1. INDIA
HAS SLOWED DOWN. Although the economy is still growing at a rate
of 7 percent per year, it has been fashionable to claim India’s
free-market revolution has run its course. India is not slowing
down. Just this week Dell announced it is setting up a huge manufacturing
plant and its local subsidiary will increase its workforce by
50 percent.
2. INDIA’S
ONLY CONTRIBUTION TO THE WORLD IS CALL-CENTERS, THANKS TO CHEAP
LABOR. Back-office work is no longer the big thing in India’s
ever-changing IT services. Indians are now creating technology,
which is why companies like Microsoft are investing massively
in Research & Development there, rather than outsourcing more
call-centers. Other areas of the economy such as retail have been
expanding at a spectacular pace. U.S. companies have been desperate
to enter that market (estimated to be worth $250 billion), which
until very recently was heavily protected.
3. INDIA
IS CONSPIRING AGAINST THE U.S. BY LURING ITS CAPITAL AWAY. Actually,
India is luring capital from all over the world, but specifically
from Asia. Half of the capital behind the eye-popping growth of
the Sensex share index in the past year is Japanese.
4. INDIA’S
SPOTTY ECONOMIC GROWTH IS CIRCUMSCRIBED TO PLACES LIKE BANGALORE.
In fact, the economic expansion is very decentralized. Many other
cities, such as Madras and Hyderabad in the South, Mumbai and
Pune in the West, New Delhi, Gurgaon, and Noida in the North,
and even Calcutta in the East, have experienced a powerful expansion
of economic activity. The retailing boom has been taking place
primarily in cities such as Madras.
5. POVERTY
HAS NOT BEEN REDUCED. It is fashionable to say that only a small
minority has benefited from India’s globalization. Poverty
is still high among India’s one billion people, but the
real story is that at the end of the 1970s half the population
was under the poverty line (as bureaucrats call it) and today
less than one third is living in poverty. A majority of the population
still works in agriculture and does not participate in the service
sector boom, but that is the fault of draconian labor laws that
are still holding back many investors from starting up more companies.
India’s middle class (almost a quarter of a billion people)
is the largest in the world.
6. THE FREE
MARKET REIGNS IN INDIA. The socialist economy of the Nehru-Ghandi
dynasty that governed the nation for decades has been transformed
and reformed. Many sectors have been liberalized and/or privatized.
But a close look at the many restrictions still in place indicates
India has a long way to go and would do well to continue its reforms
in order to achieve full development. Apart from labor laws, there
are several restrictions. The banking sector is still dominated
by government entities, foreign investors cannot hold majority
stakes in major services like telecommunications, huge public
spending is still soaking up a lot of the country’s savings
at the expense of private investment, and tariffs are still in
some cases as high as 25 percent.
7. DEMOCRACY
HOLDS BACK ECONOMIC LIBERALIZATION. Correctly understood, democracy
is a mechanism that helps to peacefully decide who governs and
therefore holds accountable those in power. Although in the short
run, dictatorships appear to be more stable environments for reform,
progress ultimately depends on a trial-and-error process that
only open discussion—the marketplace of ideas--can push
forward. Yes, in some respects India’s democracy, where
Hindu nationalists and some radical left-wing parties play an
important part, has prevented some draconian measures of the sort
taken by Chinese reformers. But a closed political environment
is an impediment to long-term development—the reason that
in countries such as Taiwan and South Korea, which had somewhat
open economies and closed political systems, a transition to democracy
eventually took place.
8. FREE MARKET
REFORM HAD LITTLE TO DO WITH INDIA’S SUCCESS. India’s
successful reforms started in the 1980s but grew exponentially
after 1991. One huge factor in unleashing the torrent of entrepreneurship
was the misleadingly named “New Industrial Policy”
that did away with investment licensing and barriers to numerous
companies that had been prevented from participating in various
markets because of “anti-monopoly” legislation. Trade
was slow to open up, especially in consumer goods, but in 2001
those restrictions were lifted too. The result has been a booming
economy.
