At the Tata Motors factory just outside Pune, south of Bombay, a group of young designers, technicians, and marketers pore over drawings and examine samples of steel and composite plastics. By early next year, they plan to design a prototype for Tata Group's most ambitious project yet: a compact car that will sell for $2,200. The company hopes the car will beat out Suzuki's $5,000 Maruti compact to become India's cheapest car -- and an export model for the rest of the developing world. "This is the need of the day in India -- a people's car," says Ratan Tata, chairman of the $12.5 billion Tata Group. The car is expected to hit the market by 2008. Investors, executives, and workers in the developed world have all felt the impact of India's booming software sector and call centers. But those are examples of Indians providing solutions for rich nations. Now, Indian entrepreneurs and companies such as Tata Group want to provide products and services to the nation's masses. With 1 billion people, 70% of whom are poor, India needs low-cost, high-quality goods and services. Most Western output is too expensive or complex for the Indian market.
India's engineers and professionals are focusing on finding fresh solutions in fields from manufacturing and health care to finance and education. They're not only making use of the country's cheap labor and materials but also finding practical ways to get the job done on a mass scale. Says Vivek Paul, chief executive of software services giant Wipro Technologies (WIT), the world's largest supplier of outsourced research: "Thanks to the lowered cost of R&D now possible out of India, there are new avenues opening up that weren't possible before."
This quest for the best for the least could amplify India's impact on the global economy. "Future innovations will flow from the rise of capital-scarce but labor-abundant nations like India and China," says Diana Farrell, director of San Francisco's McKinsey Global Institute. Already, Indian companies are eyeing markets in Asia, the Middle East, Africa, and Latin America.
It remains to be seen, of course, how many of these goods and services find their place in Europe and the U.S. But thanks to increasingly demanding and sophisticated consumers, low-cost innovations have begun to spread across India, capturing the attention of analysts such as McKinsey's Farrell and University of Michigan business guru C.K. Prahalad. He is author of The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, which focuses on inexpensive goods and services created in India, Brazil, and elsewhere.
Tata is the best example of Corporate India getting involved in these innovations. Tata has already developed the Indica, a compact hatchback that retails for $6,600 and is exported to Europe. In the process, Tata engineers figured out how to use the skilled but cheap local labor instead of the industrial robots that would have been used in Japan or the U.S. on a car like the Indica. That decision shaved roughly $1 billion off the design and production cost. As a result, the Indica can break even on an output of 80,000 vehicless -- about 30% less than the volume that global auto companies need to profit from such a car.
The $2,200 Tata compact -- which will appeal to the 5 million Indians who own motorbikes but can't afford the standard economy car -- pushes the envelope on cost even further than the Indica. Tata's specialists are also designing a new business model. If all goes according to plan, the new Tata car will be made and distributed not only from the Pune factory but also in knocked-down kits to franchisees across the country. The franchisees will assemble the new auto in mini-factories, as well as sell it, creating thousands of local jobs. That will save Tata millions -- it's easier to ship kits than fully loaded cars -- and the savings will show up in the car's low price. "Tata has the expertise to deliver such a mass market product," says Kumar Bhattacharyy a, director of Warwick Manufacturing Group, the British auto think tank, who has seen early versions of the new Tata car.
The company is also experimenting with cost-saving manufacturing techniques. Instead of welded bodies, for instance, Tata may choose bolted or glued panels. The challenge will be to meet stringent safety norms at the same time. The company is also planning to outsource about 80% of component manufacturing to inexpensive Indian suppliers.
The new Tata car is innovation on an industrial scale. But mass-market techniques, Indian-style, can be applied to health care, too. Witness the Aravind Eye Care Centre in the southern Indian city of Madurai. Designed by an ophthalmologist named G. Venkataswamy, the Centre has developed inexpensive cataract surgeries for $50 to $300, compared with just over $2,000 in the U.S. The procedure's price even includes the cost of a locally made intraocular lens, inserted during surgery to restore sight.
Well-to-do Indians are charged the higher fee, which partially subsidizes operations for the poorest. But the key to keeping costs down is the huge volume of surgeries and the efficient system the doctors have developed. At Aravind's three hospitals, 80 doctors perform 50 surgeries a day. At any one time in the operating room, four doctors are working on patients side-by-side. Patients are returned to their village the next day, where paramedics complete the postoperative care. In technical jargon, this is "process innovation." India seems to excel at it. "Process innovation is a critical step in making products and services affordable for the poor," says the University of Michigan's Prahalad.
Moreover, doctors say, the assembly-line procedure doesn't hurt the result. "The quality is stellar," says Burjor P. Banaji, a well-known ophthalmologist in Bombay. Aravind says it manufactures the intraocular lenses used in the operation for $5 each -- a big savings from the $50 the hospital once paid the American company Allergan for lenses approved by the U.S. Food & Drug Administration.
If Aravind's cataract surgery is a triumph of process, the prosthetic Jaipur Foot is a triumph of product. The $30 artificial limb was developed in the late 1960s by Ram Chandra, a temple sculptor from the north Indian city of Jaipur. He observed that patients in his city had trouble using imported artificial limbs, which can't accommodate Indian postures like squatting. So he set out to improve things.
The Jaipur Foot is made from a rubberized material and more flexible than many standard prosthetic feet available in the U.S., which cost from about $250 to $1,500, depending on their range of motion. And the Jaipur Foot is suitable for long periods of immersion in water -- essential for farmers who stand barefoot for hours in rice paddies. Its movement at the knee and ankle allows Indians to comfortably squat, sit cross-legged, and walk barefoot, as is often their custom. The prosthetic limb costs so little because it's made from cheap yet sturdy materials, and its labor-intensive assembly does not require the use of high-cost machinery.
Distributed by a charitable organization known by the acronym BMVSS, the Jaipur Foot is exported across the developing world, from Afghanistan to Rwanda. Two years ago, the BMVSS created a partnership with India's satellite space-research program, the Indian Space Research Organization to improve the limb and further reduce its cost. The Jaipur Foot will soon be manufactured using polyurethane, a lightweight material normally used for making rocket propellant. The new outer material will reduce the weight of the foot by half and cut production costs by about 10%, to $27.
There are many more low-cost Indian innovations -- from Bharat Electronics Ltd.'s tamper-free electronic voting machine to Tata Consultancy Services' computer-aided literacy program. Bharat Electronics sees huge export potential in its $200 suitcase-size voting machine, which illiterates can use to cast their electoral ballots. Unlike the electronic voting machines used in the U.S., which are networked through personal computers, the Indian machines run on software embedded in a microprocessor that cannot be reprogrammed. That means they can't be hacked.
Computers are also helping literacy grow in India. For just $100,000, TCS software engineers developed a program to teach India's 200 million illiterates to read. Words float across the screen while a narrator repeats the sound that most closely represents the word, such as "m" for "mother." In one test, TCS engineers found that in 10 weeks, adults learned enough to sign their names and slowly read a newspaper.
India's largest private bank, called ICICI, has also created innovations through small loans given to self-employed farmers and craftspeople. Following the example of mortgage-backed securities, ICICI last November decided to bundle $5.3 million of loans from India's two best microfinance institutions, and sell them as securities yielding double-digit returns. By connecting capital markets to India's small entrepreneurs, the bank demonstrated that securitization could eventually create a new instrument for microborrowers across the world.
Banking. Education. Health care. Autos. In these areas and beyond, Indians are increasingly demanding better products and services at an affordable cost. Strong economic growth this year will only enlarge that demand. The phrase "Made in India" may come to represent low-cost innovation in the new global economy.
By Manjeet Kripalani