Being Indian, this is a subject I think about a lot - I do mean a lot, almost as much as I think about our company (Zoho). I have also read a lot of literature on this subject - most recently the wonderful book Capitalism with Chinese Characteristics, by Yasheng Huang. I follow China closely because Deng Xiaoping China's track record of lifting people from poverty is unequaled and will likely never be equaled - given that only India has those kinds of numbers, and India hasn't done anywhere as well as China in lifting people from poverty.

It is worth looking at Deng Xiaoping's early rural reforms in China, to see an example that lifted the most people out of poverty in the shortest amount of time.

I can summarize it with the biblical saying: don't give a man fish, teach a man how to fish.

China's record illustrates a few things: a) a society where there is some order and stability, so people can focus on development. Way too many poor countries, including the poorest parts of India, have little or no stability on the ground. You have to be able to make a plan, and have a reasonable assurance that the overall environment around you is stable enough to execute the plan. This Deng provided.

b) Remove barriers to rural entrepreneurship, particularly light industry - shoes, textiles, everyday low tech household goods and the like. It should be possible for these ventures to be funded - they need fairly small amounts of capital, but the system has to be in place to provide access to that capital, and conversely, provide reasonable security to that capital. This is why order and stability matters - both sides on the capital equation have to be able to make a plan with some assurance.

c) Build roads in the countryside, so the rural entrepreneurs have market access, so they can get a higher price by selling to nearby urban areas (i.e they can get better terms of trade in exchange for other urban-made goods - this lifts both sides).

That is it. Note that I did not say anything about literacy, healthcare and so on. All of those things are important, but getting the first steps I listed above right would unleash a wave of human energy that would lift incomes on a massive scale. Even the poorest, most illiterate villages in India have a labor force that can produce these light goods for their own consumption, and have enough talent to organize that production - that is the crucial part to remember. They can lift consumption only if they lift production.

Step back and think about this: what is poverty? At its rawest level, it is a) not enough food b) not enough simple material goods. Unleashing rural entrepreneurship allows a) more food to be grown b) allows that same population to produce the simple material goods that vastly improve the human condition. I am not talking here about iPhones here, I am talking about the shirt on your back, shoes, toothbrush and the like. Once people take that first step on the ladder, they move up pretty fast.

Fortunately, where our company is (in India) and our current position (doing well) allows us to experiment. But there is that crucial first step, stability and order, we cannot provide, which means we can only go where there is stability and order, which obtains relatively more in Southern India than in the North, though (or should I say "as a result") Northern states are poorer.

Deng's China is the existence proof that it can be done.