The Underdog Ascends: The Rise of a New Indian Elite

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Generations of investors, including Warren Buffett, have held on to Benjamin Graham’s famous quote: ‘Over the short term, the market is a voting machine but over the long term, it is a weighing machine’. But how long is the short term? With the rise of index funds, retail investors and specialized stock picking pods, the volatility in specific stocks has definitely gone up over time making the long term not so short.

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How an airplane toilet works at 40,000 feet: The extraordinary science behind everyday flying - by CNN

Flying is now a regular part of life for a lot of people. This fun article by the CNN team looks at the extraordinary principles behind some of the more mundane aspects of flying. For instance, contrary to popular perception, airplanes don’t dump toilet waste on the land they fly over. The toilet systems, designed in 1975, use vacuum suction to empty the bowl and store the waste in a separate tank. At the airports, the tanks are emptied when the aircraft is prepared for takeoff.

Not just toilets, even heating food or circulating fresh air, involve interesting principles. Onboard air, for instance, is not just supposed to keep passengers healthy but also helps control the mood of passengers as they reach their final destinations. Similarly, WiFi on airplanes is provided via satellites in geostationary orbits. As the aircraft whizzes through air, the antenna on the plane keeps switching satellites to provide the best connectivity. Usually the switch is so fast that there is barely a drop in connection. Highly recommend reading this article in full to gather some interesting facts for the next time you take a flight.

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The Underdog Ascends: The Rise of a New Indian Elite

Disclaimer: This content was originally published by Marcellus Blogs as a part of an email newsletter, edited and republished as an article here.

The joining up of India, digitally and physically, has democratized access to economic opportunities. This has helped new groups of people rise in the Indian economy. These newly ascendant people are neither based in India’s megacities, nor did they study in elite universities and nor do they belong to the socially privileged castes. From India’s smaller cities, from hundreds of local universities and from the dozens of less privileged castes, a new entrepreneurial and professional class is rising to grab the reins of power & privilege in India.

The joining up of India is a very visible spectacle. With the national highway network seeing a near doubling from ~79K km in 2012 to ~140K km in 2022, with domestic air travel passengers more than doubling from ~58 mn in 2012-13 to ~136 mn in 2022-23, with individuals having access to internet surging by ~4x from 14% in 2014 to 51% in 2023 (see exhibit below), and with the number of bank accounts growing ~3x from ~ 1 billion in 2015 to ~3 billion  in 2023, the last decade has seen a dramatic improvement in physical and digital infrastructure in India.

This integration of the Indian economy is altering the composition of the Indian elite by creating opportunity and prosperity for hitherto disadvantaged end economically marginalized groups.

So, who are the new elites in India? And what are the investment implications of their economic ascent?

Three sets of new elites who have risen to prominence in the country

As a result of the country getting networked and joined up through physical and digital infrastructure, economic opportunities which were once upon a time available only to the elites in the megacities now became more widely available. As Nandan Nilekani has explained:

• Indians who didn’t hitherto have any officially verifiable identity got a valid & digitally verifiable identity in the form of Aadhaar.

• Indians who did not have access to information & knowledge now got all the information & knowledge that they needed courtesy of Jio’s low cost data connections (which costs 1/40^th of what American telecom companies charge for mobile data).

• Indians who hitherto lacked access to financing from the banking system (and thus has to borrow in the black market at usurious rates) now got access to affordable financing via Jan Dhan bank accounts.

This trifecta of changes made identity, knowledge and financing available to hundreds of millions of Indians who had been living lives of quiet desperation outside the enclaves inhabited by the big city elites.

1. Rise of the non-elite educated entrepreneurs and executives

For the first time in the last twenty years, a majority of the promoters and executive directors of the Nifty 50 companies are neither from an IIT/IIM nor a graduate from any foreign university. This is remarkable because, twenty years ago, in FY03, this figure was just 40%, rising to 50% in FY13. What this graphic and data show is that the largest 50 companies in the country today are run by people who belong to the non-elite educational institutions. This is a natural outcome given the supply-demand mismatch in the educational sphere in the country – there is simply just so much talent in all corners of the country, which was not able to rise hitherto due to certain restrictions on access to information and opportunities, and not enough premier institutions to cater to this vast pool of talent. Until now, because of lack of access to opportunities, this section’s demand never came through and the premier institutions kept going at their own pace. Today, because of joining up of the economy, access to information and opportunities has risen disproportionately, making the premier institutes incapable of serving this surge in demand, and therefore, quality talent springing up from all over the country.

For instance, in HDFC Bank, other than Mr. Sashidhar Jagdishan, none of their executive directors are from an IIT or IIM or from any foreign university. They are all University of Mumbai graduates. The largest bank in the country by market cap is emblematic of the change that is underway in the country at large – the rise of people from non-elite educational institutes.

2. Rise of small-town India

Contrary to what is generally believed, the growth in financialization of small town India is even more dramatic than what has taken place in India’s megacities. Thanks to Aadhaar and Jan Dhan accounts, a massive portion of the population came into the formal banking system for the first time since independence. This has opened up multiple opportunities for them in the world of organized financial services. As you can see in the exhibit below, every geography type has witnessed rapid growth in credit offtake (at around 11% per annum) especially in the last seven years. However, as per RBI data, credit growth data for banks in urban and semi-urban areas has far outpaced big city credit growth (represented in the chart below as ‘Metropolitan’).

3. Rise of non-upper caste talent

Historically, oppressed castes in India have been given a raw deal – social, financial, workplace, and political ostracization has existed across the country and at varying intensities. Caste-based discrimination robbed a large swathe of Indian people of economic opportunities and reduced the changes that such people had to break free of poverty.

Whilst affirmative action – which the Indian state has implemented since 1947 in favour of the hitherto discriminated castes – has helped, the democratization of opportunities over the past decade has supercharged the economic emergence of non-upper castes.

For example, the data on workforce participation (which is defined as the number of people employed out of the total labour force which includes employed and unemployed people) shows that the most disadvantaged castes have closed the gap with the rest of the population. In fact, the workforce participation for scheduled tribes in India is actually higher than that for the rest of the country, at 559 per 1000 people versus 492 per 1000 people respectively in 2022 (see exhibit below).

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