Take off fast but cruising slow


The last fifteen years have been a time of unprecedented opportunity and growth. But tough measures will be needed if India is to sustain this boom and leap into the ranks of developed nations, says an Economist survey.

India may have entered take-off mode but it still takes a lorry eight days to trundle the 2,150-km distance from Kolkata to Mumbai, with any number of stops at the toll booths and inspection points in between. That would seem to sum up the state of the economy, judging by ‘Now for the Hard Part’, a survey of business in India which appears in ‘The Economic survey’ takes a comprehensive look at several key areas.

The survey mentions that India has achieved a lot in the last 15 years, but that was the easy part. Tougher reforms are now needed. These include opening India’s markets wider to competition and reducing the role of the state in the economy, improving India’s woeful infrastructure, changing labor laws and shaking up the educational system to ensure there is no skills shortage in the years ahead..

IT Industry

The Indian IT industry continues to sparkle; some of the numbers are truly amazing. Nandan Nilekani the MD of Infosys says that it took his company 23 years to become a $1billion company and just 23 months to double that. Domestic firms can now watch virtually every service offered by global giants of IT outsourcing, like IBM, EDS and Accenture.

There is a new- found confidence about Indian IT’s world beating ability. Stock market valuations of Indian firms are high enough for them to buy much larger American outfits.

Nasscom president warns of three serious worries. A resurgence of protectionist rhetoric about outsourcing in the US, poor infrastructure in key cities like Mumbai and Bangalore and looming shortage in human resources.

Outsourcing is not restricted to call centers alone but also many other areas including IT and manufacturing. Except call centers the human resource talent availability is jist getting managed. There is acute shortfall of skilled manpower in the call center sphere. Another reason is that most youngsters who are smart enough for call center are pursuing other ulcerative avenues as call center work at entry level is considered as donkey’s work even listening to abusive language over the phone.

Never mind talk of a BPO bubble. The biggest worry for the industry right now seems to be how to cope with the expected surge in demand. A Nasscom-McKinsey study forecasts that Indian BPO export revenues will multiply from $5.2 billion in 2005 to about $25 billion in 2010.

The problem is where are the people going to come from? Nasscom-McKinsey also forecasts a shortfall of nearly 500,000 graduates by 2010. A revamp in the educational system is desperately needed if the BPO boom is to be sustained.


No country in Asia has climbed out of poverty without a manufacturing boom. And finally, India too seems to be getting its act together.. Manufacturing has posted 9% plus growth in the past two years, with some sectors, like the automobile industry, growing at over 15% a year

Unfortunately, this hasn’t translated into more jobs. The number of jobs in manufacturing has hardly changed from 48million in 1991, one third of the number in China. Some analysts predict that India may see the kind of boom in labor intensive manufacturing that the Chinese country side witnessed in the 1980s. But that would require not just job opportunities, but also people equipped to take them.

Providing basic education is been India’s biggest failures. The official national literacy rate of 61% covers fast functional illiteracy. Many people can write their names but little more. Interestingly some industrialists feel a real boom make take place in low skilled jobs, but not in manufacturing.

The license based governing may be history in India, but it still flourishes in many states. Large parts of India deter investment because they are so badly governed. India is betting big on ‘demographic dividend’ a surge in working age population but 60% of this rise in population will come in UP and other north Indian states, which are plagued with rotten infrastructure, pathetic education and poor governance.

Meanwhile even at the Central government crucial reforms continue to be stuck. There are three contentious areas: privatization, foreign direct investment (particularly in retail), and labor laws.


Any comparison with China inevitably results in much head shaking at the state of Indian infrastructure. But no solution seems to be in sight, even as the problems pile up. In electricity, peak supply falls 11% short of demand, and that’s not counting 56% of households which don’t even have connection. One- third of the Indians live in villages which are not connected by all- weather roads. Airports are buckling under the strain of coping with a surge in airlines and flights.

Meanwhile India spends its 3.5% of its GDP on infrastructure, as opposed to China’s 10.6%. Happily there are some silver linings too. At ports where privatization was allowed in 1996, average turnaround time has dropped from about eight days then to three days now. Mobile telephony has mushroomed. And the hanging over of Delhi and Mumbai airports to private consortia despite Left protests has been widely welcomed. Even so India needs about $150 billion in foreign investment in infrastructure over the next ten years.

India’s ‘consuming class’ is just about 150 million strong, but there’s lots of money to be made at the bottom of the pyramid.

Corporate firms are finally beginning to look at Indian villages, not just as a potential market but a vital part of the supply chain. Hindustan Lever’s Project “Shakti� recruits women to support a direct-to-home distribution network. The big question is whether companies succeed where governments have failed with still politics playing the role of a villain in people’s welfare.

The title we have given to this article in a few words sum up the current scenario and various points are discussed thread bare in the above write up.