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Tuesday, May 19, 2009

Imagining India: Ideas for the New Century

By Nandan Nilekani, "Imagining India: Ideas for the New Century"

When this book published I read these points in Times Of India.
Today I came across that article on internet. so, just wanted it in my dairy (blog) . I hope you will enjoy Indian software entrepreneur's view and vision for India in coming year.

Speaker: Mr Nandan Nilekani
Co-Chairman, Infosys Technologies Limited

One of the reasons I wrote the book was that I used to talk to people all over the world who would ask me very searching questions about India. They would ask; why do you have so many billionaires on the Forbes list and so many poor people, such beautiful university campuses and such large slums, you have this high-tech industry with so many highly qualified engineers and the world’s largest pool of uneducated children, why is it that you seem to live in the 17th century and the 21st century at the same time? These were questions that I really couldn’t answer. This book is in some sense my own voyage, figuring out why India is the way it is.

The other thing that struck me was that books on India are often on a particular discipline. Economists write about the economy of India, sociologists about the caste system, political scientists about different politics and governance, and environmentalists about environment issues. I felt that none of them really capture the entirety of India in a really wholistic manner. So this is a book that spans all of these different dimensions, that is the only way you can really describe the complexity of a country like India.

I also felt like many books concentrate on events and end up becoming historical or on personalities and end up becoming biographies. I thought the true way to look at India was through the frame of ideas. I believe that changes in ideas in India are responsible for what is happening today. When I looked at the patterns of ideas I noticed that there are some that have changed radically over the past 60 years and those I believe are at the root of the vitality, energy and growth that you see in India today. I also found ideas that were agreed upon and yet were not being implemented. And then I found ideas that we argue deeply about, issues that India is gridlocked about, ideological disputes.

I found that if India is going to go on and progress and prosper it must anticipate ideas. It must look at what is happening in the West today, look at some of the challenges there are elsewhere and perhaps learn from those challenges and choose a different path.

I found there were six things that have changed India dramatically. To give some sense of the change it can be seen in terms of economic growth: in the 1960s India was growing at the rate of 3.5% per year and this rate of growth was called the ‘Hindu rate of growth’. At that time the population was growing at 2% a year. If the economy is growing at 3.5% and the population is growing at 2% it takes 45 years to double your per capita income. Today India is growing at 8-9%, in the face of the global economic crisis growth rates have dropped to 6% and may drop even more, but when we get beyond this crisis I do believe that will go up as the fundamentals are in place. So if the economy grows at 8-9% and today the population is growing at a lesser 1.5%, your per capita income doubles every 10 years. It is this acceleration of the rate of change that is at the root of India’s opportunities and its challenges.

Demographic Dividend
There are 6 factors that led to this acceleration and huge upsurge in dynamism. The first is that India has vastly changed its view of its population. There was a time in the 60s and 70s when the population was seen as a burden, but today in modern India we think of our population as human capital. Human capital is really what drives the economy, drives the world, and drives progress. This notion of people as an asset rather than a liability is a huge change is perception which is responsible for some of the changes that you see. This change in perception coincides with India achieving a demographic dividend. A demographic dividend comes but once in the history of a country when you have a large number of people at the working age of 15-65, and relatively less people who are old or young. At the peak of India’s demographic dividend it will have four people working for every one to support. When you have a demographic dividend you also have a cycle of economic growth: you have more people who are working thereby more who have savings, more savings means more investment, and more investment means more economic growth.

India is doubly unique as is the only large country in the world to be having its demographic dividend, which means it will be the only young country in an ageing world. Thirty years back India and China were at the same level but because China implemented a one-child policy they accelerated their demographic dividend. China will start ageing by 2015 leaving the path clear for India as the only young country in this world. That opens up huge opportunities.
China does have growth rates significantly higher over the last 30 years but we must also remember that China has reached its demographic dividend by massive social engineering. China will have 400 million old people by 2020 and that will be a huge burden. In the next thirty years as China starts ageing and India’s young become productive, India has the potential of growing (in percentage terms) faster than China.

At the same time a demographic dividend is only engaged when the people are productive: they are healthy, educated, have roads to go to school, lights to study at night, and markets to get jobs. If you don’t do it right, a demographic dividend can go the other way. You have all these people with aspirations that have been unleashed by the media; by television, the internet and mobile phones. If they have nowhere to go the same young people who can contribute so hugely to the economy can become disgruntled, resentful, divisive and violent. A demographic dividend can become a demographic disaster. India has the choice. For this reason the election becomes all the more relevant.

The second big idea that has changed is Indian attitudes towards entrepreneurship. In the 1940s and 50s the Indian state had a very suspicious view of entrepreneurs. It did not believe that entrepreneurs should have a large role in society and Indian entrepreneurship was not really given free reign. Instead of focusing on improving products and creating customer value entrepreneurs instead focused on getting licences from government. Today being an entrepreneur has changed dramatically, India has become a global player. I call this phenomenon ‘from Bombay plan to Bombay Club to Bombay house.’

In 1944 the leaders of Indian business came out with ‘the Bombay plan’ saying the state must have a large role in the economy, that private capital in India is too young and immature to build this newly independent country. So it goes back to the businessmen themselves who wanted huge state and public funding. In 1992 we had something called ‘the Bombay club’, a group of businessman who met in Bombay after the economic reforms of 1991. They observed that from living 50 years in a closed economy India hadn’t learned to compete, that India shouldn’t open up its borders and allow global capital and global trade to come or Indian capital would get wiped out. The Bombay club was about protectionism.
Today we have ‘the Bombay house’ spirit which is what I call the headquarters of Tata, a global group, more than 50% of whose revenue comes from outside India, who are very comfortable with global competition. This, in some sense, is a metaphor for the change in Indian culture; from someone who wants a large role for the state, to someone who wanted a lot of protection, to someone who is eager and willing to compete with global competition.

The third change in the Indian mind is the attitude towards technology. In the 1960s computer was a bad word in India. They were believed to be job-eating machines. As late as the 1980s when the central bank came out with a report on bank computerisation they did not even use the word computer in their report, they called them ‘ledger posting machines’. When they wanted to employ more powerful versions of these ledger posting machines they called them ‘advanced ledger posting machines’. They were worried that the unions of the day would react violently to the news of computers in the bank industry.

Today, however, we live in a country where 8-10 million mobile phones are sold every month. 99% of those phones are pre-pay which means they are bought by people who don’t have a credit history, they don’t have credit cards. For 40% of those mobile phones the average recharge is less than 10 rupees which is just a few pence. That little mobile phone of a computer has become a symbol of empowerment for the poor of India. They get access to services, prices, so many things.This is the third big change: the change of seeing technology as something intimidating and job displacing to something empowering and equalising.
The tech sector contributes around 50 million dollars in exports for India which is about 5% of GDP. There is no question that it is getting increasingly sophisticated, solutions and products are developing. I believe this trend will continue, and India will continue to be one of the world’s favourite places for technological products and services in the coming years.

The fourth change is the attitude towards English. For many years Indians had a very ambivalent attitude, they believed we should all talk in Indian languages and so forth. Today, with outsourcing and globalisation, it is very clear that knowledge of English is essential for Indians participating in the global economy. English has become an aspirational language. Even the poor are sending their children to English speaking schools.

The good news is that India is spending more on education than ever before. The Tenth Plan which ended in 2007 gave the allocation for education at around 7.5%. In The Eleventh Plan which is now running it is 19%. 3 billion dollars a year in taxes is given to primary and secondary education. We need both primary education through programmes creating better schools and the reform of higher education. The problem is too big to sequence; you must do it on both fronts.
For higher education I think the problem is excessive regulation. You cannot start a university, increase fees, change faculty salaries or change the course content. The system requires deregulation which allows excellence and inclusion, and also allows for private universities to be brought in.

The fifth big thing I believe is that the Indian mindset has become far more comfortable with globalisation. In the 1940s and 50s Indians were scared of globalisation, they had just gained independence, so were building all sorts of barriers against globalisation. Today as Indian companies, workers and students go abroad globalisation is being seen as something they can take advantage of.

Now there is far less fear of foreign investment. There are still some sectors where domestic entrepreneurs prevent foreign investment from coming in but I think that is changing. By and large there is far more receptivity.
When India started globalising, those participants in the Indian economy who had the skills to contribute to the economy did well: those who were educated and knew English. Those who were not part of that were left behind. I think this has definitely exacerbated inequalities. We need to reduce those inequalities by expanding opportunities to these people. They must have the same access to schools, food and water.
I think NRIs [Non Resident Indians] are a very important part of the equation. And it has to do with the change in the Indian mindset. When Indians were not comfortable with globalisation they viewed Indians who left the borders as a brain drain. Today, as Indians become pro-globalisation, NRIs becomes a strategic asset and so in our eyes can contribute by knowledge, capital, entrepreneurship, and building a brand. I think that there’s a dramatic shift and both the people and the government are now very much open to globalisation.

The sixth big thing is democracy. Again in the 1950s and 60s democracy was an elite concept, a set of London-educated lawyers came up with the idea. Today we see with the elections that democracy is rooted in the people. 740 million people are voting in this election, it will take a month and over one million voting machines. It is really a grand spectacle.

I think certainly there are many challenges on the democratic front. Externally there is terrorism and internally there are the Maoists in central India. However, the election is reasonably peaceful; 740 million voters, 100 million new young voters, and average turnout at around 60%. The combination of parties that will come into power on May 16th will have a peaceful transition.
These six factors: entrepreneurship, demographics, globalisation, IT, English, and democracy, all contribute to India’s growth. At the same time India faces many challenges for implementation. For example; primary education, full literacy, infrastructure, urbanisation and single markets all have a long way to go. These are simple ideas and there is no argument, they must be implemented. There should also be reforms in higher education, labour (there is the complex challenge of creating jobs), and the issue of affirmative action: how do we address centuries of social exclusion and redress the balance?

Micro-financing has been a success, although it is not the only factor. Today there are probably less than 50 million people benefiting from micro-financing, but it is one of the instruments for financial inclusion which is happening. The banks are now trying to open low cost accounts using technology and biometrics to reduce transaction costs. I don’t see India using micro-finance in the same way as China and Africa, we are not organised enough for that!

India has the potential to grow at 6-8% for years to come but then it must deal with the challenges of prosperity. We must look at the challenges from the West. There are two broad sets of challenges. One is when the population starts ageing. While the population is young we must design a healthcare system so when the country ages it does not become a huge burden. How do you create a system of social insurance and social entitlements which work right now for the younger population, but
again don’t create a huge burden when the population ages? Here we can learn from what happened in the developed countries if there is a different way of designing health and social security.

Social Security and Infrastructure
Historically India has not had any social security or any kind of social insurance beyond employees of the government who get a pension and those in the organised private sector who have formal jobs. The vast majority of people have no social benefits. It is very clear from the Western experience that creating a massive entitlement programme based on defined benefits can be hugely crippling. Look at the United States, their unfunded liabilities for social security is about 50 trillion dollars. You can’t have a defined benefits system for 1 billion people. The government launched ‘the new pension system’ in 2004. It was first extended to government servants and is now available to the public. I think we can leapfrog certain things and build very modern systems to provide social insurance.

Infrastructure is a big challenge and the base is undesirable. To give you a sense of capital, the Indian economy is over a trillion dollars in size and the savings rate is about 35%. Around 350 billion dollars are saved every year whilst the foreign capital that comes in is only around 10-15 billion dollars. The role of foreign capital in the Indian economy is actually quite marginal. The government had an ambitious plan to spend 500 billion dollars on infrastructure. Although a lot of private investment will be hampered by the liquidity crisis, most of the money is still tax generated.
I think infrastructure will happen, it has become very salient. It is reflected in our political slogans. About thirty years back our political slogans had ‘food, clothing and shelter’, but today’s slogans are ‘power, water and roots’. The manifestos say ‘broadband for all’. These are all examples of the fact that infrastructure has become very politically salient. So while it won’t be at the base of change, as you see in China, this election depends on it.
The other big challenge that India faces is what to do with energy and the environment because it is unlikely that India will be able to continue with rapid growth using the same hydro-carbon methods that is has used for the past 200 years. If India grows at 8% a year, it doubles every 10 years, which means by 2050 it will have gone up 16 times. Historically, there is a linear relationship between growth in income and growth in greenhouse gas emission. Clearly India can’t have its emissions going up 16 times. Therefore it must create a low carbon economy that allows its people to enjoy the lifestyle benefits of economic growth without causing environmental damage. We do not yet know what the solution is but India will have to do it.

Some states have been more dynamic than others although some of the laggard states are now catching up. For example Bihar now has a chief minister who in some sense is more progressive than the south Indian states that have historically been seen as progressive. Gujarat in terms of reforms and economic dynamism has done a lot as has Andhra Pradesh. I think the competition between states, and pressure from the people within the state for a better life will drive the growth phenomenon.

My basic thesis is that India is at a very critical juncture. It can either engage its demographic dividend or lose it. It can address the challenges of population and poverty. It can also avoid long term challenges by looking at issues elsewhere to create a wonderful country in the 21st century.

1 comment:

Manish said...


Such a nice book and this article gives its executive summary. Good concepts/terms about Demographic divind.

Yes as Thomas L. Friedman wrote in his book "World is flat", Country like India, have now more people in middle class and upper middle class.
It is unfortunate that somehow on global scene our image is spoiled. Recent Oscar award to "Slum Dog the millionaire" made by a foreign director which highlights poverty and slums of India. That is not completely true. India is wonderful country and poor/braggers exist even in most developed country.

About the author, I got opportunity to listen to him at Crossword, Bangalore. I have captured one such book release event at my blog.