Economist's View

RBI Governor Rajan’s Fight Against Crony Capitalism

Luigi Zingales at ProMarket:

RBI Governor Rajan’s Fight Against Crony Capitalism: In any country in the world, a central banker who has managed to reduce inflation from 11 percent to 5 percent while simultaneously enabling an increase in growth from 5 percent to 8 percent in just three years would have a guaranteed reconfirmation. Not in India. The Governor of India’s Central Bank, Raghuram Rajan, much admired by the international press, is under heavy attack in his country. ...

Why such anger? With his work, Rajan is fighting not only inflation, but also the inefficiency of the banking system, burdened by bad loans. The Indian banking system is mainly in public hands and was used to finance crony capitalism, which has held the country back for too many years. ...  

As Governor, Rajan has rightly decided to force the banks to cut down exposure to their most dubious borrowers, even at the cost of bringing out non-performing loans. ...

Though it was the right thing, this policy has produced collateral damage: banks’ share prices were affected, and even more affected were those Indian oligarchs who had enjoyed easy credit. They are the ones fueling dissent, because Rajan has dared to publicly criticize the behavior of some of them. ...

Despite these attacks, public opinion is strongly on Rajan’s side. ... Rajan, ... is the dream of the new India: young, competent, and reached the top of the Indian central bank because of his skill, not because of his political alignment. ...

By late August, Indian Prime Minister Narendra Modi will have to decide whether to reconfirm him. This decision is the litmus test for change in India. On one hand is the young India, competent and meritocratic, that is conquering the world with its software and products, on the other hand is the India of the great political and economic dynasties, who established their power on political connections, if not directly on corruption, and that use a false sense of national identity to protect their declining power. It’s up to Modi to choose.

Bhagwati: India or China?

Who will grow faster, China or India? Jagdish Bhagwati says it depends upon whether you adopt a short or long horizon. In the short-run, China has the advantage, but in the longer run, India has the advantage:

India or China?, by Jagdish Bhagwati, Commentary, NY Times: ...Will China grow faster than India...? In fact, this contest dates back to 1947, when India gained independence and democracy..., while China turned to Communism...

As it happened, however, both giants slept on – until the 1980’s in China and the early 1990’s in India – mainly because both countries embraced a counter-productive policy framework...

Reflecting flawed economic arguments, India embraced autarky in trade and rejected inflows of equity investment. It also witnessed economic interventionism on a massive scale... In China, the results were similar, as the political embrace of Communism meant going autarkic and giving the state a massive role in the economy.

After progressively dismantling their inefficient policy frameworks in favor of “liberal” reforms, the ... race was finally on. And ... China ... grew faster, because it changed its policy framework much faster than democracy permits. But there are good reasons to suspect that China’s authoritarian advantage will not endure.

First, while authoritarianism can accelerate reforms, it can also be a serious handicap. ... Moreover,... as growth accelerates, political aspirations are aroused. Will the Chinese authorities respond to them with ever greater repression,... creating discord and disruption, or will they accommodate new popular demands by moving to greater democracy? ...

Finally, China’s growth must continue to depend on its exploitation of external markets, which makes it vulnerable.., hassles and hiccups for Chinese exports can be confidently expected.

Economic factors also militate against Chinese prospects. China was clearly able for many years to ... grow rapidly without facing a labor-supply constraint... But now,... labor is getting scarce and wages are rising. ...

By contrast, India has a far more abundant supply of labor,... so that, as India’s investment rate increases, labor will not be a constraint. India will thus become the new China of the past two decades.

Besides, in contrast to China, where economic reforms were quicker and more complete, India still has a way to go: privatization, labor-market reforms, and opening up the retail sector to larger, more efficient operators are all pending – and will give a further boost to India’s growth rate once they are implemented.

"The Growth Future – India and China"

Arvind Subramanian says when it comes to sustaining economic growth, China is likely to do better than India:

The growth future – India and China, by Arvind Subramanian, Vox EU: Can China and India sustain their current growth rates? A traditional answer to this question is conditional: yes, provided they continue to implement policy reforms. But historical experience allows a less guarded answer. There are few examples of countries that have grown as strongly and for such long periods as India and China have – 6% and 10%, respectively, for nearly three decades – and then suffered a sharp slowdown or collapse. If history is a reliable guide, then barring major upheavals, economic growth looks likely to continue in both countries until some threshold level of prosperity is attained.

But why does growth beget more growth? One mechanism is simply that growth signals the fact of profitable economic opportunities, which encourages investors to rush in, first in response to these opportunities but then in response to each other – this is growth as a confidence trick – creating a virtuous circle. If countries are relatively poor, if their markets are large, and if their policy framework is basically sensible – all of which are true of China and India – the chances of the growth-begetting-growth dynamic taking hold are high.

But in addition to the signalling effect, growth may itself cause changes which have in turn a growth-reinforcing effect – a kind of positive feedback loop. A good example is education. For long, development economists bemoaned the poor levels of educational attainment in India, directing their critique at the government’s failure to supply better education. But economic growth changed the education picture dramatically. It increased the returns to, and hence the demand for, education. And if government supply remained weak, consumers simply turned to the private sector to meet their demand for education. Improvements in educational attainment over the last 15 years are attributable in part to more rapid growth.

An important question then is whether India and China can take the positive feedback loop for granted, especially in relation to two key determinants of long-run growth: state capacity or effectiveness and the private sector’s entrepreneurial capacity. In other words, is it inevitable that over time growth will itself improve the quality of private entrepreneurship and public institutions? Consider each in turn.

Aid to Poor Countries: "Cruel Joke" Week

Is the opening paragraph serious?:

Bread and Bush-bashing, by Chris Patten, Project Syndicate: I feel a little sorry for President Bush. Whatever his other many failings, he has a pretty good record on aid to poor countries, particularly in healthcare. True to form, he recently announced a big increase in US food aid -- good for the hungry poor and good for American farmers. ...

What made me feel a little sorry for Bush was the reaction to his announcement. Bush referred to the reasons for shortages and price hikes. He did not dwell on the diversion of American corn from food to heavily subsidized bio-fuels. Nor did climate change feature prominently in his argument, although many experts suggest that this may be the cause of the droughts and floods that have ruined wheat harvests in Australia and vegetable oil production in Indonesia and Malaysia.

Bush pointed his finger primarily elsewhere. Food prices had responded to growing demand. In Asia, economic growth had stimulated food consumption. The Chinese and Indians were eating more and eating better. ...

What Bush said is of course true. ...

But many Indians are still wretchedly poor. Too many. They have a miserable diet -- not least when compared with Bush’s Texan neighbors. Grain consumption per head in India has remained static, and is less than one-fifth the figure for the US, where it has been rising. I do not imagine you will find too many vegetarians in Crawford, Texas, and the meat consumed by the average American is way ahead of the figure for any other country. Think of all those T-bone steaks.

Bush’s partial explanation of the world food crisis, accurate as far as it went, brought the anger of India’s media and of many politicians... According to India’s Defense Minister, A.K. Anthony, presumably an expert on butter as well as guns, Bush’s statement was “a cruel joke.”...

Later in the “cruel joke” week, Bush’s White House compounded the sin. According to Bush’s press spokesman, the growth in world demand for oil -- in Asia, for example -- was one of the causes of the high price of filling the tanks of gas-guzzling sports utility vehicles ... at America’s pumps.

Meanwhile, the US government papered over the fact that Americans, who make up less than 4 percent of the world’s population, own and drive 250 million of the world’s 520 million cars. More outrage around the world at American double standards.

Now, all this is more than the knock-about of international politics. One day soon, Bush and Cheney will be out of office. But we will still be left with the most difficult global issue we have ever faced: as more of us prosper, how do we deal fairly with some of the economic and environmental consequences?

What do we do about the bottom billion in the world who remain in grinding poverty while the rest of us live better and longer lives? How do we deal with equity on a global scale when we cannot even deal with it country by country?

This conundrum will lie at the heart of the diplomacy next year to find a successor to the Kyoto agreement. Can we prevent a calamitous increase in global warming in a way that is fair,... and that does not thwart legitimate hopes for a better life everywhere? We have never faced a more difficult political task.

Meanwhile, there is a food crisis to solve. We have already seen many examples of how not to deal with it. Stopping food exports is stupid. If we restrict market forces, there will be less food and higher prices. We should also avoid the cheap political trick of holding down what we pay to poor farmers in order to benefit poor city dwellers.

Why do governments do this? The answer is obvious: city dwellers riot; in the countryside, people just starve. The best way to deal with the problem is to subsidize food for the poor; we should not cut the price we pay farmers for growing it. ...

Here's the reason I asked. This is Africa, not India, but I don't suppose the story is any different:

Food Relief For Africa 'Insufficient,' GAO Says, by Anthony Faiola, Washington Post: Efforts by the United States and multilateral agencies including the World Bank to reduce hunger in sub-Saharan Africa have been "insufficient," with foreign aid to the region failing to flow into agricultural development projects vital to the ability of poor countries to feed themselves, according to a report to be released this morning by the U.S. Government Accountability Office. ...

The report, a draft copy of which was obtained by The Washington Post, additionally describes U.S. aid efforts in sub-Saharan Africa as fragmented and misdirected. It says, for instance, that a Bush administration initiative to "end hunger in Africa" launched in 2002 effectively amounted to a repackaging of existing programs and came with no new funding. ...

The report comes on the heels of another released by the GAO last year sharply criticizing U.S. food aid programs. That report called them "inherently inefficient" because they rely on the sale of American-grown food that is costly to transport overseas, as opposed to food purchased closer to the troubled regions themselves. ...

Alex Tabarrok: "Reason to be Highly Optimistic about the Future"

Don't worry, things are going to turn out great:

Dismal Science Sees Upbeat Future, Alexander Tabarrok, Forbes: Forget the talk of recession. The world is about to enter a new era in which miracle drugs will conquer cancer and other killer diseases and technological and scientific advances will trigger unprecedented economic growth and global prosperity.

Pie in the sky optimism? Perhaps. But there are reasons to be optimistic, and they rest ... within the badly misnamed "dismal science," economics.

To understand why economics triggers such optimism, imagine that there are two deadly diseases. One disease is relatively rare, the other common. ... If you don't want to die, it's much better to have the common disease. ... The cost of developing drugs for rare and common diseases are about the same, but the revenues aren't ... larger markets mean more profits.

As a result, there are more drugs to treat diseases with a lot of patients than to treat rare diseases, and more drugs means greater life expectancy. Patients diagnosed with rare diseases ... are 45% more likely to die before age 55 than are patients diagnosed with more common diseases. So imagine this: If China and India were as wealthy as the U.S., the market for cancer drugs would be eight times larger than it is today. ...

Like pharmaceuticals, new computer chips, software and chemicals also require large research and development (R&D) expenditures. As India, China and other countries become wealthier, companies will increase their worldwide R&D investments. Most importantly, as markets expand, companies and countries will put to work the greatest asset of all for the betterment of mankind: brain power.

Amazingly, there are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. ... But if the world as a whole were as wealthy as the U.S..., there would be more than five times as many scientists and engineers worldwide.

People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else. New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. ...

In the 20th century, two world wars diverted the energy of two generations from production to destruction. ... Communism isolated much of the world, reducing trade in goods and ideas--to everyone's detriment. World poverty meant that the U.S. and a few other countries shouldered the burdens of advancing knowledge nearly alone.

The battles of the 20th century were not fought in vain. Trade, development and the free flow of people and ideas are uniting all of humanity, maximizing the incentives and the means to produce new ideas. This gives us reason to be highly optimistic about the future.

Why Does India Lag Behind China?

Arvind Panagariya of Columbia University with "a discussion of how India could speed its transition to a modern economy":

What India must do to modernise, by Arvind Panagariya, Vox EU: A key advantage claimed for the outward-oriented development strategy is that it allows poor, labour-abundant countries to specialise in labour-intensive products and, thus make efficient use of limited capital stocks. To quote Anne O. Kruger (1985), “An export-oriented strategy permits countries to use the international market to exchange their own, relatively labour-intensive commodities for capital-intensive goods. They are thus able to take advantage of the division of labour and specialisation. This ability contrasts sharply with import-substitution policies under which labour-abundant developing countries produce the entire spectrum of manufacturing goods and experience high and rising capital/labour ratios.”

The experiences of South Korea, Taiwan, Brazil and most recently China offer broad support to this claim. Increasing shares of industry in GDP in general and of labour-intensive manufactures in particular accompanied the adoption of outward-oriented strategies in these countries. Exports of unskilled-labour-intensive products such as apparel, footwear, toys and numerous light manufactures expanded rapidly.

"The 'Browning' of African Technology"

G. Pascal Zachary says we are falling behind in Africa:

The “Browning” of African technology, by G. Pascal Zachary: A number of newspapers in Asia are carrying an essay I wrote recently for Project Syndicate..., which argues that many critical needs in Africa are being met and will be met going forward by Indians and Chinese. ...

Maybe Africa is no longer a “white man’s burden,” not because we have been persuaded by NYU professor William Easterley to abandon the continent, but rather because Chinese and Indians have supplanted (or will) Westerners in the task of “saving” Africa. The irony is delicious, and the practical implications enormous.   

While Westerners debate amongst themselves whether foreign-aid to Africa helps or hurts — a debate, I think, is increasingly irrelevant — Indians and Chinese are pragmatically (if not always effectively) engaging Africa. ...

The essay is here.

Should India Liberalize its Capital Account?

Eswar Prasad of Cornell says it's time to liberalize India's capital account:

Cracking Open India's Capital Account, by Eswar S. Prasad, Commentary, WSJ: Capital account liberalization is back on the table in India. ... [A] government committee ... has ratcheted up the debate this year by arguing that to give Mumbai a fighting chance of becoming an international financial center, the capital account must be fully opened by the end of 2008.

Would India be putting the cart before the horse by plunging headlong into capital account liberalization? The financial system is still underdeveloped, the fiscal deficit remains high ... and the exchange rate is still managed... Under such circumstances, when the economy is not equipped to handle a gusher of capital flowing in or out, unbridled capital account opening in some emerging market economies has ended in tears.

Despite the risks, capital account liberalization could indeed prove to be a boon for India, but for a completely different set of reasons than the traditional ones...

The traditional view is that opening up to inflows allows capital-poor developing countries to import capital, increase domestic investment and grow faster. The problem for ... this view is that economists ... have found it difficult to detect the direct growth-enhancing benefits of foreign capital.

But a new paradigm has recently emerged in the academic literature... The real benefits of financial globalization to an emerging market economy ...[come from] the indirect "collateral" benefits associated with such capital... These indirect benefits may be crucial for India's development.

One of the key benefits is that openness to foreign capital catalyzes financial market development. Foreign investment in the financial sector tends to enhance competition, raise efficiency, improve corporate governance standards and stimulate the development of new financial products. ...

Liberalizing outflows has the salutary effect of giving domestic investors an opportunity to diversify their portfolios internationally. This means greater competition for domestic financial institutions...

Other indirect benefits associated with foreign capital include transfers of expertise -- technological and managerial -- from more advanced economies. When supported by liberal trade policies, foreign investment can help boost export growth. Foreign-invested firms also tend to have spillover effects in generating efficiency gains among domestic firms.

Notwithstanding these potential benefits, there is strident opposition in India to capital account opening. Some of it is based just on ideological opposition to foreign involvement in the economy. Dig deeper, though, and it turns out that much of the opposition comes from entrenched interests that view foreign-financed competition as an unwelcome intrusion that erodes the protection and privileges they have enjoyed... Indeed, a "shock" like capital account opening is just the tonic to shake up the system...

So why the rush towards a fully open capital account? What is so special about the end-of-2008 date...? In short, nothing. But deadlines do have a way of focusing the mind. ... It would give less room for reactionary forces to coalesce and block the reforms. ...

For an emerging market economy, the process of opening the capital account comes down to a delicate balance between the benefits it affords and the risks of disruptions to growth if things go wrong. For the Indian economy, which has made great strides in recent years, ... the risks are now smaller and well worth taking...

Update: Dani Rodrik offers a different perspective.

 

Banning Child Labor in India

The problem of poverty induced child labor in India:

India's latest move to stop child labor, by Anuj Chopra, Christian Science Monitor: On a rainy night, ... Raju is busy at work. This timid 10-year-old works 12-hour days serving customers and scrubbing mountains of utensils... After a full day, he often pockets less than a dollar. If there's food left over, he gets a meal. If not, he goes home on an empty stomach.

Concerned about the future of children like Raju, India Tuesday begins implementing a country-wide ban on children below 14 working as domestic help or in the hospitality sector. And punishment for those who choose to defy it is stringent: imprisonment for up to two years and a fine as high as $430.

Children in India are already banned from working in factories, mines, and other perilous jobs. India's Child Labor Act, first passed in 1986, will now carry two more in a list of 57 professions deemed "hazardous" for children.

Child rights activists in India say it's an important step in the battle to stop child labor. But some worry that the government is still not doing enough to provide alternative options for families that depend on income from their children. And many are skeptical about how effective enforcement of the ban will be.

"It is important to remember that the problem won't disappear by just introducing a ban," says Shireen Miller, head of policy at the India branch of the US-based Save the Children organization. "Legislation is a start," she says pointing out that previous legislation hasn't been stringently enforced.

"Now there's a clear signal that [no one] can get away with employing and exploiting children as workers," says Shantha Sinha, an anti-child labor activist who in 2003 won the prestigious Ramon Magsaysay Award. Ms. Sinha recalls how all 34 cases of domestic child labor that she took up last year ... couldn't stand up in court. All of the accused wriggled out of blame, she says, as employing children as domestic help wasn't then prohibited by law. She hopes this ban will reverse such tendencies.

India has the largest number of child laborers on the planet. ... According to the New Delhi-based, National Sample Survey Organisation, nearly 16.4 million Indian children aged 5-14 years are engaged in economic activities and domestic or non-remunerative work. The World Bank puts that figure at 44 million. ...

Ingrid Srinath, the CEO of Child Rights and You (CRY), a New Delhi based NGO, calls the ban notification "insular" and is skeptical that it will do much good in its current form. The ban, he says, does little to address the reasons that compel children to work: backbreaking poverty, family debts, marginalization, and migration of their parents.

A recent study conducted by the International Labour Organization found that "children's work was considered essential to maintaining the economic level of households, either in the form of work for wages, of help in household enterprises, or of household chores in order to free adult household members for economic activity elsewhere."

Raju's father, a daily wage laborer, frets that the ban will only exacerbate his family's financial woes. "At least now, he doesn't steal. He earns his meals with dignity," he says. "If the ban is enforced, he might be forced to beg for alms, or the family might go hungry."

India's Ministry of Labor and Employment hasn't yet spelled out any coherent rehabilitation and education plan for children who they lose their jobs. The Ministry assures that a blueprint to ensure self-sufficiency for the kids will emerge soon.

Activists also say that the ban won't work unless mindsets change. Children are widely employed in the homes of India's affluent and middle classes.

Raju's employer, a coarse, burly man who calls himself Pappu, employs two other kids, 12 and 14. Pappu intends to retain his young employees despite the ban. And if cops pester him, he unabashedly says, he'll do what many Indians often do to give the law a slip - offer a bribe.

He says he doesn't see anything wrong in employing the children. "I give the best I can offer," he says. "I do take care of them. I give them food. The kids won't survive if they don't work."

This notion of benevolence often masks the exploitation and the long-term harm for children, says Ms. Sinha. "Just because children are given food or money doesn't mean that they're benefiting," she says. "They're cheap and work long hours without any question. That's exploitation. The ban now gives weight when we say: 'That's wrong!' "

I believe that, to the extent that there has been a reduction in child labor, international trade has helped to force the changes that brought it about. Of course we shouldn't overlook child labor for the economic benefits it might bring us. But if improvement is fueled by the demand for change as a condition of trade, then closing the doors to trade is not the solution. As much as we'd like to say "stop this before we trade at all," the reality is that economic conditions don't allow the change, at least not easily, and trade coupled with the insistence on steady improvement is a means to overcome this constraint.

"Comparative Advantage, Comparative Advantage, Wherefore Art Thou, Oh Comparative Advantage?"

An email suggested looking at this paper by Richard Freeman on globalization and trends in U.S. and worldwide labor markets. It was a good suggestion. This is longer than usual even though I cut quite a bit, but well worth the time it takes to read it:

Labor Market Imbalances: Shortages, or Surpluses, or Fish Stories?, by Richard B. Freeman, Boston Federal Reserve Economic Conference: There are two competing narratives about the how the labor market in the US will develop over the next decade or two.

The Impending Shortage narrative, which has attracted attention from business and policy groups, is that the retirement of baby boomers will create a great labor shortage. Slower growth of new entrants from colleges and universities, an increased proportion of young workers from minority groups, and inadequate training in science and math will produce a shortage of the skills the country needs to maintain itself as the leading economy in the world. The message to policy makers is to forget about the sluggish real wage growth of the past three decades, the deterioration in pensions and employer provided health care, and fears of job loss from off shoring or low wage imports. Instead policy should focus on helping business find workers in the coming shortage.

Shortage claims have focused on science and engineering. Many leaders of the scientific establishment and high tech firms have complained that the US faces a shortfall of scientists and engineers and have asked for governmental policies to address this problem. ... The heads of Intel, Microsoft, and other high tech firms have spoken out on this issue as well. ...

But the shortage claim goes beyond science and engineering. Demographic projections of the US labor supply that show a sharp reduction in the growth of the work force through 2050 (see table 1) have aroused concern in the business and policy community. Reporting the consensus from the Aspen Institute’s Domestic Strategy Group, David Ellwood stated that: "CEOs, labor leaders, community leaders, all came to the unanimous conclusion that we will have a worker gap that is a very serious one.“ ... A 2003 Fortune Magazine headline declared “Believe It or Not, a Labor Shortage Is Coming” for virtually all workers (Fisher, 2003).

Believers in the impending shortage story generally favor increased immigration, particularly of highly skilled workers through H1B and other visas; increased spending on education and technological innovation; and guest worker programs to keep a sizable flow of less skilled but legal immigrants coming to the country. They regard many of these immigrants as complements rather than substitutes for US workers. They also advocate greater education and training of US citizens, particularly of disadvantaged minorities.

The Globalization Surplus narrative, which has attracted attention as part of discussions of the current mode of globalization, takes the opposite tack. It holds that the spread of global capitalism around the world, particularly to China and India, has generated a labor surplus that threatens wages in advanced and higher wage developing countries. Trade, off-shoring, global sourcing of jobs, and flows of capital to the low wage giants combine to reduce the demand for workers in manufacturing and tradable services in advanced countries and in moderate income developing countries.

At first, the advent of huge numbers of workers from India and China into the global capitalist system seemed to offer a boon to most workers in advanced countries. The labor force is less skilled in the global giants than in the advanced economies. According to the Heckscher-Ohlin model, skilled workers in the advanced countries would benefit from the new trading opportunities while only the relatively small number of unskilled workers would lose. If all workers in the North were sufficiently educated, they would avoid competing with low paid labor overseas and benefit from the low priced products produced there. Competition from low wage workers in China and India might create problems for apparel workers in Central and Latin America or for South Africa, but not for ... the advanced North. Similarly, the “North-South” trade model that analyzes how technology affects trade between advanced and developing countries implied that trade would benefit workers in the North, who had exclusive access to the most modern technology. More low wage workers in the developing world would lead to greater production of the goods in which the South specialized, driving down their prices.

Tell it to Lou Dobbs! The off shoring of computer jobs, the US’s trade deficits even in high technology sectors, and the global sourcing strategies of major firms have challenged this sanguine view. The advent of China, India, and the ex-Soviet Union shifted the global capital-labor ratio massively against workers. Expansion of higher education in developing countries has increased the supply of highly educated workers and allowed the emerging giants to compete with the advanced countries even in the leading edge sectors that the North-South model assigned to the North as its birthright.

Which narrative better fits the labor market? ... In this paper I assess the two competing visions and the demographic and economic projections on which they are based. I reject the notion that the retirement of baby boomers and slow growth of the US work force will create a future labor shortage in favor of the argument that the increased supplies of skilled labor in low-wage countries will squeeze highly skilled as well as less skilled US workers. I examine the problem of attracting native US talent in science and engineering in the face of increasing supplies of highly qualified students and workers from lower wage countries. Going beyond the US, I argue that the expansion of global capitalism to China, India, and the former Soviet bloc has initiated a critical transition period for workers around the world. Pressures of low wage competition from the new giants will battle with the growth of world productivity and the lower prices from those countries to determine the well being of workers in higher income economies as the low-income countries catch up with the advanced countries. While US wages will not be “set in Beijing” how workers fare in China and India and other rapidly developing low wage countries will become critical to the position of labor worldwide.

Valuing Women in India

What happens when the value of a woman in society is determined such that "she can raise her value by becoming the mother of sons"? In Indian Punjab, "There are districts in the state where only one girl child has been born in the past six months":

Meanwhile: India's women battle the 'bad luck' label, by Manreet Sodhi Someshwar, International Herald Tribune: Growing up in my hometown in Indian Punjab, I often heard people remarking to my father, "You are very fortunate." It seemed a reasonable statement: In the hothouse of the Indian middle class, ... were we five siblings, each intent on surpassing the excellent scholarship of the others.

How much better could it get for my parents? ... It was only later, when I moved out of Punjab to study engineering, that I began to comprehend, little by little, the nature of my father's "fortune." In a land where people do away with newborn girls, my father had four daughters. "Kuree maar" (daughter- killer) is a common pejorative in Punjab, yet my father was not only raising four girls, but also educating them and sending them to professional colleges. To add to the strangeness of it all, the girls began to graduate and earn handsome salaries. ...

When their child reaches marriagable age, parents who have sired a son (often with considerable help from a sex-determination test) can command a Honda car, a house, a flat- screen television, cash, even foreign trips - all in the name of the dowry that the hapless parents of the bride are obliged to provide. In a patriarchal society like Punjab, women are defined by matrimony. Before marriage, a Indian woman is a cipher. Marriage simply confers the decimal point. Thereafter, she can raise her value by becoming the mother of sons. It is in her hands, and she understands the situation all too well.

The tools are readily available: tin- roofed clinics ... provide prenatal diagnostic testing and subsequent "medical termination of pregnancy," also known as abortion; traveling laboratories that conduct on- the-spot ultrasound tests; midwives who scour the countryside for pregnant women in need of "help." For some, it is never too late to smother a newborn girl under a sack of grain, strangle her, or bury her alive.

Punjab, India's granary and its most prosperous state, has added another claim to its record: it's the state with the worst child sex ratio: 776 girls for every 1,000 boys. There are districts in the state where only one girl child has been born in the past six months.

This is giving rise to a whole new breed of women, known as Draupadis. In the great Indian epic, the Mahabharata, Draupadi was married to five Pandava brothers, and played a central role in the story. But she is no heroine, no role model; the regard Indians hold for her is apparent in the fact that seldom is a girl named after her. ...[I]n the upside- down world that India's women inhabit, ... fraternal polyandry is flourishing, institutionalizing violence against women: one woman is forced to marry her husband's brothers, and is expected to produce sons for each of them.

My father managed to astound his community with his counterintuitive act: In a culture that regards the birth of a girl as bad luck, he decided that his daughters would be in charge of their destinies. He empowered us. ...

Laws exist in India to safeguard women's rights: polyandry, seeking dowry and sex selection all are prohibited. These laws, however, need to be publicized and enforced so that women know a legal recourse exists for them and that when facing a bully, the first step might just be to stand up for their rights.

In one recent instance, a new bride was daily nagged by her mother-in-law for more dowry. One day she wrenched open a can of kerosene, splashed it on herself and declared she was proceeding to the nearest police station to complain that her in-laws' were threatening to set her on fire. The burning of brides after dowry disputes has forced the police to sit up. The mother-in-law, chastened, stopped her nagging. ...

Creative Construction

The stereotype is that American students aren't very well-trained technically and thus do poorly when tested in areas such as math and science, but their intuitive skills are fairly well developed. Foreign students are just the opposite according to this view, excellent technically, but less able to express the intuitive reasoning behind the mathematics or the science and less able to use intuitive skills to combine ideas creatively. The difference is generally attributed to a difference in emphasis in education with foreign students far more devoted to rote learning than their American counterparts. While this gives Americans a disadvantage in engineering, computer programming, and so on, they are much more likely to come up with innovative new ideas. Or so the story goes. Is this is really true? India and China believe it and are wondering how to change their educational systems to encourage more creativity:

Worried About India's and China's Booms? So Are They, by Thomas L. Friedman, Commentary, NY Times: The more I ... travel, the more I find that the most heated debates in many countries are around education. ... every country thinks it's behind. ... America agonizes that its ... public schools badly need improvement in math and science. I was just in Mumbai attending the annual meeting of India's high-tech association, ... where many speakers worried aloud that Indian education wasn't nurturing enough "innovators."

Both India and China, which have mastered rote learning and have everyone else terrified about their growing armies of engineers, are wondering if too much math and science — unleavened by art, literature, music and humanities — aren't making Indira and Zhou dull kids and not good innovators. Very few global products have been spawned by India or China.

"We have ... everyone going into engineering and M.B.A.'s," said Jerry Rao, chief executive of ... one of the top Indian outsourcing companies. "If we don't have enough people with the humanities, we will lose the [next generation of] V. S. Naipauls and Amartya Sens," he added, referring to the Indian author and the Indian economist, both Nobel laureates. ...

Innovation is often a synthesis of art and science, and the best innovators often combine the two. The Apple co-founder Steve Jobs ... recalled how he dropped out of college but stuck around campus and took a calligraphy course, where he learned about the artistry of great typography. "None of this had even a hope of any practical application in my life," he recalled. "But 10 years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography." ...

Capital will now flow faster than ever to tap the most productive talent wherever it is located ... Hence the concern I found in India that it must move quickly from business process outsourcing ... into knowledge process outsourcing  ... coming up with more original designs and products.

"We need to encourage more incubation of ideas ... to make innovation a national initiative," said Azim Premji, the chairman of ... one of India's premier technology companies. "Are we as Indians creative? Going by our rich cultural heritage, we have no doubt some of the greatest art and literature. We need to bring the same spirit into our economic and business arena."

But to make that leap, Indian entrepreneurs say, will require a big change in the rigid, never-challenge-the-teacher Indian education system. "If we do not allow our students to ask why, but just keep on telling them how, then we are only going to get the transactional type of outsourcing..." said Nirmala Sankaran C.E.O. of ... an Indian-based education company. "We have a creative problem in this country."...

Nuclear Hypocrisy

From Paul Krugman's Money Talks, this is in response to his statement in his Feeling No Pain column that "President Bush's main purpose in visiting India seems to have been to promote nuclear proliferation":

Paul Krugman's Money Talks: Swapan Sanjanwala, Cincinnati, Ohio: I am an Indian and your great admirer. Everything you say on outsourcing is correct. But you statement on nuclear proliferation is incorrect. There are facts on nuclear proliferation that rarely get highlighted in the American media or by the non-proliferation hawks here. After all, Indian security is the last of their concerns. But without understanding that, they are not going to solve any problems. For once, Bush is right here.

Indians are generally amazed at the hypocrisy of being lectured by a country which has an arsenal large enough to destroy the world many times over asking us not to maintain a very minimal arsenal to address our security needs. India is in a very dangerous neighborhood. Around 20 Chinese missiles are pointed at India. China claims many Indian states as its own territory — but those states border Tibet, not China. As if this were not enough, China has blatantly sent nuclear weapons and missiles to Pakistan — a fact corroborated by intelligence leaks from American agencies. I am amazed that these facts find hardly any mention in the American media. Given this, it is blatantly unfair to ask India, a democracy, to roll back its nuclear program while allowing China, an authoritarian regime, to maintain its weapons. Any solution that neglects these facts is not going to succeed. No government in India will rightly accept that.

There are other things I can point to. India has voluntarily placed a moratorium on testing nuclear weapons. China has not. And for that matter, the U.S. has not. The Pentagon worries that Chinese missiles might reach U.S. cities in 10 years, whereas all Indian cities can be targeted by the Chinese missiles in China as well as the ones they supplied to Pakistan.

And India is strongly committed to global nuclear disarmament, but not in the form of the current non-proliferation agreement, which gives unlimited rights to some countries and comprises the legitimate security concerns of a country like India. When testing nuclear weapons, India did not break any international treaty or rules. Both North Korea and Iran are signed, but both are still trying to develop nuclear weapons. It is simply ridiculous to compare rogue regimes with a country like India. If people are really concerned about preventing proliferation, the only real way is to work for global nuclear disarmament.

The current deal allows an authoritarian regime like China unlimited access to nuclear technology and weapons, while placing all kinds of restrictions on a peaceful democracy of a billion people for choosing to address their legitimate security needs by maintaining a small nuclear deterrent.

The Indian Whiskey War

I wouldn't have guessed that India drinks 40% more whiskey than the U.S.:

Battle for the world's largest whisky market -- India, by Paul Peachey, Mail&Guardian Online: Sipping a tumbler of Johnnie Walker whisky ..., Kunal Doshi, a smartly-dressed young solicitor, appears an unlikely warrior. But in the increasingly bitter "whisky war" being fought between the Indian industry and traditional Scottish producers, Doshi, 21, has become an unknowing frontline soldier in a foreign assault on the world's largest whisky market.

"If it's really good whisky, maybe I'd spend 500 rupees ($11)," Doshi says. "I know I'm going to be making the money soon so what am I going to do with it? I might as well have a good time," he says. "Young Indians have a lot of money now. Your call centre employee, your financial analyst, thanks to foreign companies, are on 30 000 rupees a month, so what are they going to spend it on? It's going to be on foreign alcohol."

The Indians are prodigious whisky drinkers, downing 570-million litres in 2004, 40% more than the second largest consumers the United States, and the total is set to grow... Major drinks companies including the Edrington Group, Moet Hennessy and Diageo are jockeying for position ... However they are currently being priced out of the market because of tariffs of up to 525% ... leaving Indian producers with a tight grip on the mass market.

The powerful Scotch industry is running a two-pronged strategy: targeting the increasingly wealthy urban professional with a sales pitch for its "sophisticated" drinks and lobbying the government for tax cuts. ... Analysts say the trend for taxes is downwards ... but they need to come down sharply for young professionals like Doshi to make a major impact on sales.

Feuding between the two industries is partly based on differences in manufacture and distilling culture. When is a whisky not a whisky? When it's made with sugar cane molasses, say the Scots, sparking rage from the leaders of the thriving 160-year-old Indian industry. The Indian product cannot be sold in Europe as "whisky" although talks are continuing for it to be sold as "molasses whisky" or "Indian whisky"...

Indian "molasses" whisky has about 90% of the Indian market and the domestic industry is fighting a fierce rearguard to ensure that it does not lose its dominant position. It is also much cheaper at 200 rupees for a bottle of entry-level Indian whisky compared to some 3 000 rupees for a bottle of single malt Scotch whisky such as Glenfiddich. ...

The Scottish industry claims it is produces a superior product from malted barley -- a claim disputed by the Indians. ... In the hotel bar, Doshi agrees, the only member of his group of eight drinking Scotch. But for most of his friends the key factor is price. "We have a fixed amount of money and there's a huge amount of tax on foreign liquor. For most people, it just makes much more sense to drink Indian liquor -- unless you're with your parents and you can order whatever you like."

Rogoff: The Indian Tortoise and the Chinese Hare

India everywhere? Not without roads, bridges, and better health and education programs. Here's Kenneth Rogoff of Harvard University, formerly the chief economist at the IMF:

The Indian Tortoise and the Chinese Hare, by Kenneth Rogoff, Project Syndicate: “India everywhere” was the theme at this year’s World Economic Forum. ... The India media blitz was a huge success. In Davos, speaker after speaker touted the idea that even if China is ahead now, over the longer run, the race between Asia’s two giants is a toss-up. ... But what is the reality in the race between economies with more than a billion people each?

On the surface, China has opened up quite a lead on India. Twenty-five years ago, at the start of the contemporary wave of globalization, national output in India and China was about the same. Now, by any measure, China is more than twice as rich. ... [T]he real difference – whether we like to admit it or not – is that China’s communist government has succeeded in globalizing a much larger share of its population than India’s democratic government has managed to do.

Not that China is exactly egalitarian. It is only along the coast, home to roughly one in three Chinese citizens, that most people can be said to have really joined the twenty-first century. Much of rural China is still miserable... But caste-bound India’s record of exclusion is worse. Perhaps only one in five persons are integrated into the global economy. ... Whereas China probably has about 450 million people in its globalized economy, India has at most 200-250 million. It is this difference, more than anything else, that sets the two economies apart.

What can India do to close the gap? Its biggest shortcoming is its lack of roads, bridges, ports, and other infrastructure, where the contrast with China is just stunning. If your products can’t get to the global economy, you cannot conquer it. Over the past five years, China has multiplied its highway system five-fold. ... It is not just a matter of money – India’s central bank is rolling in cash, which it has mainly invested in low-yield foreign treasury bills.

The real problem is that China’s authoritarian system faces little opposition when it decides to bulldoze a shantytown that stands in the way of a new airport. India’s government, by contrast, has neither the power nor the inclination to trample over poor people to make rich people richer. Unfortunately, without infrastructure, the ... majority of India’s citizens will remain frozen out of globalization.

So, is the idea that India’s economy could overtake China’s hopeless romanticism? Not necessarily, if only because the areas where India excels, notably services, have far higher potential margins than manufacturing. Here, the Chinese, hampered by a vastly inferior legal system, will not be able to compete easily. Western companies are far more inclined to trust Indian firms with sensitive financial information or patents than they are in the case of China. Foreign companies know that if they outsource any high-tech process to China, they might as well publish their blueprints on the Internet.

India also has a much better developed financial system than China, an advantage that will be increasingly important ... Command and control financing ... works well when it comes to building bridges; it is a lot less effective when it comes to choosing what companies deserve to survive. ... If India is to ever catch up with China, it must globalize more of its citizens, through better provision of health, education and infrastructure. Only then will we truly start seeing “India everywhere.”

Feldstein on Economic Growth in India

Martin Feldstein discusses India's prospects for future economic growth. His solution to attaining robust growth is no surprise - get government out of the way and let markets function freely:

There's More to Growth than China, by Martin Feldstein, Wall Street Journal: ...India ... is making remarkable economic progress despite enormous structural problems. That progress will, however, be far less visible than it is in China. In India [you] will not see the ... general level of prosperity that [is] seen in urban China. But the progress in India is nevertheless real. ...

India is handicapped by a socialist past, enormously powerful labor unions, and influential entrenched business interests. The tradition of state ownership that goes back to Nehru and Indira Gandhi is hard to reverse in a country where trade unions dominate employment in the public sector and in private industry. ...

The current government is headed by Dr. Monmohan Singh, the reform-minded economist who started India's economic reforms in 1991, when he was finance minister. There should be no doubt about his commitment to reform... But the political constraints mean that the reforms are less than they should be. ...

There has been a wide range of significant macroeconomic reforms. Sound monetary policy by the central bank has reduced inflation to less than 5% ... A floating exchange rate and the accumulation of ... foreign exchange reserves reduce the risk of the kind of currency crisis that hit Asia ... A complex system of state and federal taxes ... is being replaced by a unified national VAT. The budget deficit, although still too high, has been reduced ... India's gross national saving rate is a relatively robust 32% of GDP.

The government's microeconomic policies have been less successful than its macroeconomic reforms. Energy remains a major weakness, with too little building of electricity generating capacity and a distribution system that wastes much ... The results are electricity shortages, brownouts and the ubiquitous small generators in shops and homes because the state electricity supply is so unreliable.

In contrast, telecommunications is working well because of widespread use of privately supplied cellphones... It is ironic that cellphone service is widely available at low cost because it was regarded as a luxury and therefore left to the market, while electricity is hard to obtain because it has been regarded as a necessity and therefore managed by the government. Transportation is beginning to improve. A new "open skies" agreement with Washington allows U.S. airlines to fly to any city in India ... Road travel is still difficult in India but a national network of divided highways ... is cutting time for ... traffic among major cities. ...

The system of primary and secondary public education is a terrible failure, especially for girls and low-income and rural households, with a resulting high level of illiteracy. In contrast, elite institutions of higher education produce world-class graduates among those who have been able to buy quality secondary school education. ... Despite this, high-tech industries are growing rapidly because of the combination of wages that are low even by Chinese standards, an absolutely large educated labor force and widespread knowledge of English. Information technology is only the most visible of these. ...

But industrial activity in general, particularly employment-intensive manufacturing, is much less developed than in China. Industrial development is hampered by labor market rules ... and by the continued government ownership in a wide range of industries. ... The ... establishment of new firms is also hampered by the weakness of the banking system. The commercial banks are still largely state-owned... They devote much of their lending to the purchase of government bonds. Although new private banks are expanding, there is political resistance to selling the state banks or allowing foreign banks to enter the Indian market ...

A few years ago, whenever I spoke to Indian officials about China's economic performance I was likely to hear that such comparisons were irrelevant because China was a dictatorship and India a democracy. I no longer hear that excuse. It is now common for officials to ... look at Chinese experience for guidance on what might be done in India.

The optimistic mood in India's business community, the desire for reforms by the top leadership of the government, and the growing number of relatively middle-class households provide a force for change and a source of support for new entrepreneurial activities. If the political leaders can now persuade the traditional opponents of reform that growth can benefit their constituents and that better new jobs will replace the old, India will see decades of remarkable achievement.

Will India Grow Faster than China?

Martin Wolf lists the barriers India must overcome to surpass China's rate of economic growth:

What India must do to outpace China, by Martin Wolf, Commentary, Financial Times: The “India Everywhere” campaign ... took this year’s ... World Economic Forum, in Davos, by storm. ... Indians were indeed everywhere, while the Chinese were relatively invisible. Since Indian economic growth is now forecast at 8.1 per cent this fiscal year ..., confidence is running high. Yet ... It is far from certain that India’s growth rate is now durably and decisively above the average of the past quarter of a century. It is equally far from certain that India will do better than China in exploiting its potential. Much reform is still needed...

Why ... might a reasonable analyst anticipate a surge in India? There are three broad reasons: first, Indian demography is relatively favourable; second, India has better institutions than China; third, India has more room to improve its policies and investment performance. These points have force. But they also describe potential, not performance...

Unfortunately, India has done a particularly poor job of absorbing its labour force into productive employment. ... Crippled by restrictive labour regulation, employment in organised manufacturing has remained stagnant ... The much-vaunted information technology sector employs just 1m – a drop in the Indian Ocean. Unused labour is not an advantage, but a terrible burden.

It is true ... that India has a number of institutional advantages over China: a well-developed private sector; a relatively entrenched legal system; a stable democracy; and freedom of speech. ... But... on regulatory quality and government effectiveness... there can be little doubt: China’s ability to mobilise resources remains far greater than India’s, as demonstrated in its vastly superior performance in provision of infrastructure.

This brings us to the third reason – the potential for policy improvement. India has a large opportunity to raise the investment rate, which remains well below Chinese levels... The difference in investment rates is the proximate cause of the difference in growth rates between the two economies.

Behind the huge gap in investment are significant and enduring Indian policy failures. Huge fiscal deficits are one example. Still more important have been the deep-seated obstacles ... to rapid expansion of labour-intensive production. That, in turn, helps explain the biggest discrepancy between Chinese and Indian growth: Chinese manufacturing grew at close to 12 per cent a year between 1990 and 2003, while India’s grew at just 6.5 per cent, well below the 7.9 per cent achieved by India’s services.

This pattern, suggests an illuminating working paper from staff of the International Monetary Fund, is connected to a long-standing bias towards a skill-intensive pattern of economic development. Up to 1980 this bias generated a relatively small, and skill-intensive, manufacturing sector. Since then it has generated an exceptionally large, but also skill-intensive services sector. ... Both of these patterns were biased against mass employment ... This must change if India is to thrive.

The improved performance of the Indian economy in the last quarter century is both a fact and an achievement. Yet it could be better still. ... change must occur in five pivotal areas: deregulation of labour markets and an end to the reservation of production to the small-scale sector; revitalisation of agricultural growth; increased investment in infrastructure; elimination of fiscal deficits in the current budget; and, finally, across-the-board privatisation and further trade liberalisation...

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.

'When a Muslim Paints Nude Hindu Gods'

This is a commentary from the Asia Times on India's battle with extremism:

When a Muslim paints nude Hindu gods, by Siddharth Srivastava, Commentary, Asia Times: New Delhi - Fortunately, there have not been virulent protests in India against the publication of cartoons of the Prophet Mohammed, though close to 150 million Muslims reside in the country. However, attention is being drawn to Hindu fundamentalists taking umbrage at India's top artist, M F Husain, who has been booked by police for "hurting sentiments of people" with paintings that depict nude gods. ...

He is not new to controversy and has invited the ire of right-wing sections in the past because of his naked and provocative paintings of various Hindu deities ... The fact Husain is a Muslim who chooses to depict Hindu gods the way he wants has always angered Hindu extremists. This time the fury is over a painting that depicts Bharatmata ("Mother India") in the nude. ... The opposition Bharatiya Janata Party (BJP), which subscribes to Hindu majority rule, has severely criticized Husain, with party general secretary Vinay Katiyar demanding the arrest of the painter. Extremist Hindu organizations have been more aggressive. ...

A case has been registered against Husain ... by radical Hindu organizations ...for hurting sentiments of people. ... The deputy chief minister of Maharashtra state, R R Patil, has said state police are conducting a probe into the allegations. ... Husain, meanwhile, has apologized... At one level such intolerance to free expression is a reflection of the way India is - a multi-layered and cultural cauldron of classes, castes and religion, liberal and conservative opinions. It is also a sad commentary that radical and extremist elements hold people to ransom whenever they wish, a wasted vengeance that is often buttressed by politicians to fulfill their own narrow gains. ...

Fundamentalist Hindus ... have attacked movie halls that screen controversial films and art galleries ..., as well as protested India-Pakistan cricket matches, couples holding hands, women wearing jeans and celebrations linked to Western influences such as Valentine's Day. And all in the name of cleansing society for a higher social value system. Last year, Sikhs protested against the Bollywood film, Jo Bole So Nihaal, starring top actor Sunny Deol. What followed were bomb blasts, believed by the police to be the handiwork of Sikh extremists, at movie halls in New Delhi that killed and crippled many. ...

Emboldened, Muslim clerics continue to issue irrational diktats. They include the instance of the alleged rape of a Muslim woman, Imrana, by her father-in-law. The clerics declared that Imrana should treat her husband as a son and move in with her alleged rapist. ... India's tennis sensation Sania Mirza has been a victim. While Mirza is a national icon because of her tennis victories, fatwas (edicts) that she "covers up" have continued to fly... They want her, as a devout Muslim, to wear long pants and full-sleeved shirts, the way it is with sportswomen of Muslim countries such as Iran or Pakistan.

Issues related to sex, too, invite as much attention as religion. Recently, Khusboo, rated among the top actresses in southern India ... said in a magazine interview that premarital sex was okay provided it was safe, consensual and between adults. The brouhaha included statewide protests, rallies, burning and beating of her effigies with chappals (slippers) as well as court cases. Local politicians keen to play the caste card because of upcoming elections in the state fanned the fire. ...

In another instance, an Israeli couple who kissed after marrying according to Hindu rituals ... were in for shock and harassment after priests filed a complaint with the police that they defied Hindu religious norms by doing so. There are reports of more foreign couples being victimized by priests at Pushkar. A hotel was forced to shut down ... after pictures appeared in the media of a couple kissing at a party in the premises. ...

"Laura and John, get ready to take on Ravi and Xiao Ping"

Chidanand Rajghatta, the Washington DC. based Foreign Editor of The Times of India: scoffs at the idea that India and China are a threat to the U.S. - so long as the children of immigrants continue to pick up the slack:

The Axis of Praxis, by  Chidanand Rajghatta, Indiaspora, The Times of India: Laura and John, get ready to take on Ravi and Xiao Ping. On three consecutive days this past week, President Bush has invoked India and China as new economic competitors to the US. ... There is already a book called Three Billion New Capitalists: The Great Shift of Wealth and Power to the East by Clyde Prestowitz, a Reagan administration official, which clubs the three nations whose cachet now seems to be education, just about the time Americans appear to be signing off from school.

So there we are, three billion versus 300 million. The US population is now pegged at 297,900,000. With a baby born every eight seconds, someone dying every 12 seconds and the country gaining an immigrant every 31 seconds, American population is growing by one person every 14 seconds. Which means the 300 millionth American, perhaps just conceived, is due in October this year. ... When the 200 millionth American arrived in 1967, Life magazine positioned 23 photographers to record the moment. The milestone infant was deemed to be Robert Ken Woo, the son of Chinese immigrants who went on to graduate from Harvard, became a model citizen, and lives in Atlanta now with three US born children.

My money for the 300 millionth American is on a Patel or a Sanchez. Jokes aside, the threat of China and India as economic adversaries seems overblown. By every metric — PhDs, inventions, patents, research spending, you name it — the US remains the leader by far. Statistics about the growth of China and India are bandied around ignoring the low base they start from. For instance, someone breathlessly reported that the numbers of patents filed in the US from India is up by 2000% over the last decade. Yeah right, it went up from 70 to 1,300. Americans meanwhile file 200,000 patents annually.

Similarly, American scaremongers are crying hoarse over the number of engineers being graduated by China and India on the basis of some very dodgy numbers ... they are not even considering that the two countries contribute perhaps 100,000 engineers annually to the US pool. Come down sometime to the Bay Area or any engineering school in the US and take a look. Sure, it's true that fewer American students are taking to math and science. It's smart on the part of American leaders to blow the whistle on this. You don't remain No 1 by being complacent.

But Asians are picking up the slack, both children of new immigrants and second generation kids. You can see this in many annual school contests, my favourite being the Intel Science Talent Search. Of the 40 finalists this year, about a dozen are of Indian and Chinese origin. You can see the rise of Asian-Americans at many levels — from school competitions to college degrees to PhDs. Asians rock — academically. So as long as the US remains open to immigrant talent and nurtures its melting pot, there's little to fear. Given the growing interdependencies in the world, it's likely that India and China will be allies of the US rather than adversaries.

If not John and Laura, Usha and Li in the US will be collaborating with Ravi and Xiao Ping in Asia.

What China Can Learn from India

Yasheng Huang from the MIT Sloan School of Management says China could learn a thing or two from India about economic development. He believes India will outperform China in the next few decades unless "China embarks on bold institutional reforms":

China could learn from India’s slow and quiet rise, by Yasheng Huang, Financial Times: In an article published in 2003 called “Can India overtake China?” Tarun Khanna of Harvard Business School and I argued that India’s domestic corporate sector – strengthened by the country’s rule of law, its democratic processes and relatively healthy financial system – was a source of substantial competitive advantage over China. At that time, the notion that India might be more competitive than China was greeted with wide derision.

Two years later, India appears to have permanently broken out of its leisurely “Hindu rate of growth” ... and its performance is beginning to approach the east Asian level. ... More impressively, India is achieving this result with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. ...

Why, then, is India gaining strength? Economists and analysts have habitually derided India’s inability to attract FDI. This single-minded obsession with FDI is as strange as it is harmful. Academic studies have not produced convincing evidence that FDI is the best path to economic development compared with responsible economic policies, investment in education and sound legal and financial institutions.

An economic litmus test is not whether a country can attract a lot of FDI but whether it has a business environment that nurtures entrepreneurship, supports healthy competition and is relatively free of heavy handed political intervention. In this regard, India has done a better job than China. From India emerged a group of world-class companies... This did not happen by accident.

Although it has many flaws, India’s financial system did not discriminate against small private companies the way the Chinese financial system did. Infosys benefited from this system. ... It is unimaginable that a Chinese bank would lend to a Chinese equivalent of an Infosys. With few exceptions, the world-class manufacturing facilities for which China is famous are products of FDI, not of indigenous Chinese companies. ...

Pessimism about India has often been proved wrong. Take, for example, the view that India lacks Chinese-level infrastructure and therefore cannot compete with China. This is another “China myth” – that the country grew thanks largely to its heavy investment in infrastructure. ... China built its infrastructure after – rather than before – many years of economic growth and accumulation of financial resources. The “China miracle” happened not because it had glittering skyscrapers and modern highways but because bold economic liberalisation and institutional reforms – especially agricultural reforms in the early 1980s – created competition and nurtured private entrepreneurship.

For both China and India, there is a hidden downside in the obsession with building world-class infrastructure. As developing countries, if they invest more in infrastructure, they invest less in other things. Typically, basic education, especially in rural areas, falls victim to massive investment projects... China made a costly mistake in the 1990s: it created many world-class facilities, but badly under-invested in education. Chinese researchers reveal that a staggering percentage of rural children could not finish secondary education. India, meanwhile, has quietly but persistently improved its ­educational provisions, especially in the rural areas. For sustainable ­economic development, the quality and quantity of human capital will matter far more than those of physical capital. ...

Unless China embarks on bold institutional reforms, India may very well outperform it in the next 20 years. But, hopefully, the biggest beneficiary of the rise of India will be China itself. It will be forced to examine the imperfections of its own economic model ... China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reform that would permit more foreign investment and domestic private entry in the financial sector. The time to act is now.

Update - New Economist adds:

MIT's Yasheng Huang writes ... that China could learn from India's slow and quiet rise ... Huang's claims are, I think, exaggerated - India's poor infrastructure is a problem, and its education system has major shortcomings. Nonetheless, it is refreshing to read a piece these days that doesn't extoll the virtues of China, and which demonstrates that "pessimism about India has often been proved wrong"