Unpacking India's growth, geopolitics, technology and superpower potential

My chat with Rajeev Mantri, Managing Director at Navam Capital

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Rajeev Mantri is the Managing Director at venture investment firm Navam Capital. In 2020, Rajeev co-authored with Harsh Madhusudan, A New Idea Of India - Individual Rights In A Civilisational State, a best-selling book on the history and future of modern India.

Rajeev is an optimistic believer and a great curator on Twitter of bullish perspectives on India’s growth story over the next decade. Scanning a random sample of ten tweets on your profile makes that clear. 

The India growth story has been on the minds of many outside of India these days. Most recently, a new podcast from Patrick O’Shaughnessy’s podcast network called Return on India with Romeen Sheth as the host, and an essay from Shruti Rajagopalan, Senior Research Fellow at the Mercatus Center at George Mason University, sparked discussions and enthusiasm around the India story. 

I talked to Rajeev about the case against India’s growth story, whether progress and growth are two different things, New Delhi’s stance on the Russia-Ukraine war, why the West might not want India to emerge as a geopolitical superpower, India’s efforts to become a global manufacturing hub, and more. 

I hope to highlight a few perspectives I don’t see discussed enough or represented fairly in the mainstream discourse. 

The case against the India growth story

I asked him to make the strongest case he could against the growth story.

He set the stage by saying India is a vast and diverse country. There is no other democracy of this size and heterogeneity in both a social as well as geographical sense. 

Rajeev said, “Economic growth depends on the two vectors of globalization and technology. Globalization means adopting and implementing what others have figured out; technology entails finding new ways to solve problems.”

He believes India’s scale makes it more difficult to solve known problems by implementing known solutions; at its scale, India frequently has to invent solutions.

He uses the infrastructure sector as an example. 

“There is a well-worn playbook on how to build and operate highways, mass transit systems, airports, high-speed railways, and ports. Why is it difficult to execute in India? The scale changes everything,” he said. “Infrastructure projects have to be implemented on a continental scale. Each of India’s major states is the equivalent of an entire European country in terms of population and land footprint.” 

Technology: “Succeeding on the technology vector demands erasing old barriers and allowing creativity and innovation to thrive,” he said. “When it comes to frontier tech such as drones, biotech, industrial automation, and space, the Indian government needs to implement forward-looking, business-friendly, pro-market regulations, leaving room for new entrepreneurial ventures to blossom,” Rajeev told me.

He believes India will underperform if policy changes promoting a market economy are not implemented or implemented too slowly because that would stymy entrepreneurship and job creation.

Globalization: “Succeeding on the globalization vector requires policy reforms, which see opposition from vested interests who benefit from inertia – these could be incumbent businesses, the elite government bureaucracy, political dynasties, or certain foreign countries who want to limit India’s growth for strategic reasons.”

Political leadership: “Not every political party or leader is committed to making the changes necessary to unlock India’s full potential - most of them might be better off with a weak citizenry dependent on state handouts. India was first impoverished by foreign invaders and colonial rulers and then, after independence, by its own policy choices,” said Rajeev.

He concluded by saying critics and cynics are right to point to the difficulty of changing things in a complex, large, democratic country like India.

Progress and digitization as two different stories. 

Many say cheap smartphones, internet services, and digital payments are not the signs of progress they are made out to be and don’t address the core problems India has faced for decades. 

Rajeev told me we must first agree on what “progress” means and what India’s “core problems” are. 

Here’s his framework: 

“The first bucket concerns the liveability challenges faced by the vast majority of Indian society, and the second bucket is about the Indian State’s ability to provide and fund the public goods that any good government should be able to supply for its people.”

Rajeev contrasted India today with India a decade ago to argue that the impact of technology goes well beyond the often cited and visible changes in digital payments and smartphones. 

India circa 2010: “Most of the country was using feature phones, and 3G was available to a small slice of the market because mobile data was expensive. Most small businesses preferred to operate almost entirely in the cash economy. Most households did not have bank accounts,” he explained. “Banks were not interested in catering to customers who were typically small depositors. A large share of Indian households did not have modern sanitation or access to piped drinking water. The typical household would also collect and burn firewood regularly to cook food.”

He adds, “I know this may seem absurd to readers in advanced economies, but to reiterate, India is a vast country with a huge population – slated to become the world’s most populous country in 2023 – and we are discussing the median household, whose day-to-day experience was a life of drudgery, a struggle to get by with the basics that those accustomed to modern living no longer think about.”

Government’s use of technology: “The speed with which the government has executed national-scale welfare and infrastructure projects are made possible by technology. Using technology, Jal Jeevan Mission has provided piped water to nearly 75 million households (more than 250 million people) in just over three years. The Indian government has delivered on sanitation, rural housing, and infrastructure planning using technology. It is not just the Indian security forces using drones; the government, too, is using drones for land records mapping and the national highways buildout. India is constructing highways - including in remote, mountainous areas - at a record average pace of over 30 km per day.”

He believes it would be short-sighted to view this technology-driven transformation as only enabling cheap smartphone uptake among consumers - that is only the tip of the iceberg because practically all the major government programs addressing liveability challenges are executing at the speed and scale that they are because of technology adoption. Addressing these liveability challenges creates time for the median Indian, helps improve productivity, and gives more agency to tens of millions of people who can now escape the old drudgery-filled existence.  

Second and third-order effects of digital finance: “The next wave of digital finance aims to provide cash flow-based credit to borrowers, whose growth was always constrained due to a dearth of capital and friction in servicing small borrowers,” he said. “Shifting from cash to digital payments leaves a trail and helps expand the base of taxpayers, augmenting government finances and enabling public investment in defence, targeted welfare, public health, R&D, and so on, creating a virtuous cycle. That augments the Indian State’s ability to govern this vast land and fund important public goods, which is the second bucket of problems. Digitization is indispensable to solving erstwhile intractable problems - many governments have tried to fix these issues. Still, nobody really made an impact at scale until India took a technology-driven approach under Prime Minister Narendra Modi.” 

Rajeev concludes, “Because of the combined impact of India’s famously resilient entrepreneurs and a forward-looking government embracing technology, the socio-economic transformation is happening at a much faster rate. I think India is set up to see a productivity lollapalooza effect.”

India as an emergent superpower

Rajeev has held a view that the Western countries want India to do well enough to be an attractive market for their own companies but that they may not actually want India to keep building economic capabilities because, with economic size and capacity, India could become more competitive in the foreign policy realm in particular.

I’m increasingly hearing that view from many really smart Indians privately.

I have found that school of thought is a bit too cynical, but I’m warming up to that argument. 

“It’s just human nature.” He told me. “No incumbent likes to yield space to the upstart. Most Western countries rely on skilled immigrants to keep growing their economies.”

Rajeev says that economies highly dependent on skilled immigration can be described as human capital Ponzi schemes. 

Decline in skilled immigration: “Some countries would struggle if immigration declined materially. Think of it like a highly leveraged trading book that runs into stormy markets – a small decline can have catastrophic consequences. If the sources of human capital – countries like India – were to experience prosperity and offer social mobility to skilled workers, immigration to advanced economies will decline.”

He has written that the US was an indirect beneficiary of the two world wars in Europe and the policies of China’s Mao and India’s Jawaharlal Nehru and Indira Gandhi, who collectively ran the country for over 32 years in 1947-1984 period.

Geopolitics: “India’s breakout success might present a new challenge for those who are used to being the “leaders of the world.” Western powers have been “big-brothering” those countries that weren’t as economically successful. None of those countries had the potential to be competitors, either. For a brief period in the 1980s, Japan seemed like it could be an Asian challenger to Western hegemony, but among other factors, demographics dictated that its growth would be capped. Because of the legacy of the Second World War, Japan was also not a military force. China has been the first country that has gone much beyond the size at which the Western bloc could patronize it and has developed technological and military might along with its economic weight. China is a unique player in that no country has attained that kind of economic success while retaining a non-democratic system.”

He told me those already running the table would prefer to maintain the status quo or at least try to draw out the status quo as much as possible. 

“If you read outlets like New York Times, The Guardian, or Washington Post, you get an indication of the alarmism and the wrong understanding of India and its largely Hindu society that is rampant in certain elite circles in the Anglosphere. My book, A New Idea Of India, delved at length into what a prosperous, powerful India would offer to the world,” Rajeev said in conclusion. 

India’s position on Russia-Ukraine

It is a commonly held belief amongst Indians living in India that the global perception of India’s position is unfair to India and biased in favor of Western sensibilities.

I agree that the national outlets in the United States tend to have a skewed understanding of India. Morality-wise, I do think Delhi’s first and foremost imperative is to take care of its over billion citizens.

I asked him to make a case for India’s position in a way Westerners can at least appreciate, if not agree with. 

Morality: “I am not sure one can or should make a moral case for India’s position, and to be blunt, India itself has not painted its position in moral terms at all. Since the start of the war, India has pushed for a diplomatic solution and specifically asked both sides to stop the violence. Most notably, Prime Minister Narendra Modi directly said to President Vladimir Putin at the Shanghai Cooperation Organisation summit in Samarkand that “today’s era is not the era of war.”

Rajeev thinks foreign policy is a field where countries balance interests with principles. 

He added, “No major country can claim itself to be a purely moral force or that has always been “principled,” whatever that means. A bunch of American or British newspapers are not going to dictate India’s foreign policy; try as they might to hector India and play the “morality” card, dubious as that is.”

India’s relationship with Russia: “Russia has been a long-term and trusted friend of India since the Cold War when key members of the Western bloc were providing aid, arms, and support to Pakistan, a country responsible for waging several wars against India, including a proxy war through Pakistan Army-trained terrorists that it is known to harbour. Remember where Osama bin Laden was hiding out? His compound in Abbottabad was less than a mile away from Pakistan’s premier military training academy!” he said. “Where were the moral lectures from the media talking heads, think tankers, and other intellectuals when many of the world’s democracies were bending over backward for the dictatorial leadership of a theocratic, terror-supporting state?”

India’s trade reliance on Russia: “India has two nuclear-armed aggressors at its borders. The legacy of the Russian relationship and the policy blunder of pushing a public sector-led defence industry for the better part of seven decades has made India the world’s biggest importer of defence equipment and reliant on Russian-made arms,” he explained. “India’s growing economy has substantial oil requirements, almost all imported because it is not endowed with that resource. About 42% of the population – over 500 million people – is directly or indirectly dependent on agriculture, so fertilizers are critical for the sustenance of this vulnerable section.”

Rajeev’s geopolitical case for India’s stand is based on these critical national considerations around defense, energy security, and food security. 

“Any responsible government will look to safeguard its people against threats in these fundamental dimensions, and India’s government has wisely taken a stand in service of its national interest.”

Struggle to turn the population into a manufacturing strength 

India hasn’t been able to turn its population into strength the way China has over the past few decades to become a manufacturing superpower. The authoritarian political system of China, which can push changes in an abrasive manner whenever necessary, is a big factor, but it doesn’t fully explain the variance in outcomes. 

India is keenly trying to position itself as the next global manufacturing hub as countries reevaluate their relationships with China.

I was curious to hear what Rajeev thinks about the history and the future of manufacturing in India.

Historical context: “Essentially, two key factors of production - labour and capital - that are indispensable to building up manufacturing have historically been limited in supply by wrong policy choices,” he explained. “ It may sound bizarre how a populous country like India could have managed to limit the supply of labour - but it comes from having labour laws that are anti-employment and anti-employer.”

He believes internal reform is the best way to build these capabilities and prepare the country to benefit from shifting geoeconomic trends. 

Incentivizing domestic manufacturing: “India has opened up or expanded foreign direct investment in a number of manufacturing industries while imposing tariffs on finished product imports. India should keep doing whatever it takes and everything we can, burnishing its own global competitiveness.”

A big push is underway to build private sector-led domestic defense manufacturing, correcting the policy error of limiting it to government-owned companies.

Rajeev added, “Some of the most cutting-edge companies that supply critical equipment to the Indian armed forces today are the pioneers of this category, who started up a decade ago in the face of a lot of uncertainty and managed to overcome major challenges. Much of this technology is also dual-use, finding applications with commercial customers, civil government, and even consumers.” 

India’s startup ecosystem

He thinks India will surprise many people with the kind of breakout frontier technology companies that come out of the ecosystem over the next 3-5 years. 

Changing perception: “India has traditionally been considered a me-too tech deployment market, not an originator of innovations. One can already find entrepreneurial ventures in electric vehicles, drug development, drones, and space tech that will change that perception.” 

A shift in capital markets: “The Indian public markets have opened up for listings, despite the difficulties of tech companies that listed in 2021. India will continue to see public offerings from all kinds of new-age companies. This is a big development as it closes the financing loop for startups - it is now possible to raise the entire capital stack, from angel and seed funding, through Series A-B rounds, to growth equity and finally a public issue of shares, all while being an India-domiciled company.”

Composition of largest market cap companies

Tech giants dominate the list of largest market cap companies in the United States. In India, that list is dominated by energy companies, banks, and IT consulting firms. 

Rajeev told me, “I am not convinced that, in and of itself, having tech companies dominate aggregate market capitalization is a good thing. Whenever there is an obvious imbalance of this sort, chances are there is a frothy market or there has been a regulatory failure. In this case, there is a bit of both. As is being debated across the world, some blame probably lies with the regulators responsible for ensuring that industries have healthy competition. I also believe that some American companies that label themselves “ technology “ are actually media companies.” 

He later tried to reframe how we think about the largest Indian conglomerates.

Reliance Industries: “It is in the midst of a transformation, shifting from an oil refining and petrochemicals focus to becoming a new energy, ecommerce, and digital technology giant. If you see the history of Reliance, it has distinguished itself over four decades by commercializing technical innovations in whichever industry it has entered, from chemical and process engineering to telecom equipment design,” Rajeev said. “More than any company, Reliance Industries’ Jio has been responsible for the digital wave that is transforming India. This monumental achievement simply cannot be measured only in market cap creation terms.” 

Tata Group: “Tata, which owns global industry giants Tata Consultancy Services, Tata Motors, and Tata Steel, has an even longer history, stretching to the 19th century, of successfully entering and excelling in new age sectors, often in the face of tremendous odds. This group has grown over 150 years, covering the tumultuous periods of British colonial rule, the Partition of India, and the disastrous embrace of socialism by India for five decades after gaining independence in 1947. For example, when steelmaking was an emerging technology, the Tata group set up Asia’s first steel mill in India.”

He told me that Tata and Reliance, two conglomerates at the apex of corporate India, are far more forward-looking than a casual observer might think. 

Rajeev added, “The next decade presents an unprecedented opportunity for business building and wealth creation, unlike any that India has ever experienced. Looking back in 2032 at India’s aggregate market capitalization evolution, the share of technology-driven companies would have grown substantially and likely be sizable because the productivity-driven economic transformation underway in India will require incumbents to become more innovative or yield space to new enterprises.”

He believes that one of the reasons American tech companies become so valuable is they can go global from a position of strength after building traction in their domestic market. 

“A similar dynamic will unfold in India as the economy grows and per capita incomes increase. Indian companies will be far more global and acquisitive in the coming years. Given the open nature of India’s society, its democratic government, good diplomatic relations with practically all the world’s major economies, and the preponderance of English as the working language, Indian companies are likely to be accepted, even welcomed, across the world,” he said in closing.

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Eden is the all-in-one hybrid workplace software suite to make your flexible office run easily and efficiently. With tools built for desk and room booking, a better lobby experience for office visitors, managing deliveries, and more, Eden is used daily by great companies like Wealthsimple, IDEO, and Noom. Learn more by signing up here.

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