Platforms that aggregate small businesses can integrate the informal with the formal economy

By | July 16, 2016

Continuing my thoughts on Nilekani’s vision introduced in the previous post, I want to use this post to focus on the key element of what captured my imagination from his article “The New Road to Nirvana“:

So manufacturing is squeezed on one side by Chinese overcapacity and on the other side by extreme automation. So the service sector is where the action is.

The era of large companies as we knew them is also over. It will be a world of platforms that aggregate small companies.

Amazon and Flipkart will aggregate goods made by lakhs of vendors and provide a platform to sell them. Similarly, Ola or Uber will aggregate millions of drivers who will work on the platform, Practo will aggregate doctors and patients and so on. Aggregation by platforms is the way that jobs creation will happen.

This platform aggregation will also lead to formalisation of the economy. India’s economy is largely informal. But once, say, a taxi driver becomes part of Ola, then in fact he becomes part of the formal economy.

He is able to use data, get a loan, buy a car, start paying taxes. So the formalisation of a few hundred millions of Indians will spur growth and that is where our focus should be.

My larger point is that it is now all about domestic not export, services not manufacturing and platform aggregation not big companies.

I will be writing further on this concept and exploring its implications for the African context, particularly East Africa.

 

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