Rob James

Globe WorldWatch

The lesson of India


With a population of 1 billion people and annual growth of 8%, India could become the world's pre-eminent economy.

Niall Paul

Today many if not most investors still hope and expect that emerging market growth is going to save their bacon – today, tomorrow, and for quite a long time to come. The assumption is that the big emerging markets can stand the strains of ultra rapid growth without going haywire. Are they right? WorldWatch has been to India to ask that question.

If you want to examine emerging market responses to rapid change, India with its billion plus population and 8% plus growth is a good place to start. Of the four BRICs, it has the strongest democratic tradition. It has an accountable legal system.  It has a long history of commercial engagement with the rest of the world. It is the world’s biggest producer of science, engineering and management graduates. And it speaks English.

No wonder that the world’s knowledge-intensive industries are lining up to invest in India. No wonder that luxury carmaker Mercedes records world-beating quality levels in its Indian manufacturing plant. And no surprise that The Economist recently speculated that India might eventually outstrip China as the world’s pre-eminent economy.

But where there is change, there is also strain. And nowhere in India is that strain so apparent as in Mumbai, the business capital that many residents still call Bombay.

Mumbai is one of the world’s mega-cities. With a population of at least 14 million and growing at 20% a decade, it hosts the world’s biggest entertainment industry (by number of customers worldwide), most of India’s financial institutions and corporate HQs, along with Asia’s biggest slum, the busiest rail station anywhere, and the world’s single most expensive ($1 billion) private home, completed in 2010. Mumbai is filthy rich and dirt poor, crammed, chaotic, and dynamic.

Indian Lives are shorter: Life expectancy in years

indian lives are shorter - life expectancy in years

Source: World Bank

Investment strategists might see all that as good: signs of entrepreneurial energy and growth to come. But there is a darker side to the city, and perhaps to India.

Although Mumbai’s GDP is bigger than that of several EU countries, most of that value is generated by very small or medium-sized businesses – families at work. Large companies may have their HQs in the city because they have to, but they are strangely reluctant to make big capital investments there.

The reason? Mumbai is a gangster’s dream – a city of turf wars, armed factions and boiling ethnic strife. And the trouble runs much deeper than city or state politics, and deeper than the headline corporate and political bribery scandals that have occupied India’s front pages this year. The city – the most important commercial centre in India and potentially one of the world’s great business hubs – is a reminder that this is a country where the institutions of civil society often prove too weak to cope with the headlong pace of change.

Walk into the Mumbai High Court any weekday and you can watch appeals, counter-appeals and adjournments being heard for cases that were first filed in the 1950s. You have a legitimate business grievance you want to take to law? If you are lucky, your grandson might see it settled. So people who want results are forced to turn to organized crime to expedite their business – the gangs’ clients come from every level of society and business, including in one recorded case, a High Court judge.

India’s Law is Slow: Time in years to resolve insolvency

indias law is slow - time in years to resolve insolvency

Source: World Bank

And that is also why southern Mumbai, the historic heart of the city, is a ruin. A law which fixed rents at 1940s levels means that no property owner can afford to maintain an old building, however distinguished, so they are left to crumble in the monsoon rains. For a mental picture of what should be Asia’s finest city, think Bladerunner. That could all be changed with one stroke of the legislator’s pen. But for that to happen, India would have to embrace the grown-up politics of reform.

India needs to reform its legal system, its education, and its political culture. Legal processes are slower by far than in any other BRIC. Literacy rates, especially female literacy, are pitifully low compared to India’s competitors. And standards in public life are a disgrace.

Mumbai is not India. But with its collapsing quality of life and its rising tendency towards violence, ethnic and criminal, it is a picture of 

India’s Education is Poor: Adult literacy %

indias education is poor - adult literacy

Source: World Bank

And it is a reminder that emerging market growth is not a one-way bet. The relative advantages of an economy and a society like India’s are great: deep reserves of industrial skills, globally competitive wages, a vast domestic market, a favourable demographic profile, and an appetite for change. But as capital flows eastward in search of extraordinary returns, a degree of caution is indicated. The economic transformations that India and other emerging economies are undergoing are inflicting tremendous strains. And it is by no means certain that governments and institutions are capable of managing those strains.

Recently WorldWatch was walking the backstreets of southern Mumbai late at night, when your correspondent was followed by a beggar, a boy of perhaps six years. Money was offered, but this boy would not take money. Very unusual: when you are hungry, cash money – however little – is difficult to turn away.

What the boy wanted was rice – a large bag of rice, and no bargaining about it. So a large bag of rice was procured (it did not cost much, but it was quite a lot more than the usual tip). And then the month’s worth of rice was carried off proudly on six-year-old shoulders.

That boy was thinking ahead. That boy could go far. If his government lets him, that is.

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