India: Making the Elephant Dance
Mystics, camels, tantric texts and more recently call centers are usually India’s calling cards. Until recently predominantly an agrarian economy, India is beginning to be called rising super power today.
Moving as she did from closed economy to one whose doors are slowly opening India is in a state of flux.
Most of the economic activity is still largely restricted to the main urban centers of Mumbai, Delhi, Bangalore and Chennai. Smaller cities like Pune are on the upward trend. Growth and development are still fairly inequitable. The urban rural divide is still large. Nepotism and red tape are chasing many an investor away. India’s much touted democracy is more chaos than liberty of speech. Caste politics still determine politics. Infrastructure still leaves much to be desired. Why then this intense interest in India?
India may be spoken in the same breath as China, but it lacks the single-minded determination China has in pursuing its economic goals. This is largely due to the federal nature of India, where individual states pretty much run their own show. The Centre too is a mish mash of multiple parties, with multiple growth and development agendas all too diverse for cohesive action. The average Indian seeks a better life. It is the intellectual capital that India sits on that is its real power.
India has been on a trajectory of 8.5% growth. As on Dec 23, 2011 the Finance Ministry’s figures indicate GDP at current prices, agriculture has increased by 16 %, manufacturing by 11% and services by 18% over the same period last year. Inflation, thanks to high global prices of fuel, has put a spanner in the works. Consumption has dipped and this in turn has affected capital goods industries. The production index for capital goods has fallen by 25.5%. India reacted by tightening its interest rates and lowering fiscal expenditure. India spends most of her money on railways, agriculture, education and scientific innovation.
“The first quarter of 2011-12 (April-June) witnessed a robust export growth in items like petroleum products (72.8 per cent), engineering goods (103.4 per cent), agriculture & allied products (101.3 per cent), electronic goods (67 per cent) and chemicals and related products (48.2 per cent). Leather and manufactures, gems and jewelry and textiles have registered moderate growth. While the shares of petroleum products and engineering goods in total exports have increased from 16 percent and 21.9 per cent in the first quarter of 2010-11 to 18.4 percent and 29.4 percent respectively in the first quarter of 2011-12, the share of gems and jewelry has fallen from 13.2 per cent to 10.4 per cent during the same period.” (Source: Finance Ministry of India)
Much of India is not under regulated banking. The banking sector has a wide area of coverage, which few venture into due to poor margins. However, with the agricultural sector growing more vibrant, private banks are increasing their rural penetration. Many of the leaks in the system are thanks largely due to corruption. The government and a more vigilant civil society is trying to introduce a bill in parliament that will help stem this rot. Vigilance agencies, and the legal system are all moving faster to book corrupt bureaucrats or ‘babus’.
This has resulted in investors backing away from many projects, more often than not due to delays. India’s infrastructure companies have been losing value, this from a country that can absorb major infrastructural changes. The latest example of India’s homegrown billionaire Ajay Piramal, reluctant to invest his excess cash in India, because he does not find the system transparent.
If India cleans up and streamlines her internal systems, she would be unstoppable. This unfortunately has not been easy. Many of her world renowned ventures are driven by the passion of individual, in the absence of government functioning systems. On paper India’s systems are wonderful, but very often, for example, grants do not reach the people they are intended for. These lacunae need to be addressed. No one said it was easy to make the elephant dance.
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