Published on: 31 August, 2019

Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road – Stewart Brand, American Writer.

In a few days from now, on September 7th, 2019, the Indian Space Research Organisation (ISRO) is expected to land the Chandrayaan-2 on the Moon, joining a select group of nations to claim this achievement. Ask your friends and family, and you’ll see a general sense of pride in the moon-landing, as well as ISRO’s multiple achievements over the last many years. And rightly so. However, this wasn’t the case some years ago, when ISRO began thinking beyond just satellite launches. Arguments like “Why waste money in space when there is so much poverty here?” were common. We hear of similar arguments now, about the planned bullet train project between Mumbai and Ahmedabad. Why spend $15-16bn on a high-speed train instead of improving safety, cleanliness (or the quality of cutlets served!) on the existing network?

In a capital starved country like ours, these are natural, and obvious questions. Are there any visible or near-to-medium-term benefits of sending a probe to the moon? The investor or business manager in you might ask if this is sound capital allocation! The payoffs of these investments can be known only after decades of perseverance, as is now being seen in the case of ISRO. And there will be many failures too. That is why, any pursuit of a higher technology always comes with these quandaries. But thinking of it purely from a point of view of competing use of funds would stall progress completely, as a developing nation will always have other priorities over a bullet train, or a space mission.

So how do we then think of technology investments in a capital constrained environment? Both, in terms of the process of technological development itself, and the desired or planned outcomes.

With capital as a constraining factor, the default process of development becomes the pursuit of marginal gains. Keep tinkering with the existing locomotives and related infrastructure to achieve small, incremental increases in trains speeds. From an average speed of 44kmph of passenger trains currently, to 54kmph and then 64kmph and so on, instead of a direct jump to a 300kmph bullet train. To be sure, the Indian Railways have been undertaking many initiatives towards this – developing 3-phase locos, eliminating manual rail crossings, electrifying more tracts of the network, automating signalling and so on. In a way, this is what ISRO did too, as it gradually built on its learnings from each mission, increasing payloads on every subsequent launch vehicle, and making the shift from the PSLV to the GSLV. This is a relatively lower cost path to progress. But it is long drawn, with a series of linear outcomes, before we reach a tipping point beyond which gains accrue in a non-linear fashion. It took ISRO nearly 30 years after the first satellite launch from the Satish Dhawan Space Centre at Sriharikota, to launch the first orbiter mission to the moon, Chandrayaan-1. From the Chandrayaan-1, it took a mere 5 years to the Mangalyaan (Mars Orbiter Mission) and another 6 years to the Chandrayaan-2 moon landing.

The other mode of development is to move directly from linear to non-linear results by taking a giant stride. In many cases it is imperative to make the big leap in order to catch up with the changing pace of technology worldwide. Aim directly for the 300kmph speed on the train! Or reimagine highway development with a 700km, 6-lane greenfield expressway (under construction between Mumbai and Nagpur), instead of first building a two-lane highway, then expanding it to four and then six lanes over 15 years. The analysis of outcomes needs to be more nuanced here, since no traditional economic metric, or an outcome budget, will justify the outlay. The nuance comes from looking at spill over effects of such projects, in addition to the direct benefits or results achieved against desired outcomes.

ISRO’s missions have clearly helped build indigenous capabilities in aerospace engineering, material science, metallurgy and so on. But they have also had far reaching benefits in weather forecasting, military communication, television broadcasting, street-level navigation and many other areas. When the Defence Research and Development Organisation (DRDO) took up the development of an indigenous Light Combat Aircraft (LCA), it was a big technology leap. But after 30 years there still isn’t a full squadron of these aircraft inducted by the Indian Air Force. But the project has spawned an array of indigenous engineering and technology companies, both large and small, which today are exporting critical components and equipment to global aeronautical majors and a few countries have expressed interest in buying the LCA itself.

Similarly, the bullet train project will drive a technology leap in the domestic transportation ecosystem. A further, more interesting and path-breaking effect could be the potential to disperse populations from our overcrowded cities. A diamond merchant need not make Mumbai, the diamond trading hub, his or her home – Surat, the diamond processing hub will be just an hour away in a high-speed train. In fact, as costs per kilometre reduce with every additional bullet train project built, the greatest benefit can be in decongesting our cities – think of links between, and along Bangalore-Mysore, Mumbai-Pune, Mumbai-Nashik, Delhi-Jaipur, Chennai-Bangalore and so on.

We have seen this happen with the Mumbai-Pune Expressway which, when built, was the first of its kind in India. In the very first decade of getting connected, Pune saw a 12% CAGR in real GDP, acceleration in development of new urban localities such as Wakad, Aundh, Hinjewadi, and its steady rise as a weforum. The Mumbai-Nagpur Expressway can be equally transformative for other Tier-2 and Tier-3 cities like Aurangabad, Nagpur etc.

A parting thought is to ponder how would things work in an environment where capital is not so much a constraint? Take the example of the Indian IT industry. The 4 biggest Indian companies reported an aggregate EBIT of close to $50bn over a decade starting 2006. Could this large pool of funds have been deployed to alter the tech landscape and achieve a big leap forward? Moving from services to products, or to the cutting edge of mobile computing or to global leadership in artificial intelligence? Maybe. But that’s a discussion for some other time.
Salil Desai is a Portfolio Counsellor at Marcellus Investment Managers.

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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.
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