Newsweek: The New India

'The New India' is the cover story for Newsweek magazine. The lead story is India rising, by Fareed Zakaria. He argues that while its messy and chaotic, India works:

...Fascinated by the new growth story, perhaps wary of Asia's Chinese superpower, searching to hedge some bets, the world has woken up to India's potential. But does it really know this complex, diverse country? Just as important, does India know what it wants of the world?

The marketing slogans wouldn't work if there were no substance behind them. Over the past 15 years, India has been the second fastest-growing country in the world—after China—averaging above 6 percent growth per year. Growth accelerated to 7.5 percent last year and will probably hold at the same pace this year. Many observers believe that India could well expand at this higher rate for the next decade.

While China's rise is already here and palpable—it has grown at almost 10 percent since 1980—India's is still more a tale of the future, but a future that is coming into sharp focus. A much-cited 2003 study by Goldman Sachs projects that over the next 50 years, India will be the fastest-growing of the world's major economies (largely because its work force will not age as fast as the others). The report calculates that in 10 years India's economy will be larger than Italy's and in 15 years will have overtaken Britain's. By 2040 it will boast the world's third largest economy. ...Predictions like these are a treacherous business, though it's worth noting that India's current growth rate is actually higher than the study assumed.

Even the here and now is impressive. Indian companies are growing at an extraordinary pace, posting yearly gains of 15, 20 and 25 percent. The Tata group, the country's largest business house, is a far-flung conglomerate that makes everything from cars and steel to software and consulting systems. In this sense, it is a useful window on India's industrial and postindustrial economy. Its revenues grew last year from $17 billion to $24 billion and it is heading for extremely strong growth this year. At another end of the scale, the automobile-parts business is made up of hundreds of small companies. Five years ago the industry's total revenues were $4 billion. This year they will exceed $10 billion. In 2008, General Motors alone will import $1 billion of auto components from India.

That's outsourcing—as it is any time an American company buys goods or services from abroad. It's also called trade or globalization or capitalism. Those who want to stop it—and it's not clear how you could do that—should remember that the United States' prosperity has come from its very willingness to open itself up to the world. Over the last 60 years, manufacturing employment in the United States has plummeted as those industries went abroad—and yet average American incomes have risen to be the highest in the world. Over the last 20 years, as globalization has quickened, American companies have outsourced first goods, then services—and American incomes have risen faster than those of any other major industrial country. Banning auto-parts factories or call centers will not save General Motors.

...At this point, anyone who has actually been to India will probably be puzzled. "India?" he or she will say. "With its dilapidated airports, crumbling roads, vast slums and impoverished villages? We're talking about that India?" Yes, that, too, is India. The country might have several Silicon Valleys, but it also has three Nigerias within it, more than 300 million people living on less than a dollar a day. India is home to 40 percent of the world's poor and has the world's second largest HIV population. But that is the familiar India, the India of poverty and disease. The India of the future contains all this but also something new. You can feel the change even in the midst of the slums.

To new visitors, it won't look pretty. Many Western businessmen go to India expecting it to be the next China. But it never will be that. China's growth is a product of its efficient, all-powerful government. Beijing decides the country needs new airports, eight-lane highways, gleaming industrial parks—and they are built within months. It courts multinationals and provides them with permits and facilities within days. It looks good and, in many ways, it is that good, having produced the most successful case of economic development in human history.

India's growth is messy, chaotic and largely unplanned. It is not top-down but bottom-up. It is happening not because of the government, but largely despite it. India does not have Beijing and Shanghai's gleaming infrastructure, and it does not have a government that rolls out the red carpet for foreign investment—no government in democratic India would have those kinds of powers anyway. But it has vast and growing numbers of entrepreneurs who want to make money. And somehow they find a way to do it, overcoming the obstacles, bypassing the bureaucracy. "The government sleeps at night and the economy grows," says Gurcharan Das, former CEO of Procter Gamble in India.

Also worth reading is Taking It Easy - Morgan Stanley's Ruchir Sharma argues that Indian leaders are enjoying the boom times but putting off more painful reforms:

The Indian government has adopted a tax-and-spend bias, hoping this will help Congress regain the political ground it has been losing at the national and state levels, despite the economic boom. Its showcase policy guarantees one hundred days of employment a year to one person in every rural household. The government would be better off redirecting these wasteful subsidies, worth billions of dollars a year, to build the roads and bridges required to spread real growth to the hinterland.

Whereas the fortunes of one part of India continue to rise at a frenetic pace, many Indians are still reeling under water crises, power shortages, bureaucratic harassment and utter lawlessness. Some estimates suggest that the government has effectively lost control in nearly 20 percent of the country's 584 districts. Those districts are instead dominated by ultraleft militant groups known as Naxals. Most large cities face regular power cuts, many villages have no electricity and business surveys show that lack of power is likely to become an even bigger infrastructure bottleneck. Logically, the power sector would be an urgent target for reform. Well, not in India. There is little political willpower to crack down on power theft, and politicians still think doling out free power to farmers is a vote winner.

This issue also features Keith Naughton on how everyone's winning from outsourcing, Gurcharan Das on India's booming private schools, Ramin Setoodeh on young Indian-Americans, and writer Jhumpa Lahiri on My Two Lives

Comments

[brad setser]

I am a big fan of the Indian model -- far more balanced growth than in china, driven in part by domestic consumption.

but Zakaria's lecture on the benefit of globalization was a bit strong for my taste. Yes, the US has been good at shifting workers out of tradables into non-tradables. But median income growth hasn't too impressive in the US -- median family income is up mostly b/c the median family works more hours. Yes, the US has outsourced the production of a range of goods and services (And outsourced savings too). But it hasn't yet figured out how to pay for all its imports without exporting debt either --

I am not saying turn the clock back, but Zakaria's "bilan" seemed a bit too rosy for a still very unbalanced world. maybe the full article has a few notes of caution about the current account deficit, but judging from Zakaria's glowing take on China for another newsweek cover, I kind of doubt it. It is not a big part of his repetoire (granted, it may be too much of my repetoire). Still I would think a few nods to the fact that the distribution of the gains of globalization in the US looks increasingly uneven would be in order, along with a bit of caustion indicating that growing by exporting may be a bit harder if the US can keep on importing far more than it exports.

In a sense, that is why I like India more than China -- it doesn't just grow on the back of exports, but also on the back of domestic demand. That strikes me as more resilient basis for growth should the world's willing to finance the US ever wane.

Guess I am feeling particularly grumpy tonight. Zakaria is always worth reading, and I often quite like what he writes, but I usually find his take on globalization to be two or three degrees on the too rosy/ too Friedmanesque side for my tastes.

[Ninjaplease]

Is it possible for Newsweek to run a coverstory, OTHER than India or China as a great place to invest, move factories (exporting capital,) or move jobs (exporting consumer spending which is 2/3 of the economy and dropping?)

I mean, there are OTHER stories to cover, like how we'll all be working at Wal*Mart soon or selling each other burgers at McDonalds.

[Lord]

Now that India has made it to the cover, I guess we can expect a nosedive there.

[tim]

Zakaria was born in India, I am not saying he's biased... I'm just wondering how his ethnical background plays in his assessment

[santosh]

China has managed an average annual GDP growth rate of 9.2% for the past 25 years (1/4 of a CENTURY). India has only managed to reach 8.1% for 1/4 of a SINGLE YEAR. All this India hype is dishonest, and simply free-loading on China's achievements.

And to the first commentor, you are wrong. China has a much larger domestic market than India.

[harish rao]

Dear Sir/Madam,
I am a doctor trained in India currently working in UK, hoping to come back in few years after gaining valuable clinical & research experience.

I have been planning to write this letter for a long time. But the ongoing crisis that Indian doctors are facing in UK prompted me to voice my thoughts. If you have not been reading the newspapers – international medical graduates (IMGs) are gradually being forced out of UK by an unfair visa policy.

My friends tell me that US residency programs have received an unprecedented number of applications this year – can you guess who has sent in the maximum number of applications- (no prize for guessing right) – Indian graduates. Very soon USA and Australia will close doors to our graduates. By then I can envisage a situation seen in Germany now – where doctors are driving taxis. Spain has woken up just in time and has decided to cut numbers in medical colleges.

I feel our medical education needs major reforms. We need someone with vision to develop a system looking at the quality of medical education with particular attention to the number of graduates spilling out of medical school.

Our medical education is totally unregulated. Who decides how many doctors we need to train every year? Does anybody know what is happening to all these doctors? Why should the government train them spending lakhs of rupees on training these people – to move and serve another country? Or open a clinic in some corner and wait for patients?

Why do so many doctors decide to move out of India after their education, go abroad for their training and do not want to come back? You may have your reasons – but most of you will agree with me it is coz the health system in India sucks!

1. The health system is poorly organised (understatement), lack of infrastructure, corruption, political interference, lack of vision, poor leadership, etc. We have a doctor as union health minister but unfortunately – he openly states he quit medicine coz he didn’t like it, hates doctors guts and just loves to play political games.

2. The main problem is the sheer number of people graduating from our medical schools. The last time I looked at this – in the early 90s there were 105 medical schools in India. I am sure it would have doubled by now. This growth is cancerous and grossly unregulated.

In karnataka alone there are about 20 (I have lost count to be honest). The situation is so ridiculous; every caste/tribe/community want their own medical college. WHY?

By a rough estimate 15-20% of doctors in UK are from Karnataka alone. I don’t see this fact as a matter of pride. Just recently a well-known cardiac surgeon based in Bangalore made a comment that India needs lot more doctors than we are training at the moment. From where did he get his numbers? Such ill informed comments can only mislead our already inefficient health system to take drastic steps. If he wants to please politicians there are many other ways of doing it.

Does anybody know how many people are graduating from our medical school each year? How many of these manage to get postgraduate training? Do the number of UG seats and PG seats match?

The number of doctors trying to leave the country reflects a spill over situation. We just seem to churn out docs on a conveyor belt and unleash them on to outside world.

The current legal quandary we are facing in the UK is mainly of the pathetic condition back home. The poor clinical skills of some of the IMGs facing disciplinary actions- is partly because of the non-existent training they get in ‘mickey mouse’ medical schools.

How many of our PHCs have doctors? Why do doctors refuse to go and serve there rather than working for a paltry 3000-4000 Rs in a private hospital? I can go on listing the reasons – but what surprised me is that doctors who hail from these villages refuse to go back to their hometown and serve their people but would rather settle in a big city, increasing the urban-rural ‘gap’.

What is the solution to this ‘number’ problem? Should we demand that our govt or IMA perform a census and publish figures? Force the govt to cut down intake in medical schools? Close some of the medical colleges? Merge some of the medical colleges with poor infrastructure and abysmally low patient numbers (needed for training)?

What we need is a ‘voice’ to express our opinion and force the govt to take notice. It is time junior doctors to come out and voice their opinions. Likewise senior doctors should stop burying their heads in the sand as if the problem does not exist.

We have to do this now- simply because it is affecting us and nobody else will do it for us.

harish

[dockk]

I agree with Harish. I am also a doc, who is currently working abroad. Harish has analysed the situation well and his sentiments are shared by many. The medical education system is indeed unfair to meritorious students.
But I wish to add here that 'somebody' does know how many students graduate each year and how many do their specialisation. The goverment/Universities do have a record. Only that it is as flawed as any other beauracratic system in India.
What concerns me the most, as does Harish, is the proliferation of 'sub-standard' Medical schools. I am proud to have passed out from one of the best medical schools in India, but at the same time, I wish to comment that even this university based medical school in Mumbai, has poor infrastructure compared to International standards. Even the worst school in Europe or US (I have been and have worked in the finest centres in both) is better compared to the medical schools in India. So, the goverment should concentrate on improving and funding these, rather than giving permission to open up medical schools all over the place.
Some of these medical schools are so sub-standard, that the students who pass out form here dont even know basic resuscication and management.
Especially now, when the whole world is looking at India, I hope India wont embarass itself in this sector

[Anil]

Its easy to talk about what India should do by living thousands of miles away and working shamelessly towards changing the color of your passport.
Self respect is all that a man can possess.
Jay Hind!

-an Indian

[Fair Value]

India GDP (2000 to 2040)
==========================
Population 15% to 18%
Land 2% to 5%
Food Production 8% to 15%
Electricity 4% to 10%
Tech 4% to 15% (Cell Phones, Computers, etc)
Roads 5% to 15% (Roads, Waterways, Railroads)
Culture 10% to 25% (Movies, Resturants, Events)
Forex 1% to 10% (Euro, Dollar, Yuan, Taka)
Debt -1% to -15% (External, Trade Deficit)
——————————————————
Anticipated GDP 10% of world economy (6% to 14%)