20-Jan-2019

Venue: Victor Menezes Convention Centre (VMCC), B. Nag Auditorium,

IIT Bombay, Mumbai, India

Keynote address as prepared for delivery.

It is a pleasure to be here at IIT Bombay – undoubtedly one of India’s pre- eminent institutions that has, through its faculty and alumni, promoted excellence in education here in India, impacted research at the frontiers of many technologies and spawned entrepreneurial activity in India around the world.   

This second Deshpande – Gopalakrishnan Symposium aims to promote discussion and action on strategies in higher education for innovation and entrepreneurship.

I have had the privilege of knowing both Desh and Kris for many years.

Desh was involved in helping the Obama Administration with regard to innovation and entrepreneurship policy and in attracting investment. 

Entrepreneurship was a top priority for President Obama.  He recognized the opportunity for business creators around the world to not only build businesses but facilitate upward mobility and build the foundation for a rising middle class. A thriving middle class is vital for broad based prosperity, security and stability – and forms a bulwark for democracy.

In India, Prime Minister Modi, through his Start-Up India, Digital India and other initiatives, has similarly shone a spotlight on the importance of entrepreneurship.

Kris and I have shared a close partnership that started around our common interest in our home state of Kerala. We both did our bachelor’s in physics at the University College, Trivandrum.  Many years later, we collaborated to foster thinking on new ideas for Kerala’s development. We continue to work together on a couple of initiatives for the Kerala Government. 

Desh, Kris, I am glad now to have this chance to be together with you in this endeavor to link academia to the marketplace.  These are going to be critical linkages in India’s journey to a $10 trillion economy.

I believe it is inevitable that India will grow to be a ten trillion dollar economy. In fact, that is one reason why I returned to India after being in the US for almost forty years, the last three of which I served in the Obama Administration.

When I was in the US Administration, I traveled to perhaps forty countries and engaged with government and business leaders around the world.

From that vantage point, I could see clearly that India and the ASEAN had the highest upside in terms of opportunity, with India being the most promising and with the governance capacity to foster sustained growth.

I have been back in India now for two years. 

And my instincts have been more than confirmed – the opportunities in India today compare only to those of the dot-com days in California which I was fortunate to participate in.  

This is a new and evolving India — very different from the India of ten or twenty years ago.     
In nominal dollar terms, the economy of India is the same size as the UK, an advanced industrial economy; in purchasing power parity terms, India can be considered significantly larger.

It will not be long before India becomes the third largest economy.

The current Government in India has pursued many reforms to make India business friendly, and the results have been encouraging.   

Over the last four years, India has moved up 65 places to the 77^th rank in the ease of doing business rankings and is not far from the ambition of the
50^th place by 2025.

Consumer demand is rising.  Infrastructure spend is increasing.  India is a good combination of an investment oriented and a consumption economy. 

In this regard, at the most fundamental level, is the striking contrast with its neighbour, China.

China’s reliance on investment, later followed by a gradual shift towards consumption, has in significant measure been contrary to India’s emphasis on incentivizing private investment, raising productivity and development of its human capital.

In the sphere of International trade as well, India’s economy today is in a relative sense more extensively integrated into the world’s trading system than China’s.  In fact, for exports alone, they constitute a larger share of GDP for India than they do for China.

FDI inflows present a similar story.

For these and many other factors, India is projected to be the fastest growing major economy in 2018-19 and 2019-20.

An important feature of that growth and change is the entrepreneurship scene. 

I see this close at hand in my role as Chairman & CEO of KPMG India. 

We do significant work with eCommerce and internet startups – as well as importantly with other, non-tech startups.

In fact, in India, KPMG has the largest startup and e-commerce practice and we have been working in this space since 2009 serving myriad new ventures.    

We work across the ecosystem, from the regulators, funds and marketplaces to, most importantly, the startups themselves.   

We work with critical support businesses like analytics, logistics, cataloguing and packaging companies which feed into the internet and the startup ecosystem.

In our work with Government and regulatory bodies across various initiatives in the past three years in the startup space, it is clear there is an enhanced focus by Governments in this sector – at the centre and the states.

A highlight was the launch of the Start-Up India event and the Start-Up policy. 

Thus my talk today will draw from our work across the ecosystem.

First, let me start with the critical fundamental that a business needs: demand.

There is plenty of demand in India today.  As I stated earlier, consumer spending is constantly rising. The scale of unmet demand is simply staggering. The expenditures on infrastructure, which has significant multiplier effects, is significant.

When I talk to CEOs and major business leaders in India, they are looking at growing their businesses at rates of 20, 25 and sometimes north of 30 per cent. Where else in the world will you see that?

Seeing this strong demand, entrepreneurs are innovating and starting enterprises.

Last year, India added over 1,200 startups.  In terms of numbers of startups, India will soon catch up with the US.

India has some ten unicorns and many more “SOONicorns”.  While Flipkart, Ola and Paytm  were some of the unicorns of 2017, 2018 catapulted multiple other Indian startups like Zomato, Byju’s and Swiggy into the unicorn club. 

And many existing unicorns strengthened their play by raising further rounds last year.

In terms of exits as well, we have seen an all-time high of 13-15 billion USD — with public markets accounting over 50% of exits.  Top exits included Qatar Foundation Endowment’s exit from Bharti Airtel Ltd in an open market transaction for $1.48 billion (~41% returns in 4 years); Tiger Global’s secondary sale of Flipkart for $800 million; and Apax Partners partially exiting Global Logic for $780 million (making more than 3x in 4 years).  

2018 also witnessed an exit that eclipsed all of these – that of Flipkart investors and founders to Walmart.

The entrepreneurship scene in India is supported by the fast paced development of the startup ecosystem in the country – incubators, accelerators, VC/PE and angel investors, corporate fund houses, regulators, corporations and other ecosystem players.

We in KPMG work extensively with the start-up ecosystem and many entrepreneurs are our clients. 

From our experience in working across this ecosystem, we see some powerful trends that could dominate the start-up landscape in the years ahead.

We will see the rise of “assisted commerce” being implemented to complement and facilitate online commerce. 

Startups have created over 100,000 assisted commerce centers to enable people to buy/ transact online like ShopX, which is funded by Nandan Nilekani.

Add to that another 50,000 AADHAAR centers across the country which are digitally enabled.

And 100,000 flight ticket booking centers like via.com.

As well as a large train ticket booking platform IRCTC which has 7,000,000 tickets being booked a month.

All of these today are ready and able to act as assisted commerce agents for customer acquisition in India.

Another key trend we are seeing is that of online-only and online-first Indian brands across Fashion and Retail, Consumer Health and Personal Care.

An important aspect to note is the maturity and growth we are seeing in the SME sector due to the digital revolution. 

The e-commerce companies have put small businesses on platforms that enable their multifold growth.

A small aggregator of Indian ethnic wear in Surat, has now become a $25 M company only through market places.  Ola and OYO Rooms have helped thousands of taxi drivers and small hotel owners achieve significantly higher productivity, thus emphasizing the need and growth of a shared economy.

Non-technology startups are on the rise. India is seeing many such startups in the past 3 years in areas like food, fashion, fast moving consumer goods, alcoholic beverages, services companies and logistics companies.

Some key names that have built a brand in India include:

Paper Boat – a novel concept of fruit and Indian flavored drinks which is sold with the theme of nostalgia. The company raised multiple rounds of funding, the latest from Tata Global Beverages.

Another one is ID-Fresh, an innovative startup which capitalized on a pressing need of having clean, hygienic and consistent batter for IDLI and Dosa. Targeted at working wives initially in the top cities in South India, the company was an instant hit and grew exponentially with a very strong cold chain set up.

The third is a beer brand which got great acceptance in the metros in India – BIRA beer.  An Indian company getting the beer taste right and the coming up with multiple variants is gathering wide acceptance in the top cities in India. I am one of its fans.

Many more like them including Chai-point, a tea based snacking outlet to raw pressed, cold pressed juice, to WROGN Youth Fashion brand.

Several of you present here today are involved with entrepreneurs and entrepreneurship in some way or the other – and have probably seen these trends through your exposure and interactions.

Let me share some lessons from Silicon Valley where I lived for 35 years.

UC Berkeley Professor Anna Lee Saxenian in her book “Regional Advantage: Culture and Competition in Silicon Valley” concluded that Silicon Valley’s success was attributed to the people, culture, and connections that brought “smart people” to Silicon Valley. 

The reasons why Silicon Valley succeeded lie significantly in the personal freedom to pursue passions, the rapid pace of new company formation, the easy and laid back style of California that promoted unhindered professional networking, and the ease with which people share information. 

In addition, and importantly, people in Silicon Valley are not afraid to fail.

The lessons from Silicon Valley are about freedom and fearlessness, of a mindset of freedom to pursue one’s dreams, fearlessness to be audacious, to go far out of your comfort zone, to dare.

This brings me to the last section of my talk today. 

How can India rise as an Innovation Nation and enhance its domestic and global innovation landscape?

The components required to be leading this transformation are present in the country.

Some of the best talent, a large pool of digital customers, fast rising consumer spending and a favourable ecosystem, which I just touched upon.

Combined with the above, some of the world’s most complex and large scale challenges are also in India, and they demand innovative solutions.

India should rightly be the laboratory for solutions at scale.  And these innovations can be impactful for other developing countries as well.

It is here that the roles of government, higher education institutions and the private sector are vital and pressing.

First, elements which the policy makers must consider.

1. A collaborative ecosystem – 

In India, waves of e-commerce, mobile penetration, data growth (and IT Services in the past) have seen companies pushing progress but facing cautious optimism from the regulators and government. 

Given the pace at which innovation-led digital and the startup wave are offering promise, building a globally competitive innovation culture in India will need more proactive measures with equally sustained intent from each stakeholder including the government.

For example, Andhra Pradesh Government’s 2016 initiative to set up a Fintech hub (titled “Fintech Valley” in Vizag) has brought together global bodies (such as Monetary Authority of Singapore) and corporates (e.g. VISA, Paytm, Blocktrust, Snapper), as well as academic institutes.

• As its knowledge partner, KPMG has attracted and helped onboard corporates like Bharti AXA, HDFC Bank, ICICI Lombard, Angel Broking, and ICICI Bank to help catalog use cases of their knowledge and experiences.
• This repository is a key asset for the Indian startup community. laying out information on opportunities.    

• Faster Adoption of Disruptive Technologies

In the last few years, we have witnessed an openness to advanced technologies like blockchain and machine learning from Indian companies and governments alike.

From being a technology adoption laggard by 5-10 years, India is looking to leapfrog ahead of even developed markets in a collaborative adoption of such impactful technologies, at least in selected sectors.

Going forward, a quick evolution from pilot engagements to focused long-term adoption (as strategic partners or enterprise clients) in advanced technologies like AI, blockchain and cybersecurity will spur innovation.

For example, SBI, the largest public bank of India, has undertaken a futuristic initiative with IBM, Microsoft, Skylark and KPMG to build Bankchain, a national blockchain consortium of 10 commercial banks to provide the benefit of a shared infrastructure for critical need areas – to reduce fraud and improve operational efficiency.

Let me make also some observations on how the Government can directly contribute to advancing innovation – by creating focused institutions and programs in a mission mode or by facilitating access to information.

It is clear that the government’s own programs, from space exploration to the unique identity project and various financial inclusion initiatives have been instrumental in fostering innovation.

The government in India has a role to play just as NASA and DARPA had important roles in the US.

Funding and executing on specific high leverage mission oriented initiatives is one major policy that seems to work.

The Government itself is a major market for products – just look at the Railways and Defence.

These markets can be used to catalyze innovation. 

There are a couple of examples from the US that are worth considering.

• The US Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) with the potential for commercialization.
• Through a competitive awards-based program, SBIR enables small businesses compete for funding to develop innovative solutions and provides them the incentive to profit from its commercialization.
• Small businesses that would otherwise not spend on R&D are motivated by these grants to do so.
• Innovation is stimulated in this vital sector and specific research and development needs of government units are met.
• SBIR targets the entrepreneurial sector because that is where most innovation and innovators thrive.
• This is an idea that India can well adapt.

Second, catalyze public private collaboration for systemic change.

Bringing public and private players together can create engines for significant change. 

The creation of industry clusters is a frequently successful example of public private sector collaboration. Transformative collaborations can be created by inviting stakeholders to build development laboratories serving a specific industry or set of problems.

A successful example I have seen is the Dhahran Valley Technology Park in Saudi Arabia which was created to form a cluster of innovation for the oil industry. Several competitors have labs in the park which is connected to a technical university.

Several Indian state governments have attempted the cluster approach, mostly for IT.

A related approach is the creation of incubators by companies as well as organisations sponsoring programs which support idea germination, entrepreneurship and innovation.

KPMG has been running one of the largest and successful international case competitions in the country for over a decade.  Referred to as KICC (KPMG Innovation & Collaboration Challenge), it has played a pivotal role in bringing academia and KPMG professionals closer to one another.

Every year, we receive over 2000+ registrations from more than 70 engineering and non-engineering graduate campuses and close to 300 ideas!

This year, we partnered with a leading online student community as well as a media company which helped us widen the outreach and create deeper impact.

The competition has a distinct format – with a fast-paced structure and mentoring by experienced KPMG professionals.  It provides a great opportunity for students to test their ability to develop innovative, real-world business solutions in an exciting and challenging learning experience, apart from honing their communication skills.

We also work closely with Enactus – a community of student, academic, and business leaders.  KPMG has played a critical role in the international expansion of the programme since 1996. Enactus promotes entrepreneurship at the university level, encouraging business creation that is responsive to social needs. One of the most successful enterprises catalyzed by Enactus deals with cleanliness and sanitation.

We currently have 40 Partners and Directors mentor over 50 college teams on Enactus projects, and the Learning and Development team conducts training sessions on presentation skills for the Enactus students.

I have been the Chairman of the National Advisory Council of Enactus for two years now, and it makes me very proud to see the ideas, energy and passion amongst the youth of today.  I strongly believe that given the right platform and mentorship, the ideas which we see can go a long way in scaling many of the problems which India faces today.

In conclusion, let me say that innovation and entrepreneurship are critical to building the New India. Getting them right is as critical as policies of economic reform.

The demand side of the equation, the market, is the most important requirement for entrepreneurship – and India offers plentiful opportunities with secular growth in per capita consumption expenditure that will continue for years into the future.

Government, regulators, investors and businesses are seeing the opportunities in a similar way after a long time. All these stakeholders want to see economic growth.

The Indian startup scene is attractive, probably the second most vibrant place after Silicon Valley. The level of technology enablement is high, utilizing high end technology for customer experience, insight and prediction.

Startups with winning business models are succeeding, and generally favorable government policies and focus from the central and state governments are helping.  This is not to say there are no speed bumps – and we have seen a couple just recently — and we do indeed have a lot of distance to cover.

Among the biggest challenges that startups face in India is mentorship. 

India being a young startup nation, there aren’t enough startup veterans in the country to support and guide startups.   

Many startups will benefit from good mentors and this is a challenge to many of us in this room this evening.

With that reminder that each of us has a task to do to promote innovation and entrepreneurship in India, let me conclude my talk.

It has been a pleasure to be here with you, and the opportunities and challenges you are discussing are truly inspiring.

Thank you.