India's next test: spreading prosperity

In a giant project called the "Golden Quadrilateral," India is building a state-of-the-art interstate highway system. Yet truckers who ply those roads must pay import duties from one state to another – almost as if their rigs were entering another country.

India has had nearly 60 years free of famine, growing enough food for its 1.1 billion people. Yet nearly 40 percent of its vegetables rot in warehouses before reaching market. The country has a space program – yet 30 percent of the population lives on less than $1 a day; 78 percent on less than $2.

Will the real India stand up?

Much has been written about the incredible strides India has taken since 1991, when it opened up its markets to foreign investors and slashed regulations. With 6 percent to 8 percent growth rates over the past decade, India has become a hot spot for investors, a dynamo in the outsourcing and high-tech industries, and a competitor for headlines with that other emerging economic power, China.

Yet, while India has changed dramatically – with a rising consumer economy attracting everyone from Dell to Honda to Starbucks – a growing number of foreign diplomats, Indian academics, and businesses warn that the booming growth will fizzle unless India acts soon to spread the benefits to a wider population and boost investment in roads and airports, electricity and water, and basic education.

"Despite the hype about India's emergence as a global power, I fret for India," says Sumit Ganguly, director of the India Studies Department at Indiana University in Bloomington. Aside from problems such as illiteracy, malnutrition, and lack of adequate housing, Dr. Ganguly says, India suffers from major bottlenecks in its economy, including lack of electricity, inadequate airports and seaports, and insufficient roads. "Unless India can tackle these three bottlenecks, I cannot see how it will sustain its current levels of growth."

The question, academics like Ganguly say, is not whether India is currently prospering, but rather: How can India expand its boom beyond Bangalore? In a three-part series, the Monitor looks at how far India has come, and where it needs to go to include large segments of society who have thus far benefited little from the prosperity. The series will highlight Indians who are trying to make a difference in the economy, and who are putting pressure on officials to make the tough choices the country needs in order to succeed.

India's story of prosperity and growth is best seen in southern cities like Bangalore and Hyderabad, where computer companies like Infosys, Wipro, and Satyam have clocked 30 percent growth rates this year. Drive around Hyderabad's HI-TEC City, an impressive suburb of glass-and-steel office parks, and you might think you have stumbled into an Asian version of the Silicon Valley. And you would be right.

Indian high-tech and service companies – unburdened by many British-era labor laws that still hold back India's manufacturing businesses – have turned a sluggish economy into a regional dynamo, creating tens of thousands of new jobs, including well-paid jobs in call centers.

Indian banks that once required detailed explanations for every expenditure and forbade any Indian to withdraw more than $500 in foreign currency before traveling abroad now give out loans for housing, cars, and business ventures, all at low interest rates. Middle-class consumption has increased, a sign of hope for foreign investors who have plumped $8 billion into the Indian economy in 2005, and are expected to invest an additional $12 billion this year. (China's foreign direct investment intake was $60 billion last year.)

And other trends are moving in India's favor. Its population is young. The government projects that by 2026, a full 64 percent of the population will be of working age. For these workers, IT isn't the only opportunity: Manufacturing grew by 9 percentlast year. Tata Steel is now among the world's lowest-cost producers. Over the past five years, India's chemical industry has outpaced global growth in that sector by 500 percent, according to the Ministry of Commerce and Industry. India's stock market index, Sensex, has doubled in the past two years, spawning day traders.

New horizons here are bringing India's diaspora back. Take Paulmi Patel. Eight years ago, her parents left their home state of Gujarat for New Zealand to seek greater opportunities. Now, Ms. Patel is back, hoping to get a foothold in the booming field of computer technology.

"India is a very easy opportunity now," says Patel, a one-year foreign intern at Hyderabad's largest computer company, Satyam Computer Services, Ltd. "New Zealand is very small, and it has very limited job opportunities for people fresh out of university. It's easier to grow in India now."

"India is the next country, next to China, which will be part of the global picture," agrees Francisque Singol, another intern at Satyam, who moved back from France.

But while it is increasingly common to find Indian returnees like Patel and Mr. Singol, and foreign businessmen and women taking jobs in Indian firms, broader statistics tell a much more sobering picture of the disparities, and the slow rate at which benefits of liberalization are circulating.

It is common, for instance, to hear globalization thinkers talk of India's middle-class population of 300 million, a number larger than the entire population of the United States. The truth is that India's middle class is smaller, poorer, and more scattered than such numbers would suggest.

Statistics from India's most recent census in 2001 show that just over 300 million Indians earn a salary of any sort, in positions from cleaning staff to clerks to CEOs. The rest, some 800 million Indians, have either part-time jobs or no jobs at all. As a result, while the top 5 percent of the population earns more than $8,700, according to calculations by the World Resources Institute in Washington. India's 2001 census says that 30 percent of the population lives on less than $1 a day, and 78 percent lives on less than $2 a day, There's a high-tech divide: Only 16 out of 1,000 Indians use the Internet, compared with 57 Internet users in Asia and 96 worldwide, respectively. And a low-tech divide: A recent survey by Hindustan Lever, a major food-processing and home-goods conglomerate, found that only 40 percent of Indians in rural areas use soap to wash their hands and cooking utensils – a problem the company is tackling with a $5 million education program.

"Both from neglect and [due to] the hurdles created, there has been a complete failure of the state to release the productive potential of the people," says Jayaprakash Narayan, director of Lok Satta, an institute in Hyderabad that pushes for good governance.

India should be proud of its democracy, but not of its government, says Mr. Narayan, himself a former top Indian bureaucrat who left the government to set up Lok Satta. "But making government work is tougher than just giving 100 rupees to the poor. That requires that the government make outcomes their focus."

Success has allowed an increasing number of Indian companies to think beyond mere profits toward the development of the surrounding community, particularly in areas of health and education.

New tech companies like Wipro and Infosys, and old manufacturing giants like Tata and Birla invest heavily in private institutes of technology and management schools, in part to keep pace with the rising demand for top Indian talent at home.

A more innovative generation of companies like Satyam has begun to create outreach programs in Hyderabad's slums, as well as job centers and vocational-training programs in rural areas in the state of Andhra Pradesh, where Satyam is based.

That disparities continue to exist 15 years after the reform of India's economy by Rajiv Gandhi and his team of technocrats – including current Prime Minister Manmohan Singh – should come as no surprise. Faced with the imminent collapse of India's socialist, state-planned economy, Mr. Gandhi's team stripped away protectionist tariffs that shielded Indian manufacturers from foreign competition. They also removed the much hated "license Raj" that required a license for every single activity by private business. Perhaps most important, Gandhi's tech-savvy team encouraged a sector of the economy that could boom quickly without much government direction and that took advantage of India's talent in science and technology. The computer boom began.

Friendly critics of the Singh government, including Ganguly, Narayan, and others, say that India's leaders need to now focus on how to broaden the Indian boom, and make it sustainable.

"Money is not the issue, the question is how do you put more accountability and local control into how that money is spent," says Narayan. "The whole notion that India is just 5 percent of its population (the elite), and the rest are a problem, that is extremely dangerous. Sadly, we have an elite that doesn't understand it is in their enlightened interest to see the rest of the country prosper as well as they have."

There are some notable exceptions of course. At Satyam, 10 percent of the company's employees devote 10 percent of their work time to charitable projects. Typical is Gangadhar Pobbathi, a quality-control engineer. He says he chose Satyam partly because of the value it places on corporate responsibility.

"All people have the capability to show talents, and India has potential, but there are certain flaws – in family, in financial background – that hold people back," says Mr. Pobbathi, who donates his time to Satyam-funded charitable groups that work in Hyderabad's slums. "If you touch one person in a slum, then it will spread like fire in a jungle," he says. "If you help a young person, aged 13 to 35, to improve their life, and get education or just clean drinking water, then you can make a difference. If not, then they are lost."

K. Ramesh, a high school graduate from the village of Mahbubnagar in rural Andhra Pradesh, has also come to Hyderabad to improve his lot. He now lives in a camp of blue plastic tents, lugging sand and stone as a day laborer at a construction site for the Templeton Fund's new building in Hyderabad's HI-TEC City area.

"I'm satisfied, we're getting more work here than back home," he says. He says he can read and write and use a computer, and looking up at the glass-and-steel of Microsoft's building, which looms over his tent city, Ramesh says "I would like to do some computer work in the future. But most of the companies, they only take money from you to file a job application."

Ed Cohen, head of executive leadership training at Satyam, admits that he finds India's poverty levels exasperating. But he suggests patience. "This country is essentially 60 years old," he says. "Look at where the US was when it was 60 years old. We were about to enter the civil war over slavery. The evolution that is happening here, at its core, is a peaceful one. There's something to be said for that."