Ideas of India Pasha Mahmood NUS Business school 1 India – Quiz 1. “India has ___ official languages, including Hindi, English and ...” 2. Total employment in the outsourcing industry is approximately: 2, 5, 10, 20, 50 million 3. The world’s first Asian Nobel laureate and Asia’s two Nobel laureates in economics have one thing in common; all three are ___ World’s largest democracy Increasingly becoming a battleground for press freedom “…..democracy is government by discussion, and, if you make discussion fearful, you are not going to get a democracy, no matter how you count the votes,” Amartya Sen Ideal for training future global bosses Still behind in offering basic education for all Half of fifth-grade pupils (ten-year-old) cannot read a story designed for secondgraders. Just a quarter can do simple division. Economist, June 10th, 2017 Weak in R&D On the cutting edge of frugal innovation 9 Famous for IT software firms that drive global businesses Yet half its population lacks internet access and even if they can get online, only 20% of Indians know how to use digital services Long admired for its history and potential has a habit undershooting its expectations India raises several intriguing questions…. • Policy 1. Is it possible to leapfrog from agriculture to service without going through a manufacturing revolution? 2. Can democracy offer high growth? • Strategy • Do India’s institutional voids provide Indian firms with a certain competitive advantage in similar institutional contexts? How India fares depend on how it can manage the 3Ds • India’s extreme diversity • India’s vibrant but cacophonous democracy • India’s demographic dividend A country or a continent? 1. India is diverse – Languages (22 federal) • Different scripts • Different speech – Religions • Largest number of Hindu, Sikh, Parsi, and Jain • 3rd largest Muslim community – Castes – States continuing to evolve Source: Asia Society What is an Indian Identity? “Indians want to be both Hindus and Indians, Muslims and Indians, Christians and Indians, and so on. And such hyphenation can be extended to linguistic groups and, to some extent, castes as well. Being an Indian is basically a hyphenated identity. There aren’t too many unhyphenated Indians. To put the matter comparatively, India is not like France, which allows no hyphens. Indians are closer to the American concept of national identity. According to nationalism theory, France is the ultimate melting pot, not the US, which is a political melting pot, but a cultural salad bowl.” Ashutosh Varshney A new Pew Research Center report, based on a face-to-face survey of 29,999 Indian adults fielded between late 2019 and early 2020 – before the COVID19 pandemic – takes a closer look at religious identity, nationalism and tolerance in Indian society. Pew Center Report in 2021 shows that most Indians prefer to live in neighborhoods of their caste or religion; they make friends within their religion and caste; they marry overwhelmingly inside their communities (endogamy), and they want strict prohibition against inter-religious or intercaste marriages (exogamy). At the same time, an overwhelming proportion of Indians (82-88 per cent) also say that being “truly Indian” means respecting all religions, respecting the army, respecting the country’s institutions and laws, respecting elders, and standing for the national anthem. India’s complex identity • Some see it is a disadvantage. It lacks cultural cohesiveness of China, Japan, or Korea (Confucianism, language, etc.) – Ex. Missing the Korean zeal to overtake Japan • Others see India’s diversity as a strength allowing Indians an unique ability to reach across cultural divides and absorb – Indians constitute the 2nd largest group of CEOs after the US Can it be that the key issue is not diversity but disparity? • Disparity – Across regions http://www.economist.com/content/indian-summary – Within regions (same cultural context) across groups • • • • Rich vs. poor Urban vs. rural Male vs. female Service sector vs. agriculture South vs. North The relative unease of doing business in India 25 Rich vs poor Urban vs. rural Male vs. female Upper caste vs. lower caste What do many of the Indian CEOs in the US have in common? II. India is a vibrant democracy Advantages and disadvantages • Disadvantage: – Policy uncertainty, chaos, gridlock, instability, inefficiency • Others point to other advantages of democracy – Stability of democracy – Ex. the ability to navigate through such chaos makes Indian companies better prepared to navigate through political and economic minefields in other emerging markets such as Nigeria, South Africa, or Kenya? • Is it democracy vs. authoritarian or simply good governance vs. bad governance – Power sector reform vs. telecom sector reform in India III. Demography • India is young – Growing labor pool, more savings, easy growth • India is still largely rural but aspiring – products or services that provide 80% value at 20% of the existing price can revolutionize the way business is done everywhere Optimists point out that Indians are young Dependency ratio = Ratio of population under age 15 and over age 64 to population betweenDependency ages 15 – 64 ratio Japan India China India Japan 34 Source: UN, Dept of Economic and Social Affairs, Population Division 20 40 20 50 20 20 20 30 19 90 20 00 20 10 China 19 70 19 80 19 50 19 60 100 90 80 70 60 50 40 30 20 The other side of demography The big picture • Democracy in theory gives the have-nots the chance to redistribute • Greater the disparity, the greater the threat of redistribution • The greater the threat of redistribution, the lower the investment…….. • The fact that India combines high disparity with high democratic participation, it is a cocktail for populist policies…quotas • Solution: Need to reduce poverty by creating jobs – Prosperity can reduce economic disparity and allow democracy to enter a virtuous cycle Where does India need to go? “Since the industrial revolution, no country has become a major economy without becoming an industrial power.” Lee KuanYew, 2005 The Indian anomaly: Service driven economy 39 Why is India weak in manufacturing compared to China? “India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector, where these laws have their widest application.” World Bank, 2009 Challenges for a manufacturing led export boom ‘You cannot run a plant with police protection. We cannot run a plant with walls broken. We cannot run a project with bombs thrown. We cannot run a plant with people intimidated.’ Ratan Tata 43 Manufacturing: Weak diamond macro-environment • restrictive law and regulations • politics Factor (input) What conditions were conditions wrong for India to • poor energy infrastructure develop • powerful unions Demand conditions * no obstacle manufacturing? Related and supporting cluster • poor transport and comms Competitive context • highly protected from imports 44 Despite the “Make in India” campaign Manufacturing is losing ground While IT service seems to be gaining ground What explains India’s strength in IT software? What explains the success of IT? Factor conditions • skilled engineers • English speaking university graduates • low salaries • not tied to “old cities” • not land intensive macro-environment • new industry – little government regulation • new industry – not unionized What conditions were right for India to develop outsourcing? Related and supporting cluster • good intl communications • could self-provide electricity Demand conditions • sophisticated U.S. clients • Indians overseas Competitive context • positive externalities –service providers validating each other Successful But can they create jobs? 50 Manufacturing or Service: How to resolve this dilemma? Raghuram Rajan’s Vision for India's Future Growth and the Sort of Country It Should Be India’s weakness is China’s strength and vice versa China India Sectors where India’s disadvantages can be its main source of advantages • Service – Banking – Telecommunications – Medical Service………. 54 Health City Cayman Islands Source: ILO, 2012 In Dharavi alone there are over 10,000 businesses operating in sectors like leather, pottery and recycling. What makes money may not be always beneficial for the poor Beneficial Products Harmful Products • Micro-credit • Skin whitening creams, • Markets working at their best • No need for intervention • Need for constraints on markets (government regulation, selfregulation, social activism, CSR) • Condoms, Clean water, eyeglasses • Colas, ice cream, candy Profitable Not Profitable • Need for government or civil society to subsidize • Markets penalize business • No need for intervention through collaboration Government PoliciesLeapfrogging Land the Business Environment Government Context for Firm Strategy and Rivalry democratizing payments through UPI JAM Trinity Factor (Input) Conditions From creating the fintech highway through interoperability among banks to connecting the dots with Rupay to democratizing the payments with UPI Demand Conditions Related and Supporting Industries NPCI: A not for profit, multi-bank ownership structure combined with an independent board regulated by RBI Opportunity for exporting innovation to other emerging markets • A Kerala-based spices company recently started growing chilies in Rwanda, which is estimated to have increased the income of farmers there six-fold • A leather company from Tamil Nadu has set up a plant in Uganda producing one million pairs of shoes annually and is generating new jobs in both countries India can unlock this potential by encouraging SMEs Not by subsidizing the large to compensate for India’s disadvantages 66 Ease of Doing Business 2014 2019 Rank Score Rank Score Ease of doing business 134 51.76 77 67.23 Starting a business 156 59.14 137 80.96 Construction permits 183 22.74 52 73.81 Getting electricity 134 68.17 24 89.15 Registering property 115 54.02 166 43.55 Getting credit 30 65.00 22 80.00 Protecting minority investors 21 68.33 7 80.00 Paying taxes 154 53.80 121 65.36 Trading across borders 122 64.89 80 77.46 Enforcing contracts 186 29.04 163 41.19 Resolving insolvency 135 32.43 108 40.84 Role of governmement “India has prospered despite, not because of it. … The era when the country could prosper just by stopping government from getting in the way is ending. India now requires efficient, service-providing government by competent technocrats and honest politicians.” Source: Delhi Golf Club Martin Wolf chief economics commentator Financial Times 68 Tech India: Difference between Type I & Type 2 69 Weak in R&D Future: Advantages / disadvantages Tradition of independent institutions Established financial markets Core of talent, large and young population Growing confidence and acceptance of growth Ability to work with complexity and limited resources Diaspora and local entrepreneurs Captive politicians and bureaucracy Poor infrastructure Inefficient markets, weak competition “Acceptance of failure”, “Local mindsets” Extreme diversity “where you see the past, present, and future, at the same time and in the same place” 73 Source: mixx.com Taking India-Pakistan Partition Witnesses Back Home Through VR The India challenge: How to develop consensus across multiple divides? My personal view: • Not by creating a myth of cultural homogeneity but by reducing the disparities
