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Sunday, February 12, 2006

India, Infrastructure, and Resistance to Globalization

A commentary in the Financial Times says infrastructure and resistance to globalization in rural areas are issues that may limit India's ability to grow. How fast will the half-full or half-empty glass that is India's economy fill up with economic growth? Is the glass itself in danger of shattering?:

Infrastructure poses threat to India’s boom, by Jo Johnson, Financial Times: For those given to triumphalism about the inevitability of India’s emergence as an economic superpower, there is no better reality check than Delhi and Mumbai airports. Never far from the bottom of global passenger satisfaction rankings, the country’s two main hubs were even closer than usual to paralysis at the start of this month. ...

The contrast with the impression given at the World Economic Forum in Davos last month ... of a nation “on the move” could hardly have been crueler. The hard-selling “India Everywhere” campaign ... tells a different story to that relayed to despairing passengers locked in holding patterns in the sky. The “world’s fastest growing, free market democracy”, goes the brand-building blitz, is “open for business”. ...

The danger that India starts believing its own hype ... has never been more real. Reform-mongers worry that complacency may cause India to miss its best chance to convert global interest into investment, jobs and social development. ... Rajeev Chandrasekhar, a former telecommunications entrepreneur who is turning his attention to the freight business, says: “Business has been growing feverishly in India; now it is heading like a rocket into a dead-end. That dead-end is a lack of transportation infrastructure.” ...

Manmohan Singh, prime minister, did force through his plan to modernise the two airports with the use of private capital... It was a significant moment. But few analysts are confident that this signals a step-change in the pace of reform. Communist parties hold the balance of power in parliament and have shown themselves adept at blocking or diluting measures to liberalise the economy.

Nowhere is the danger of inaction more evident than in Bangalore, the country’s information technology capital and the city that has done most to transform India’s international image. The realities of Karnataka state politics are in danger of killing a global success. Neglect of Bangalore’s infrastructure by the state government has called into question India’s ability to maintain its market share in IT services and defend its status as the world’s default back office. ... “Bangalore is collapsing,” says Deepak Parekh, ... a member of the three-person Investment Commission set up by the prime minister to attract and facilitate foreign investment. ...

Things are unlikely to get better and may well get worse. The rural-urban divide that is present throughout India finds an acute expression in Karnataka. ... Ram Guha, a leading historian and Bangalore resident, says ... it is outsiders who have generated the vast bulk of new wealth in the state. Kannada speakers form a majority in rural Karnataka... “Bangalore is seen as a privileged class of non-Kannada speakers,” he says. “This explains why politicians don’t act, why they say ‘Bangalore is not our city’ and why they recently proposed to rename it Bengaluru. It’s a highly emotive issue.” ...

Just three years ago, for technology companies to locate in Bangalore was a “no-brainer” decision, according to Mr Ravichandra. ... As a result, 55-60 per cent of high technology companies in India are based in the city. “Today, if someone says Bangalore is a slam-dunk, they’d check his head. That’s the change . . . With double the number of cars of five years ago and no mass transit system in sight, the city no longer works in a way that unleashes the creative potential of those who live here. We have some distance to go before things get better.”

The crisis in Bangalore is played out in different ways and to differing degrees across India, reflecting a hardening belief that being seen as reformist has a high electoral cost, especially in rural areas, where 60-70 per cent of Indians live. ... “There is a standard kind of leftwing rhetoric that presents globalisation and reform as a zero-sum game,” says Mr Guha, who believes proponents of liberalisation have failed to argue their corner, allowing the belief to gain ground that Bangalore is somehow rich because rural areas are poor. ... “The intellectual argument for market economics has yet to be won in India,” Mr Guha says. “Pop-Marxist economics still hold quite an influence.”

Azim Premji, Wipro chairman and one of India’s richest men, says politicians who pander to the rural-urban divide in this way are underestimating the electorate in the villages. “I don’t think the villagers think that,” he says. “Poor people in India aspire to become rich people in India. It’s very fundamental. They also have a lot of respect for successful people in India. ... It’s not a Communist mindset. ...” ...

Update: See also When globalization leaves people behind from The International Herald Tribune.

    Posted by on Sunday, February 12, 2006 at 02:43 PM in Economics, India | Permalink  TrackBack (1)  Comments (21)


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    » India's infrastructure woes from New Economist

    Declarations that India is ‘open for business’ come in contrast to frustrations at the slow pace of improvements to its ramshackle infrastructure. Today's Financial Times has a piece by Jo Johnson arguing that Infrastructure poses threat to India's boo... [Read More]

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