My take on the economy and current events in the world of finance. Plus a look at finance and economics from a psychological and behavioral perspective. Happy reading.

Thursday, July 29, 2010

The India Story - Part 1

The other day, I had an opportunity to listen to a talk on entrepreneurship. The India story is being touted all over the place. Everyone perceives the West - US and Europe included as aging tigers with the BRIC nations, particularly India and China as the two young raging tigers poised to pull the world out of the mess created by the sharks of capitalism. This two part post is a calculated look into the plausibility of that claim.

Now, before anyone begins to assume a socialistic or communist tone to this post, my belief system is rooted in meritocracy and capitalism. So no worries on that count. But whether the Indian story really deserves such mention is something one needs to sit up and think about. For starters, just to put things in perspective, California's economy alone is worth $ 1.8 trillion, which is much larger than Russia's economy! India's GDP in relative PPP terms stands at $ 3.53 trillion, hardly twice that of California! So is it really such a big deal?

The Indian and Chinese story are intense to say the least! And one thing we must remember is that a growth story like the Indian or the Chinese story perhaps has no precedent. A growth of such scale and magnitude - unforeseen. If pulled off, like George Mallory's feat in the book 'Paths of Glory', the kudos would be tremendous. And if we flounder, the results would be disastrous.

For starters, let's talk advantages.
Government : The first and biggest point is Democracy. No matter how dysfunctional it may be, the world respects democracy, almost in an anti - Socrates way! Somehow a population of a billion being led by a democratically elected government is an achievement. The country looks dependable. And the developed world that follows a democracy identifies with the concept. And somehow a sense of stability is associated with the nation. Classic democracy implies that if a government does not deliver on promises it can and will be replaced. And that adds come credence to the country.

Population: India has a huge population. Billion mouths to feed, billion aspirations, a billion people learning about the wondrous ways of the West. Huge opportunity indeed. The Indian population would be young too, with an average age well below 40! So, huge, earning, productive population. Fourth, we have a lineage. A history of being achievers. Right from the Tatas and Narayana Murthy to Lakshmi Mittal to the Ambanis. From Dipak Jain and Nitin Nohria to Raghuram Rajan, we have an imprint in industry, academia and thought leadership per se.

Labor : One implication of population and a model we've mastered so far is making our labor efficient. At least in terms of cost. So our service sector is well developed - almost to the extent of providing us a competitive advantage. In addition, our urban population is competent in English and so, we have yet another competitive advantage! Also, our education system, for the larger part is strong. So the number of A class engineers, doctors and managers India churns out, provides a strong, capable population that can carry India's progress on its young shoulders.

Location: India is situated neatly in the middle of the world. So, our proximity to the Far East and Europe at least in terms of time zones is an advantage!

But if the achievements are intense, the issues are even more glaring. Next up, we look at the issues.

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