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India, the rising economic lion.
That's the image that holds sway in Western corporate boardrooms at the
moment. Firms lick their chops at a vast and growing market. Call
centers, backroom operations and research laboratories from the USA and
Europe are migrating to India in droves.
And on the surface, the numbers seem to back up the emergence of a
global economic powerhouse. Over the past three years, India's GDP
growth has averaged 8.1 percent annually. Over the next five years up
to 70 million of its young workers will join the workforce. Sounds like
an economy in full flight, right?
I hate to rain on a parade, but I have just returned from my latest
jaunt to India and must report that trends can be deceiving. Yes, India
is moving on the right road to economic progress. But potential should
not be confused for reality.
As The Economist reported earlier this month, India is still "poor and small." It sustains a sixth of the world's population but accounts for just 1.3% of world exports of goods and services. More indicative of its current stat reports The Economist: "At $728, it's GDP-per-head is less than half China's."
Statistics of all sorts can be misleading, of course. I would prefer to relate three personal experiences that suggest what I see as major challenges for India's development.
First off, bureaucracy reigns supreme in the country, and that makes even the most tedious, daily chore, unnecessarily difficult. I was reminded of that fact when I went to the Indian consulate in San Francisco to procure a visitor's visa.
Step one involved arriving at the consulate in the morning with all the proper documentation: individual photos, passport, and airline ticket. Never mind that Cambodia, where I also traveled on this trip, allows one to deliver all these materials upon arriving in the host country and issues a visa on the spot. The Indian consulate for some reason cannot process a visa in San Francisco without making the applicant wait for five hours. No worries, I reminded myself that the United State government also makes it unnecessarily difficult for visa applicants. So I paid my fee and ran a number of errands, then headed back to the consulate late in the afternoon. And here's where I get to the point of the story.
I waited in a long line with other erstwhile applicants to pick up my passport. When I reached the front of the cue, I gave the clerk my name. She asked me for the cash receipt that I received when I paid my fee for the visa. No one ever mentioned that the receipt would be vital to keep. I since learned that you never forfeit a piece of paper that an Indian clerk gives you. You are certain to need it again at some future moment.
I plead ignorance to the clerk, and offered my driver's license as proof of my identity to match that of the passport she now held in her hand. "I'm sorry," she said, "but I cannot give you your passport back without that receipt."
Silly me, but I thought reason would work: "Listen, you would never have accepted and processed my visa without payment, so why would you need a receipt now? And you can match the photo and personal data in the passport with the documents I now have in my possession. So the receipt from this morning is irrelevant to delivering me my passport now."
She looked at me unimpressed and repeated the mantra, "No receipt, no passport; it is demanded by our protocol."
If you have spent much time in India, you know this drill well. I eventually regained my passport, but it sure wasn't easy. The "demand of the protocol" takes precedence over efficiency and expediency.
On a less trivial level, Indian bureaucracy stifles entrepreneurial activity. Frankly, I do not trust that as a foreign investor in an Indian enterprise that I would ever see returns on the other side of the system.
I recently had a commercial contract with an Indian agency. When it came time to compensate me for services rendered, the company asked me to submit an invoice. Once I did so the first time, the financial controller of the firm informed me that I had not followed the right protocol. So I re-submitted the invoice a second time. That effort also proved lacking, as were the subsequent two invoices. When I finally performed the perfect invoice, the firm agreed to compensate me. But the funds wired to my account represented only about 40% of what I was due. When I inquired about the low amount, the controller acquainted me with all of the fees that were incurred in processing my payment.
This scenario also does not represent an exception to daily affairs in India. Money does not flow effortlessly among individuals, or between individuals and enterprises. A plethora of gates, or middlemen, inject themselves into each and every financial arrangement. Doing commerce in India as a foreigner at the moment feels like entering into a Hollywood film deal: expectations of net profits dissipate into thin air.
On a final, and far more serious level, nearly four-fifths of the Indian people remain mired in poverty. One would hope that a growing market would open up new financial opportunities for impoverished communities. Caste-based inequality and socially sanctioned slavery, however, make such development inordinately difficult.
As many as 60 million Indians work in conditions of "bonded labor." That's a nice way of expressing that they are debt slaves. On my recent trip to southern India, I spoke directly to large numbers of individuals who work in brick kilns or rice mills for virtually no pay. They receive just enough food to keep themselves alive. "Compulsory labor" is illegal in India, yet enforcement of the law is at best lax. Many of the lower castes find themselves working to pay off the interest on a loan taken by a relative a generation or two back. In many cases, they never making progress on earning off the principal of the loan.
No trade liberalization or banking reform will change the fate of these slaves. Only a revolutionary rejection of bonded labor across the society will free the Indian economy to grow to its actual potential.
India's prospects only will fly high once it sheds those shackles. Until that happens, we delude ourselves that the country is developing into an emerging economic powerhouse. Poverty will persist for decades and social conflict will mount.
India must choose the future it most values.
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