Challenging Perceptions of India's Development Narrative
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I have had the privilege of listening to numerous presentations on India from business, government, and academic leaders. Most presentations are strikingly similar. There is excitement, optimism, and enthusiasm that bode well for India. But the global success of “Brand India” and continuous reinforcement of successes cloud many perceptions of reality and fall into the trap that researchers call ‘persuasion bias’. Without adjusting for repetition of the same information this persuasion bias continues to perpetuate and exacerbate certain fallacies and inconsistencies. Often, the facts are not consistent with the braggadocios. Further, leaders exhibit classic ‘self-attribution bias’ that successes are due to their actions and failures are due to the actions of others like the NGOs, farmers or society.
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Leaders proclaim that India’s strength lies in its ability to bypass industrial economy and leapfrog from an agricultural economy to a service-based economy. The supporting argument is that most developed countries are service-based economies. Unfortunately, there is a lack of awareness on how developed economies got there. Even worse is that they often cite how GE, IBM and other leading companies make more significant profits and revenues from services than from selling tangible products. Although this sounds exciting for the believers, let us not lose sight of the incredible dependencies and blurring of boundaries between manufacturing and services of these firms. GE and IBM make money over the lifecycle of the products they sell since the initial cost is just a fraction of the total lifecycle value. GE makes little profit selling jet engines but reaps significant revenues and profit from servicing and upgrading those engines over the next 40 years. The same applies to IBM. Further, firms make money financing the purchase of their products; this applies to General Motors, GE or Dell. Without making tangible products, however, these firms have little to stand on.
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We also hear that India can leapfrog to new technologies without having to deal with legacy issues. The rapid diffusion of the cell phone is used to support the argument. However, this argument is fragile and meaningless. On the basis of such an argument, it would be prudent to wait for another decade to see if cheaper wireless options are made available for very high-speed broadband connections, to avoid laying expensive fibre or cable that is in place in most parts of the developed world. Unless there is a technological innovation available now, a country needs to dig trenches to lay fibre or cable. Using the same cell phone example, however, India would have benefited immensely by creating new jobs for the whole spectrum of the workforce through manufacturing of cell phones and their components.
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Often, talks revolve around symbolism – like e-Choupal (ITC’s electronic portal and marketplace for agricultural goods), e-learning, and an IT-based emergency management system – to support leapfrogging arguments. Can e-Choupal replace good transportation systems, reliable water sources, basic education, access to credit, and communication infrastructure? Super fast transportation and distribution systems to distant places can create new markets that can get farmers better prices. A sophisticated IT-based emergency management system is as good as the infrastructure itself. In an accident, a meaningful system is one where the ambulance can reach the accident site in reasonable time. The much touted e-learning system is not a substitute for good buildings, teachers, notebooks, and blackboards. Unfortunately, we focus on solving the easy part of the problem with IT and claim success. It can complement, but cannot substitute or leapfrog the need for basic infrastructure.
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In a way comparable to the early industrialization efforts of the developed economies, India should put more resources into making the traditional manufacturing base (such as textiles and steel industries) efficient and globally competitive. These sectors have enormous forward and backward linkages in the economy that can benefit a whole spectrum of the workforce. For example, the textile sector links farmers, manufacturing, handlooms, retail stores and malls, and the service industry (e.g. designers, dry cleaners, models). This doesn’t mean we ignore the IT sector. But any subsidies and incentives must be given to these traditional sectors where the impact on the masses is significantly more. Let the profitable sectors manage themselves.
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Many argue that India is better placed to succeed than China since India’s growth is primarily driven by home-grown entrepreneurship and innovation unlike that of China built on Foreign Direct Investments (FDI), primarily from the Chinese diaspora. While the comparison with China is hackeneyed, is there any merit to this argument? Notwithstanding the recent surge in India’s FDI to $11 billion, let us be honest: the inability to attract FDI is related to the bureaucracy and the lack of infrastructure, political stability, sound economic policies, and a willing Indian diaspora. It wasn’t a surprise that Intel chose to set up manufacturing plants in Vietnam and China instead of in India.
