India’s Rise

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WASHINGTON – The “Big Story” of the decade, in fact of the century, is the rise of Asia, a phenomenon that will rebalance the global balance of power and that will cause major shifts within and among western countries, accustomed as they have been since the industrial revolution to economic leadership, owing to their unchallenged technological primacy. But what is happening within Asia? Until yesterday it would have appeared that, while Asia as a whole was  doing well, China was and will be in the lead. But how is the other giant doing? How is India faring these days?

India outpacing China?

Well, if you look at the latest The Economist newsmagazine cover story, featuring a picture of a running tiger and the headline “How India’s Growth will Outpace China’s”, (September 2 – 8 2010), you not only have a positive outlook –and this is no real surprise—but also a bold and certainly controversial prediction. India, once the laggard within surging Asia, now is doing so much better as to soon surpass China’s rate of growth.

Which model works best?

Assuming that it were indeed so, this would be quite something. If this is so, such a development would force many observers to reevaluate models and paradigms in terms of “what works best” within an Asian context. Among China’s strengths many cited a centralized decision-making process that makes it relatively easy to go from planning to execution of far reaching policies. India, on the contrary, is democratic and participatory. But its democracy is very complex and in fact rather messy. The political process is complicated, fragmented and slow. This is why public policy, relatively speaking, is inefficient, causing major delays in getting to decisions and years to implement whatever policy was agreed to.

China doing far better in infrastructure

An obvious comparison is in the hundreds of billions invested by China in a relatively short time in upgrading its basic infrastructure, with huge benefits for China’s economy; while India is still struggling to bridge a huge highways and ports gap that objectively makes moving goods and thus economic development much more difficult.

India’s tool kit

But, were we to believe this The Economist cover story, it would appear that India has something else that maybe China does not have. Hence the rosy prediction. One can read that the extra ingredients consist in a more organic growth model founded on the domestic market, (as opposed to export led growth), a genuine entrepreneurial class, (as opposed to giant state owned enterprises), a solid democratic tradition that, with all its flaws, has legitimacy and thus projects long term political stability and a younger population.

The shortfalls are still large

Having said that, both the leader, (editorial), and the story in the magazine are far less sanguine on this prediction of India overtaking China than the catchy headline would suggest. Yes, the forecast of faster growth remains. But The Economist outlines so many pitfalls, so many unsolved blockages –mostly resting in inefficient services and a semi-paralyzed political system that India must deal with, (see above) — that it makes one wonder as to whether the editors actually believe their optimistic forecast.

The Commonwealth Games debacle

Indeed, one of the examples cited in the news story as evidence of dreadful organizational shortfalls is the appalling level of incompetence and mismanagement revealed by the local New Delhi authorities in charge of organizing the Commonwealth Games that just opened on October 3. Several reports in Indian and international media indicated that India, just days before the opening, was not only way behind in preparing for the event but that the quality of the facilities, in particular lodging for all the foreign athletes, were so bad and unsanitary that many countries threatened to withdraw from the competition. It seemed to be a classic case of Indian old fashioned bureaucratic incompetence: mishandling: sluggishness, no accountability, unsupervised contractors, bad execution, corruption and so on.

Business as usual

As Divya Gopalan of Aljazeera.net reported on the Games on September 27, 2010:

“…….[….]. if you ask almost anyone else, be it the taxi driver, the shopkeeper, the college student waiting for a bus, journalists or my auntie – they’ll tell you with a shake of a head, it’s corruption. It’s everywhere, and nothing can be done about it [….]… The Commonwealth Games are being pulled together by a myriad of agencies and contractors who hire sub contractors, who pass it down to more agencies, who field it out to even more sub contractors, and with each link of the chain, palms are greased. So it’s no surprise that these are the most expensive Commonwealth Games ever and the budget has been bloated 16 times over. Now, belatedly, Manmohan Singh, the prime minister, has stepped in, trying to get his ministers to get their act together and somehow, with just days to go, get these games and the venues on track. But everyday, failings crop up, and more athletes back down. It seems that no one is taking charge of these games”. 

True enough, in response to outcries and strong international pressures, finally the Indians managed to regain control. As the opening day was approaching, they delivered extra resources and corrected at least the most serious organizational and logistical problems. But the fact that this level of mismanagement for a major international event for which they had had years to prepare was allowed and apparently tolerated up to the last minute is an indication of how dysfunctional at least some key components of India’s institutional make up still are.

Delhi Metro: a different story

Yet the picture is hardly black and white. In the same city of New Delhi a far more daunting project, the construction of a brand new, vast underground metro system, (managed now by Delhi Metro Rail Corporation, Ltd), was planned and executed very well, within budget and according to the highest construction standards. According to its Mission Statement:

“Delhi Metro will be of world class standards in regard to safety, reliability, punctuality, comfort and customer satisfaction”.

And so it is. The system works well. Apparently this happened because the project was handled outside the established bureaucracy. Still, be that as it may, this brand new metro system is a major engineering and public service delivery achievement, showing that Indian managers can perform according to the highest international standards.

Which one is the real India?

But then the question is: “which one is the real India, the India ultimately in charge and thus determining the pace and quality of economic and societal development?” Is it the almost hopeless India of the messy Commonwealth Games organization, or the modern India that produced the sparkling underground metro system? Trying to assess the relative weight of the two examples,  is the prediction about India’s growth overtaking China’s correct? Well, it would be a lot easier to answer this if we really knew for sure which of the two India is and will be in the lead. At the moment, while positive changes encourage new optimism, we really do not know.

How big business copes today

In the worst case scenario, assuming that the old, inefficient bureaucratic system is still dominant, the question that logically follows is whether it will be possible for the productive, vibrant and inventive private sector to go around these public administration dysfunctions in the pursuit of growth, markets and profits. We already know of many large Indian industrial conglomerates that run their own schools to properly train their workers and their own transportation systems to guarantee that workers will show up, while they have set up independent power supply generators, given the unreliability of public services.

But can this “do it yourself approach”, affordable for huge corporations, be extended to a still poor country of more than one billion and 150 million people? Certainly not. And yet, there is no clear path now to a brighter future of improved public administration and higher quality of service delivery. The future is likely to be patchwork, hit and miss, with notable successes, as the story of Delhi’s metro system indicates.

India’s success stories

Of course, India’s huge positives are there and they should be noted. India is a democracy and not a top-down (mild?) autocracy in which huge state owned enterprises, comfortably bankrolled by publicly owned banks, set the pace for national economic activities, as is the case in China. In India there is a large and diverse private sector. There are 45 million entrepreneurs. There is a genuine business class catering to the needs of a growing domestic market. Some Indian entities have emerged as world class companies. We all know Arcelor Mittal, (world’s largest steel conglomerate), Tata, (diversified manufacturing and consulting group), Reliance, (retail, telecom and more); not to mention Wipro and Infosys, (both IT giants). All this is really good.

Beyond these achievements, many observers indicate that Indian development is more harmonious, as it is led mostly by growing domestic demand and not skewed by over reliance on exporting industries whose long term fate is wedded to ever expanding foreign markets.

A young country….

Besides, India is a young country with an abundant supply of young people eager to participate in its growth. Compare this with China’s impending population crisis, owing to the mandatory one child policy aimed at containing population growth. While this worked, it created problems down the line. China will be facing a large older population, while India will have an oversupply of younger people.

…But uneducated

Still, in tomorrow’s knowledge economy young people need to be educated, something that India does not do well. More than half of the Indian population lives in underserved, poor rural communities in which public education fails. Within the Indian workforce, 40 per cent are illiterate and 40 per cent failed to complete school. Beyond that, the higher education system cannot adequately supply the economy. The same The Economist article cites the Boston Consulting Group indicating that India will lack “200,000 engineers, 400,000 other graduates and 150,000 vocationally trained workers”.

India with a modernized government can be unstoppable

And so, which is which? Is the India of ingenuity and creativity that delivered the super cheap US $ 35 computer that can bridge the digital divide in the lead? Or is the slow moving public apparatus ultimately setting the pace of development? If we can bet that the state and Indian public administration can be modernized within a reasonable time, with the corollary of successfully engaging the private sector in partnerships aimed at rapidly upgrading infrastructure, then India can truly be unstoppable. But we do not know for sure. The tiger featured in the cover story runs, for the moment; until it will face a huge gap that will be too wide even for its strong muscles.

In the meantime, the Chinese dragon is still busy building bridges and airports and tracks for super fast trains.

 

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