Thursday, June 08, 2006

Can India Fly?: The Economist's special report on India

The June 3rd - 9th issue of The Economist has a 14-page special report on India dramatically titled "Can India Fly?".

For an Indian, the report holds no surprises. Expectedly, the report paints a very bright and optimistic picture of the Indian economy. While it does meticulously and repeatedly point out the fact that shoddy infrastructure and red tape is holding back the boom from manifesting in its full form, a highly upbeat and almost fantastical feel runs through the report. What with quotes like "Not once in a decade, not once in a millenium, its once in a lifetime for India".

As is the norm now, the report pays its due respects to the biggest rocks on the roll - BPOs and IT. To get an idea of its scale, NASSCOM estimates that BPOs alone will contribute 7% of GDP by 2010 (the figure is 5% today). Something that was news to me is that the BPO industry is becoming ever more sophisticated, offering judgement and analysis based services, the new industry being described "knowledge process outsourcing" (KPO).

As far as manufacturing goes, there is good and bad news. Given the fact no country has climbed out of lower-middle-income status povery without a strong manufacturing base, the good news is that Indian manufacturing IS booming. The bad news is that it isnt creating a huge numbers of job because of continuing automation as manufacturing USP moves from low-cost to high-value. The Economist heaps part of the blame on labour-friendly laws.

The growth of consumerism in India too gives the business world sufficient cause to rejoice. For example, the knowledge that "only 15% of people use shampoo" is enough to convince Hindustan Lever to roll up its sleeves and take the challenge of seeking new ways of making the rural poor shampoo-literate.

A few sobering points: For all the boom, India is primarily rural (read, untouched by the boom) with more than half the workforce engaged in agricuture. Infrastructure leaves much to be desired, with a case cited in the report describing how trucks from Kolkota to Mumbai do an average of 11 km/hr after countless unproductive stops along the way. Last, and most important, is the government's lack of support to the growing economy. The report goes so far as to say that the Indian boom is happening more because of the government's neglect (by way of not strangling growth) than its proactive encouragement.

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