AT THE CROSSROADS
Can India let go its past?

21st century India can be aptly described as living in the age of the wheel, the Industrial Revolution and the information era simultaneously, A drive down the famed Grand Trunk Road (GTR) stretching 1,800 miles across the subcontinent and an artery almost as old as India itself, would prove this point. Fast-moving cars zip down the GTR alongside buses, bullock carts and trams, and the traffic is monitored by Indian-designed, internet-linked management systems!

India is caught between tradition and modernization. And this is evident all over the country. For instance in Bangalore, farmers using century-old tools to dig potatoes, are quite at home using high-tech, touch-screen devices called Simputers to check market prices. Or take Sirsa, near Delhi, where you can download an application form to buy a buffalo from an internet-linked PC kiosk!

One reason why India fails to catch up with modernization is its ever increasing population. While in most Asian countries, the number of young adults in the age group of 15-24 is declining, in India it is increasing annually by 1.6%. This would mean that to keep all those people employed, the country would have to create at least 10 million jobs a year, or in the words of McKinsey Global Institute, "the Indian economy would need to grow 10% a year." Although this has never happened since independence, in principle, it is not impossible. If China, Thailand and Malaysia could do it, why not India?

One of the biggest drawbacks that independent India acquired, was the 'licence raj' which replaced the British raj. This has contributed to the economy's sluggishness and to the share of world trade dropping from 2.4% in 1947 to 0.4% in 1990 to 0.6% currently. As the Business Standard wrote recently "inspite of reforms there's simply no way of doing business here without being trapped by the bureaucracy, for which Indians have a unique genius".

However, there are plenty of reasons to be optimistic - information technology, a grassroots microeconomics movement, a $11 billion national highway improvement program and a greater role for India's private sector. Here too, there is plenty of resistance from politicians who view privatization as a sellout of the nation's patrimony. Nevertheless, the Indian government has managed to sell off a third of the $11 billion shares of state-owned enterprises and in March - a 25% stake of its overseas telephone monopoly was sold to the Tata Group.

The auto industry is a shining example of how an industry can prosper when red tape is loosened. There was a sudden entry of foreign cars like Ford, General Motors, Daimler-Chrysler, Toyoto, Suzuki, etc in the market and at the same time there was an increase in demand for cheaper, better, Indian-made cars. Auto industry employment rose by 11% with a stunning 256% growth in productivity.

Another area where India continues to shine is information technology thanks to the extraordinary pool of English-speaking engineers, who typically make about 20% of US salary levels. Despite a worldwide slowdown, Infosys has kept its operating margins above 30% while Wipro's revenues are up 27% from last year. One of the reasons for their success is their focus on climbing the value chain as they evolve from software developers to consultants. This is one sector that the government never had a hold on.

Although the present government is in favour of continued liberalization, reforms have a long way to go and change will be slow. Nevertheless, proposals to put fresh life into the economy and transport its one billion people into a modern economy are afoot. Prof. C K Prahalad of the University of Michigan and Prof Stuart L Hart of the University of North Carolina, have a word of advice: "Create a consumer market for the poor" who are "the real market opportunity" and "who are joining the market economy for the first time".

Taking a cue from Prahlad-Hart, Arvind Mills of Ahmedabad realized that few villagers could afford its $40 jeans. So in 1995 they introduced Ruf & Tuf, a sew-it-yourself package at $6. This was a hit and soon became India's top selling brand. Within 3 years, due to the economies of scale, Arvind was able to sell ready-made jeans for $9. Hindustan Lever and Procter & Gamble too came out with shampoo sachets and lozenges packaged for one-at-a-time sales to cater to the cash-poor sectors. Hewlett-Packard launched it s World e-Inclusion Initiative in order to spread PC use to India's masses. Delhi-based drishtee.com's internet-linked PC kiosk is one such model. Bangalore's very own Encore Software has introduced a low-cost hybrid of an internet-connected computer, the 'Simputer' (simple computer) for the benefit of the farmers.

And so, inspite of the many hurdles on the road to modernization, the mood is upbeat and its just a matter of time, not to mention discipline, before India gets there.

Source: Fortune