Jugaad is our most precious resource

People ask me, what exactly is jugaad? Global management experts attribute India’s rapid economic growth to jugaad. In a recent survey by the Legatum Institute, 81% of Indian businessmen said jugaad was the key reason for their success.

Many years ago, innovative Punjabis mounted a diesel irrigation pump on a steel frame with wheels, creating a vehicle they called jugaad. It was ultra-cheap but did not conform to vehicular regulations. Over time, jugaad came to mean grassroots innovation to overcome any constraint.

In the West, innovation is done by scientists using expensive equipment. In India, it’s done by every housewife, farmer, transporter, trader and industrialist. It does not require high-spending R&D: it simply needs creativity and imagination. Anil Ambani once said Reliance succeeded through innovation, not invention.

One avatar of jugaad is what management gurus call “frugal engineering”, exemplified in the Tata Nano, the cheapest car in the world. India’s telecom companies provide calls at Re 1 a minute, the cheapest in the world. Narayana Hrudayalaya and Shankara Nethralaya provide the cheapest heart and eye treatment in the world. Indian reverse-engineering of patented drugs is also frugal engineering.

Some management experts warn that jugaad uses any means, legal or illegal, to get a job done. They say bribery and manipulation must not be confused with genuine creativity.

I disagree. The creativity in unethical activity is, with rare exceptions, not fundamentally different from the creativity that yields frugal engineering. The incentives and rewards of the political-economic system determine whether creativity is used mainly for unethical profit or heroic productivity.

The hawala market, for instance, is used by drug lords for money laundering. But it is also an example of jugaad, enabling poor migrants to remit money across countries, faster and more cheaply than any formal bank system. Hawala was legal for centuries before modern governments declared it illegal.

Dhirubhai Ambani was the master of jugaad. The licence-permit raj made it impossible for him to progress legally, so he exploited the corruption and cynicism of the system.

He exported junk to get profitable import entitlements. He created industrial capacities vastly in excess of licensed capacity. He imported huge textile machines as “spare parts”. He engineered highly profitable changes in rules for polyester imports and telecom licences. The jugaad he used to overcome hurdles was not distinguishable from crony capitalism.

Yet when the licence-permit raj gave way to a more open and deregulated economy, Dhirubhai used the same jugaad to scale dizzying heights of productivity and become world class. His giant refinery complex in Jamnagar had the highest refining margins in the world, beating the Singapore refineries. He converted to reality his vision of making telephone calls cheaper than a postcard.

Dhirubhai showed that manipulation and world class productivity are two sides of the same coin called jugaad. If governments create business constraints through controls and high taxes, jugaad will be used to overcome those hurdles. But if deregulation abolishes these hurdles, the main business constraints become lack of quality and affordability, so jugaad shifts to improving productivity, quality and affordability. That ultimately makes you world class.

Jugaad is amoral. If laws are oppressive, jugaad will seek ways round the law. Yet this amorality kept Indian business alive in the 1970s when controls were buttressed with income tax of 97.75% and wealth tax of 3.5%. Honest businessmen would have been taxed into bankruptcy. But jugaad, including innovative tax dishonesty, kept Indian business alive, and enabled it to surge when economic policy moved away from insane socialism.

Socialist politicians viewed themselves as golden-hearted geniuses who knew better than greedy Marwaris about what should be produced. Nobel Laureate Friedrich von Hayek pithily called this “the fatal conceit”.

India may not have ample natural resources like oil or copper. But it has jugaad, which is more valuable. Natural resources like oil are often a curse: they can lead to government kleptocracy and authoritarianism. But jugaad helps foil government kleptocracy and authoritarian regulations.

Socialist planning was supposed to optimize use of India’s resources. But it assigned no value at all to the marvelous innovativeness and enterprise of Indians in every branch of activity. Five-year plans sought to optimize financial resources, mineral resources (like coal and oil) and administrative resources. But they sought to crush enterprise and jugaad, the most precious resource of all. That has now been liberated by economic reform, and the value of jugaad has gained worldwide recognition.

The delivery of government services – education, health, infrastructure -remains terrible. Here too socialist control needs to be replaced by jugaad. Alas, politicians and socialist ideologues will not allow it.

8 thoughts on “Jugaad is our most precious resource

  • 2010.Sep.26 at 09:57
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    And so, a crime is a crime only if it is caught? If not caught, you never did anything – and thus, the successful cheat becomes a jugaadu! How fair is this is left for us to question and resolve.

    All systems have flaws and to exploit those flaws due to self-interest or due to utilitarian principles by being the robinhood and messiah of all, creates a system of thought where even the laws beneficial to people are violated – where corruption becomes ingrained into the psyche of people as a way of doing things. And its ingrained into the Indian way of thought today. There are 2 things which can be done to resolve such problems: Develop an ideal system without the possibility of a manipulative jugaad or limit your jugaad to within the legal framework of things (which is what we dont seem to have ever learnt) and oppose the framework openly where necessary instead of diverting the system.

    Maybe Ambani created a huge empire by subverting taxes, maybe India would not have grown so much economically otherwise. But, I prefer a non-corrupt system to an economically developed one. Not to say, that in many cases, there is a possibility of both going together hand-in-hand.

    Jugaad is amoral is like saying innovation is amoral. Obviously! But, the act of jugaad if used for manipulating the legal fabric of a system, is something I do not approve of and consider immoral. Maybe that is why I never had high regard of Indian businessmen, especially of the Ambanis.

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  • 2010.Sep.12 at 09:07
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    Dear Sir,

    Well written piece but some comments were little shortsighted. Referring to the West in a resentful way of spending in R&D would not do justice to its creativity. Car garage creativity of Bill Gates and Steve Jobs is the foundation for Microsoft and Apple. The very same car garage creativity has been restated as Jugaad.

    It is a pity that we Indians do not take it to the next level. That could be the reason why all the thousands of dot com companies founded in the Si Valley during the boom years busted totally and got wiped out while only a few had grown as outstanding as Google. Considering the demographics, the West has more companies that flourished by nurturing creativity and taking it to higher levels while there are fewer companies in India.

    Who is creating more apple iPhone Apps? West or East ? This is a multimillion dollar service industry now (most profitable in a short span of time we could say). Many useful apps could be written for the mass. We are only at the consuming end for many such services.

    We could do more wonders if only we take creativity seriously and progress it to global levels. But we are picking up.

    Thanks.

    Reply
  • 2010.Sep.06 at 18:58
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    Excellent point to which I say no. The big hole in article is failure to distinguish between “tikdam” and “jugaad”, You say former. Not paying taxes on jugaad is so, as is brake failure, and desrves condemnation. It is justified only when the socialists leave no alternative, like import of textile machines by ambanis as spares parts.

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  • 2010.Sep.03 at 01:24
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    Would stealing electiricity by small businesses be considered as jugaad? The 15000 crore rupees of electricity stolen annually may actually be providing electricity to these businesses which otherwise would not get it (of course..it comes at the expense of the common man who sees hours of power cuts every day). What would it take to privatise electricity in the big cities and leave the government to supply electricity only to remote villages and far flung areas ?

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  • 2010.Aug.27 at 14:53
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    Respected Sir,

    I am a post graduate student with Department of Financial Studies, DU. our department wants to honor you for your thought provoking ideas and contribution through media. May I have your email ID or any contact details.

    Regards.

    -Satish

    Reply
  • 2010.Aug.17 at 11:13
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    A very interesting article.it’s right that conservative attitude of governments in past hindered productivity but then productivity alone does not ensure overall well-being .how can jugaad technology help in equitable distribution of resources?may be we need something else to ensure that eight percent GDP growth is turned into prosperity for everyone.That’s the real challenge.

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  • 2010.Aug.16 at 16:05
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    Excellent article, made me sit thru your video link. Towards the end, question was asked – “what can villages contribute? I was sure u will blow it. Amazingly u didnt even though u have no idea what I can do. It is all connectivety and once there some thing! Agree fully & expand – no reason for any security video monitoring job any where except india! My stuff allows court-solid video proof!

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