The problem of the economic development of large underdeveloped economies present unique challenges that require innovative solutions. In an age of increasing specialisation, there is a critical need for integration to supplement the specialisation. Economies are complex, nonlinear systems and just as they cannot be adequately described by partitioning them into subsystems and analysing them piecemeal, so also their problems cannot be addressed by partial interventions. This is because the subsystems of complex non-linear systems interact strongly with one another, and even the most carefully thought through partial solution often fails to achieve its goal.

The aim of RISC is to address the problems of one such complex nonlinear system — the rural Indian economy — and to outline a solution that addresses the problem of economic growth comprehensively by accomplishing a set of interlinked transitions to a more efficient equilibrium.

RISC is a market-driven intervention in rural India that has the potential for achieving the multi-faceted goals of sustainable economic development. This intervention has the potential to

• increase India GDP growth rate by around 1 percentage point
• add about Rs 20,000 crores annually to India’s GDP
• directly raise the incomes of around 70 million Indians

Services share a standardised reliable infrastructure platform
RISC distinguishes between the infrastructural services from the user services. Standardisation of the underlying physical plant and the infrastructural services makes the services cheaper to develop and deliver.

Conceptually and operationally, a RISC has two levels:

• Infrastructure level
• User services level

RISC follows the logical trend of moving away from vertically integrated institutions to one of horizontal segmentation and specialisation. Thus, conceptually and operationally, a RISC has two levels: the lower one is the infrastructure level (henceforth, the I-level) which consists of power, broadband telecommunications, and the physical plant (building, water, air-conditioning, sanitation, security); and above that the user services level (henceforth, the S-level) which consists of all services that are relevant to rural economic activity such as market making, financial intermediation, education and library, health, social services, governmental services, and so on.

The I-level provides a reliable, standardised, competitively-priced infrastructure platform. This is achieved by the coordinated and cooperative actions of firms that specialise in the component activities. Co-located on the S-level are a variety of firms that provide user services. The presence of the I-level reduces their costs and therefore the prices that the users face. Economies of scope and agglomeration are obtained by the presence of the variety of different service providers.

Standardised infrastructure level
The I-level can be considered the “operating system” of a RISC. The I-level provides the following:

• Power: the lack of reliable and good quality power has been a major failing of rural India. RISC corrects for that failure.
• Broadband connectivity: provide sufficient bandwidth to meet all needs.
• Air-conditioning, water, sanitation: essential services.
• Physical plant: a well-designed building providing an optimal working environment.
• Security: for guaranteeing a stable environment.
• Human Resources: to help manage and provide the various infrastructural services.

General purpose services level
S-level services are those that are relevant to the rural economy. Most of the services are market driven and provided by the private sector, while some are provided by the public sector. The S-level can be considered the equivalent of ‘applications’ that run on an operating system.

• Market making, market access, market information: Efficient markets depend on information. These essential services have the potential to remove current inefficiencies and to expand markets so as to increase incomes.
• Banking, finance, and insurance: Financial intermediation is critical to economic growth.
• Agricultural extension: Agriculture is the backbone of the rural economy. Immense opportunities for income generation exist.
• Governance: Not just the provision of government services to rural populations but also the participation of the people in governance.
• Vocational education and training: Rural populations would benefit in the short run from appropriate training.
• Library and general information: In a world where access to information and knowledge are critical, this is an essential service.
• Medical and health care: Essential public good that is currently insufficiently provided.
• Telecommunications, internet and web access: To bring the benefits of the revolution in information and telecommunications revolution to rural India.
• Support for primary education: Universal primary education is one of the most critical factors in economic development. Primarily a public good, it has to be funded by the government because of the long payback involved.
• Entertainment: Support for the provision of entertainment and for creating content by the rural population.
• Legal: Services such as dispute resolution and other legal matters.
• Social services by government and NGOs: Charitable and other services that increase social capital.
• Marketing of consumer goods: The supply of consumer goods to rural areas.

By co-locating the services at a specific location, the infrastructural needs of the services can be more efficiently met.


Features and benefits of RISC

A core-periphery approach
A core-periphery approach concentrates resources at a central location to serve a population, which is situated around it. Given that rural populations are very poor, the per capita demand for any service is low. Even at the level of a village, the aggregate demand for a specific service is low enough that it cannot be normally provided without external support.

However, the aggregate demand for, say, 100 villages for a single service could be significant. Aggregating the demand for many different kinds of services of the same 100 villages would translate into a significant total demand for services. These services would require infrastructure services such as power and connectivity, which can be commercially and sustainably supplied given their volume demanded.

Aggregating the demand for services
Each RISC addresses the needs of a large rural population – about 100 villages or around 100,000 people. Given population densities, this is usually within a radius of 15 kilometers. This population will have access to the RISC with at most a couple of hours’ bicycle ride. Each RISC will serve as a local business center where the downstream flow of information and material to the villages is complemented by an upstream flow of goods and services from the local village economy to markets that are global.

Commercially sustainable solution
Sustainability requires that the user fees for the services must exceed the cost of providing the services. It can be shown that there is a segment of the rural population which has the willingness and the ability to pay for services that expand their economic opportunities and increase their incomes.

RISC addresses the development trap
Unreliable and inadequate infrastructure in rural India leads to costly, and often non-availability of services that are essential for economic growth and income generation. The population therefore is unable to pay for infrastructural services, which leads to their non-provision or under-provision. To release this development trap, RISC concentrates the services at a scale which is economically viable and which can be commercially provided.

This raises a very important question. If indeed a wide range of services can be profitably provided to rural populations, why have profit-maximising firms not exploited the opportunity? We conjecture that there is a coordination failure in the investment, required for the basic infrastructure that leads to this market failure.

RISC solves the coordination failure in investment
Any supplier of a specific infrastructural service would be deterred from investing in rural India because the other essential infrastructure services are missing. Thus each infrastructure provider can rationally decide against investing in rural India because others are not investing as well. The coordination failure can be effectively addressed by demonstrating that opportunities exist for profitable investment provided that the investment is made in all the infrastructure components simultaneously by major infrastructure providers. Once a standardised reliable infrastructure platform is in place, market forces will pull in user service providers who would benefit from the availability of reliable infrastructural services that are competitively priced. In other words, their costs will be low, and in turn result in competitively priced user services. Given the availability of a full set of user services, incomes will grow which, in turn, would lead a way out of the development trap mentioned above.

RISC reverses rural to urban migration
Economic development of any population is both a cause and consequence of urbanisation of the population. Urbanisation is normally attained through rural to urban migration, which is unsustainable in developing countries with already overcrowded cities. Therefore, providing a rural population a comprehensive set of services and opportunities of the type usually available in urban areas could urbanise the population ‘in-situ’ without disruptive and socially costly migration.

Essentially a RISC is a micro-city, an appropriately scaled down version of a city. It acts as a focal point that provides a bi-directional flow of information and materials that are essential to the rural economy and which uses state of the art tools and technologies to do so efficiently. It can be conceived of as a holographic projection of a city on a small scale at the rural location.

The economics of a RISC
If we assume a conservative average annual per capita income of the rural population to be about Rs 8,0001 , then the annual income of the 100,000 target population of a single RISC is about Rs 80 crores2. Assuming that the top 10% of the population account for around 30% of the income, and that the presence of a RISC increases their incomes by a modest 10%, then the direct impact of a RISC would be an increase in the output of about Rs 2.6 crores per year. Assigning half of this increased output as increased income to the population leaves about Rs 1.3 crores per year to pay for the services available at the RISC. The annual gross revenues per RISC would then be Rs 1.3 crores.

RISC on a macro scale
About 600 million people live in rural India. About 6,000 RISCs would provide coverage for them all. The estimate above of Rs. 2.4 crore of additional economic activity due to a RISC would then translate into Rs 14,400 crores for the entire economy directly. This is only a partial analysis as there will be a multiplier effect on the economy. Taking a conservative multiplier of 2.5, the total effect of 6,000 RISCs would be Rs. 36,000 crores. This is over 1% of the annual GDP of India. However, one can expect only a few states of the Indian union to adopt the model at an early stage. Assuming that only 1,000 RISCs are implemented, the total effect of these would be an increase in the GDP of Rs 6,000 crores per year.

Conclusion
The economic development of India’s 600 million strong rural population presents formidable challenges and also great opportunities. An institutional innovation called RISC — Rural Infrastructural and Services Commons — is presented that has the potential for achieving the multi-faceted goals of sustainable economic development.

Fundamentally, the specific market failure that RISC addresses is that of coordination failure. RISC is designed to coordinate the activities of a host of entities—commercial, governmental, NGOs. It synchronises investment decisions so as to reduce risk. It essentially acts as a catalyst that starts off a virtuous cycle of introducing efficient modern technology to improve productivity that increases incomes and thus the ability of users to pay for the services, and so on. It creates a mechanism that reduces transaction costs and therefore improves the functions of markets.

Revolutions in the Information and Communications Technologies (ICT) have the potential to remove the barriers to information asymmetries that were impeding the working of markets that are critical for economic growth. The forces of globalisation have created opportunities for the integration of rural populations in a larger marketplace than was ever available to them before.

Economic development is both the cause and consequence
of urbanisation. RISC achieves the urbanisation of the rural population without requiring the massive and unsustainable rural-urban migration. It brings urbanisation to the rural population by making available to them the full set of services and amenities that are normally available only in urban locations. It works within the constraints of limited resources by concentrating them in specific locations to obtain economies of scale, scope and agglomeration. It helps lift the population out of a development trap by making available to them the benefits of technological advances and the increased access to global markets that globalisation promises.

Footnote The current (June 2003) exchange rate is US$1 = Rs 47 approximately. For back-of-the-envelope calculations, Rs 10,000 is around $200. One crore = 100 lacs. One lac = 100,000. So one crore = 10 million. A useful approximation is that Rs 5 crores is $1 million.