Tuesday, June 21, 2011

It's not just services....

Recently I finished reading Gravity Shift: How Asia's New Economic Powerhouses Will Shape the 21st Century. Found it quite interesting & thought that for the purpose of this blog, I would only focus on the author's take of India and the way forward. Having lived in India for a significant part of my life, I can relate to several of her insights on the India story and must admit that this is one of the most comprehensive viewpoints that I have come across.

But first, a clarification is in order. This book is really not about how Asia's powerhouses will shape the 21st century. That topic is covered in only 1-2 chapters. Instead, much of the book analyzes the key criteria for a country's success, and outlines where China and India stand. Obviously, we conclude, India has to go a long way.

The book shatters several myths that are bandied about the India story. The oft-quoted opinions such as "India has the world's youngest population", "Its large talent pool can drive growth" and "Its world-class IT services industry can lift the country into the global league." are not so simplistic, argues Dobson. She exposes the scale of India's challenges by presenting several facts throughout the book. Sample a few:
- 90% of India's labor force is still casually employed.
- 60% of labor force is still in agriculture, but provides only 18% of the country's output.
- At the turn of the century, India had 75% of China's labor force, but total employment was only 55% of China. The key reason: not as many women in India work as do the Chinese. Mao's 'women hold up half the sky' seems to have propelled China far ahead.
- India's literacy rate is 61% while it is 91% in China.

Dobson's conclusion: India has chosen equity over growth but has achieved neither very successfully.

What then according are the factors that can drive India's growth? The author argues that the key is in making the Second India (the not so well educated and casually employed labor force) employable. This means a renewed focus on Manufacturing. A holistic land reform and farmer protection policy that increases land productivity and frees up labor is another. India must no longer tout its advanced college education when its primary education structure is in shambles. Corruption must be taken head-on while law reform that reduces legal delays is critical. A better financial system that finances the small and medium enterprises is required. R&D spending as a percentage of the GDP (referred to as R&D intensity) must rise (it is 1% for India while Japan is 3.2%). Large investments are needed in energy & water infrastructure (did you know that India has harnessed only 20% of its hydro power while this figure is close to 80% in developed countries?). Affordable health care must be meaningful (the poorest 20% in India receive only 10% of health subsidies; the richest 20% receive 30%). Lastly, states must address their fiscal deficits and reduce the growing income inequality.

If all this sounds like a lot - well - it is. Nobody said getting to be an economic superpower was easy. India most definitely cannot assume that its IT sector and growing population alone will guarantee success. Those are just the basic raw materials. How these are harnessed is what will help us get there.

A great book for its extensive analysis and deep insight.

1 comment:

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