May 20, 2007

Prosperous India by 2025!

Here is what I took away (in my words again) from Gurcharan Das on his predictions about future growth in India. This in continuation to my previous post on this topic.

"The most remarkable thing about the first quarter of 21st century will not be the 9/11 attacks in US, but the rise of India and China. In the year 1750 most nations of the world were more or less equally well off (or worse off). The industrial revolution bought tremendous prosperity to the West in the 19th century; something similar happened in the Far East during 1950 to 1990. But by 2025 the wheel would have started turning full circle for India and China with their economies achieving critical mass.

"The Middle Class was about 8% of the total population in India in 1990. Today it is 28%! And NCAER predicts that by 2020, it will cross to about 50% of the population. This will happen in about two-thirds of India and the rest (the likes of Bihar) will take some 20 more years to catch-up. You could draw an imaginary line from Kanpur to the southern tip of Andhra Pradesh - the areas west of this line will fall in this 2/3rds (you may have to cheat and swap Coastal AP with Telangana). Now such regional disparities are bound to occur as you have Gujarat's economy growing at 12% compared to Bihar at 1.1%. In the USA too, the American South was dirt poor till the Second World War but the invention of air conditioning drastically changed everything with cities like Houston, Dallas and Atlanta booming. Similarly Italy and Spain were also poor compared to the rest of Western Europe till the First World War. Obsession with only inequality is misguided as it risks pulling back everyone; what is needed it creating an environment to lift the poor. In this context internal migration will perhaps be our safety valve - the Indian Railways sells about 4.8 billion tickets a year, that is almost 4 journeys per person per year!

"The net result is that by 2025 the number of poor in India will reach a manageable proportion! Of course all the above will need good institutions that ensure law and order, stable governance and property rights".

Now there is a S-curve relationship between prosperity and governance. As governance improved in India beginning 1991, prosperity increased and now we have been seeing 8%+ growth rate in the GDP for past several years. But as the size of the government has decreased in relative terms to the size of the economy, the quality of governance has dipped with politicians seeking as much 'rent' as possible from their positions before getting voted out in the next election. This has an adverse impact on further growth of prosperity. For more growth, a reform in governance has to occur and the hunch is this will 'automatically' happen as the middle class becomes sizeable. Then we will truly see an acceleration in India's growth and we will be well on our way!

Selflessness Vs. Self-Interest

Last Wednesday I jumped on the opportunity of listening to Gurcharan Das in person. Gurcharan is the former CEO of Procter & Gamble India and is a leading thought leader. I make sure I read his bi-weekly column in the Sunday Times. Though the occasion was the eve of the International Telecom Day celebrated by the IEEE at Hyderabad's Viswesvaraya Bhavan, he chose to expand the scope and cover what is bogging India today.

"One is the idea of selflessness and how it does not help making a nation prosperous. The likes of our Communists, Medha Patkars and even Mother Teresa, are at times condescendingly presumptuous that their acts help bring the nation prosperity. Their attitude ridicules people who espouse self-interest as not self-less. Our politicians too romanticise heroic acts of selflessness rather than encourage enilghtened initiative which stems from self-interest.

"Take an example of a carpenter using a cellphone - he is able to take more customer calls and plan his day better and make more money. The cellphone as a technology device increases his productivity and hence adds to the nation's wealth. Neither Nokia, nor Mr Mittal (of Airtel), nor the cellphone dealer, not even the carpenter is engaged in selfless behaviour here - yet their combined actions have resulted in a massive revolution in the nation's productivity and wealth! As Adam Smith said about this more than 200 years ago - 'The invisible hand that transforms self-interested behaviour to the good of society and the prosperity of the nation'.

"Selfishness and Self-interest are two different things with the latter being guided by principles of wealth creation. Perhaps Bhishma was wrong in The Mahabharata, when he took a self-less vow to remain celibate. Had he demonstrated self-interest by growing the clan, the history of India would have taken a different turn!"

May 6, 2007

SEZ Land Travails & Opportunity Cost

There is a heated debate going on in India about securing land for industry. There are those who really need land for setting up an industry, and there are also allegations that some are grabbing land in the name of industry. Business Today had a good piece on this in their latest issue. I have no comments yet on how much land an industry really needs. However I will hold as in an earlier post that we need to kick start large scale manufacturing that can employ millions. If a 50 sq km patch of land with no red tape and hassles lets us have it, then so be it!

What is more important is to understand the massive opportunity cost involved in these humongous delays the government is creating in closing the SEZ decision. We are losing crores of rupees by the hour and I am not exaggerating. Taking an example, Times of India reports that Infosys is being shown an alternate site for a new campus at Hyderabad; this is an year after they were originally allotted land at a site near the new International airport, but the government bungled big time and did not close the decision quickly. It is also reported that this new campus will accommodate 25,000 employees. Now a typical IT Services major can generate at least Rs 2500 crores revenues on such a base (being conservative). Take into account the multiplier effects, that is 100,000 more downstream jobs in the economy delayed by an year! Sheer profits wise that is at least Rs 500 crores in an year. The opportunity cost is criminal, which our politicians will not understand. They will be only too happy to take small time bribes to facilitate decision of much lesser consequence.