Slow, rattling, overloaded, undercapitalised, jugaad, good mileage with a bad driver.”*

 Saurabh Chandra

The humble auto-rickshaw surely performs a useful function. Like most popular things in India, it is multi-faceted: acts as point-to-point taxi, shared transport service or a small within city goods carrier. The best part about it is the awesome fuel efficiency. The next is probably the manoeuvrability which is a mixed blessing depending on whether the auto’s guardian angels were watching carefully over it or not. It is difficult to find any other positive qualities worth expounding. Perhaps we can add the easy repair and the ability to run with parts missing as another one. After this we must make a longer list of the other qualities: slow, poor acceleration, noisy, ugly, poor start, rattling, unsafe, bumpy and in poor maintenance.

All these qualities, good and bad, are found in abundance in most of the Indian economy. Most of the Indian goods tend to be optimised only on one dimension: short term costs. Sector after sector is replete with examples of how under-investments give us poor results but there is no capital to make superior good things that will pay themselves over time. Typically a society should be able to lend money to itself to build goods that it can repay to its future self once those goods generate an economic return greater than or equal to the time value of that money. If we look at any commercial skyline in an Indian city, one can’t help but notice that precious retail space is highly inefficiently constructed since plot sizes are sub-optimally small and even buildings poorly made. One would think it is a no brainer to buy contiguous plots, utilise the floor area ratio efficiently and make good retail spaces. We also see the recent phenomena of massive malls which seem to be from a different planet. Why do we see this range in the same Indian city, sometimes within the same locality of a swanky mall, an old run down shop and a scrap structure with commercial purpose (a jugaad of a shop)?

The way a society lends to itself is via the economic invention called banking. A bank pools capital from the society and can lend it towards projects pledging future returns from the project. Some types of banks in the modern era can even create fiat money towards funding such investments. The basic support a bank needs is enforcement of contracts, credit history and clear property rights. Absence of just these fundamental basics have stifled the Indian economy. Entrepreneurs with great Ideas can’t get a bank to fund their dreams since the bank can’t get any contract enforcement done in the Indian courts in half a generation. There is a lot of focus on venture capital today but venture funding is meant to fund really very risky ideas that banks won’t touch. The size of the venture funding when compared to banking will be found to be puny. The tragedy in India is that projects of much lessor business risk can’t find funding. The result is that we will see banks running behind the few credit worthy entrepreneurs to fuel more and more of their businesses and a first timer will mostly be standing in a long queue to nowhere. This manifests in the economic composition we have of few business houses doing so many businesses. We keep seeing few examples of excellence amongst a sea of mediocre output, not limited by capability but limited by the fuel of mere jugaad rather than capital.

All jugaad is of similar nature, Indian innovation driven by lack of capital. Efficient on utilisation but often compromising on long term value. Imagine what innovation funded by capital will look like in India! Surely, not like the rickety auto-rickshaw. Till then, mind your bones while traveling in the auto-rickshaw economy.

 (*This preceding tweet on Twitter met the approval of many good folks and formed the inspiration for this post.)

Saurabh Chandra is a bangalore based tech entrepreneur with an interest in public policy.

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One Response to The Auto-Rickshaw Economy

  1. Jay September 13, 2012 at 5:51 pm #

    Very well articulated thought and you do definitely pin-point correctly at the issue of a new entrepreneur’s unsuccessful ‘jugaad’ability. Great write-up Saurabh!

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