Sunday, March 21, 2004


Times of India, Mar 20, 2004

‘India Shining’ is a nice expression, but it’s a pity that it’s got mixed up with politics. It is synonymous with India ’s economic success, and not surprisingly both the BJP and the Congress want to take the credit. The BJP claims its policies are responsible for this year’s fine performance; the Congress argues the economy grew faster under Narasimha Rao.

Both are right (and wrong). The truth is that India ’s economy has been shining for two decades, growing around 6 per cent a year, making it the fifth fastest in the world. After stagnating for centuries, our economy finally picked up after Independence . It grew 3.5 per cent a year between 1950 and 1980; but our population also grew 2.2 per cent; hence, the net affect on per capita income was 1.3 per cent (3.5 minus 2.2) — this is what we mournfully called the ‘Hindu rate of growth’. Things began to change with modest liberalisation in the eighties when annual GDP growth rose to 5.8 per cent while population growth remained at 2.1 per cent; thus, income per capita moved up to a more respectable 3.7 per cent.

This happy trend continued in the reforms decade of the nineties when growth averaged 6.2 per cent a year; moreover, population slowed to 1.9 per cent average; thus, per capita income rose by a decent 4.3 per cent a year.

If our per capita GDP had continued growing at the pre-1980 level, Indian incomes would have reached American capita income levels only by 2250. But now, if our economy continues to grow at the current 6 per cent rate, we will reach it by 2066. This is what ‘India Shining’ really means and it’s worth dying for: It is possible to believe that we shall soon be able to conquer India ’s age-old worry over want and hunger.

It is easier to explain why India was shining in the nineties. The brave reforms of Rao’s government opened our economy, dismantled controls, lowered tariffs and taxes and broke public sector monopolies. And the economy responded magnificently. But how does one explain the 1980s? And here I think we don’t give enough credit to Rajiv Gandhi.

He too opened the economy, albeit reticently and modestly — lowering marginal taxes and tariffs, removing the most irritating import restrictions, and liberalised industrial licensing through ‘broadbanding’. These modest efforts seem to have had a bigger impact than even the sweeping reforms of the 1990s. Bradford Delong, an American economist, wrestles with this puzzle in In Search of Prosperity: Analytic Narratives on Economic Growth, edited by Dani Rodrik of Harvard.

But the real miracle is that all the governments after Rao surprisingly continued the reforms, albeit very slowly. Yet, this elephant-like pace has made India one of the fastest growing major economies in the world. So, the lesson is that if you consistently reform in one direction in a democracy, it adds up. Since we haven’t had strong reformers at the top, like Thatcher or Deng, is it possible that the reform process has become institutionalised?

This ‘adding up’ over time has enhanced our national confidence, which makes ordinary people do extraordinary things, and which, to my mind, is central to the notion of ‘India Shining’. Thus, it is the Indian people who are shining as they have overcome all the obstacles put in their way — by all the vested interests of the Licence Raj. But for all Indians to shine, we must begin to seriously reform agriculture and education.

Sunday, March 07, 2004


Times of India, Mar 06, 2004

I am on a visit to the United States , and I am appalled by the ugly sight of America turning protectionist over the migration of white-collar jobs to India . I can feel the rage on websites like, created by people who have recently lost their jobs.

John Kerry, the Democratic candidate for the presidency, calls American companies traitors who send jobs offshore to India . CNN’s respected nightly business programme greets every announcement of lost jobs as though it were a terrorist attack. Amidst this pressure, the American Senate has passed a bill forbidding the outsourcing of federal government contracts overseas. Many American states will probably follow suit.

The legislative action is not a serious problem, however, as it affects only government business, which is less than two per cent of potential US business. And in the end, I believe, market rationality will prevail in America . Just as Indian swadeshis could not stop Pizza Hut, and Americans could not stop Japanese cars in the 1980s, so protectionists will fail once again. As long as Indians are adding genuine value to American companies, economics will trump politics.

Meanwhile, this controversy has provided an unexpected bonus to India : it has made thousands of medium and small American companies suddenly aware of India . They are wondering if they shouldn’t also begin to save costs by sending their work to India . It would have cost millions in advertising dollars to achieve this level of awareness. Not surprisingly, this controversy has also lifted India ’s image. Americans, who used to think of India as a land of poverty and spirituality, have now begun to see Indians as competitors for jobs in the global marketplace. A competitor is someone you fear and admire.

American politicians talk about losing jobs because of ridiculously low Indian salaries — "at a fraction of the cost" is the fashionable phrase. But American companies tell a different story. "Sure, it is cheaper — that is why we offshored in the first place — but it is the quality that keeps us there," said a company executive to the NBC reporter. American companies report that offshoring not only saves costs, their customer service improves, and they can prove it with market research surveys.

This is the real challenge before Indian companies. In some cases the quality of Indian service has failed. So far, these were exceptions. But companies who want to succeed and grow in the global service economy must not only teach the right accent, they must inculcate an ethic of service. This is a different kind of education from what we are used to — it’s about caring for the customer.

A successful Indian call centre employee says that she learned to care about customers from her father’s lessons in karmayoga, which teaches how to diminish your ego and act without thinking of your reward. This idea is not as far out as it may sound: Indian BPO companies might create competitive advantage by training thousands of karmayogis in order to win in the global service economy.

It is easy to shrug off the political controversy in America as the rhetoric of democracy in an election year. But what is disgraceful is the assumption that Americans have a God-given right to middle class jobs. Americans have long preached the virtues of capitalism and free trade, but they are now fleeing the party because the shoe is beginning to pinch. They have to get used to the idea that capitalism and free trade works for Indians as well.