Food For Thought

Is India’s Potential Over-Hyped?

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Many articles in Fortune, Forbes, Business Insider and other publications have heralded a new age for India and investors in India. It seems glory days are just around the corner. The crux of the argument is that with a young population, it is only a matter of time before India’s demographic dividend begins to pay. However, it may be worth pausing a bit and looking anew, critically, if such an eventuality will indeed come to pass.

 

Many components make up a country’s economic potential, including the intellect of its population, size of its population, natural resources, quality and strength of its institutions, etc. One key component is the willingness of its population to embrace risk and a mindset of entrepreneurship. This is a key factor, one that led to the rise of both Great Britain and USA as global powers. British ships sailed the oceans and conquered “new” worlds. Intrepid settlers braved the weather and hostile territories to conquer the West in America (to the chagrin of Native Americans, but that is another story). Without that culture of risk taking, none of that would be possible. It is that same risk taking one sees in China today. Do we see this in India?




A recent discussion in a social media outlet highlighted the steep slope India has to climb.  A topic had come up regarding which model was superior, a service model (such as the non-governmental organizations or NGO’s that proliferate in the country) or an entrepreneurial one, exemplified by the Indian version of Amazon, Flipkart. One participant derided Flipkart and Amazon as a modern version of the British East India Company (EIC) that established the British rule in India. The sub text was that big bad Western companies that would again dominate India a-la the East India Company via Flipkart.

 

That was my moment of epiphany. Maybe India is still not culturally ready for the entrepreneurial risk-taking that could propel it forward.

 

Let’s start with some basic that are incontrovertible. Change is inevitable. Scientific, cultural, political, social. Nothing stays static. As the Buddha said, nothing is permanent. Change leads to disruption. Old ways get discarded, new ways are adopted. Humans are attached to the old ways, and loss of that sense of continuity leads to unhappiness – also as the Buddha said.

 

Change is especially true in technology. In technology and economics, the same change can be beneficial or harmful. For example, the Spinning Jenny spared many children in England from the dreary childhood of working and freed them to study and play instead. It was one of the keys to the industrial revolution in UK and then the world. The same spinning Jenny was broken more than once by those who were afraid of change and that it would affect their livelihood. But the inventor persisted, and in the end bought greater rewards to those same folks who were scared since it increased their productivity. It powered Manchester to become the manufacturing capital of the world. The same principle applied to locomotives (versus horses), steam ships (versus sail ships), etc.

 

Those countries that embraced change in technology prospered. UK, France, Italy, etc. were at forefront of the industrial revolution. India (not really a country then, but a plethora of kingdoms) was rigid, ossified, and did not acknowledge, leave alone accept the technological revolution.




When the EIC came to India, they were traders who had the latest technology at their disposal. They did not come to conquer India but wanted to profit from trade. At the time, India was divided, with kingdoms fighting each other. EIC took advantage of that to further its own agenda. For example, at the Battle of Plassey, Robert Clive of the East India Company had 100 English soldiers out of a total of 3000 troops (the rest were Indians). But, EIC had the latest cannons, guns, etc. whereas Siraj UdDhaula, the Indian potentate he was fighting, had old technology though he had 50,000 men. Clive won.

 

India stayed under British for about 200 years, learning to hate capitalism. It equated what happened with EIC as a natural function of capitalism, but that was the wrong lesson. The lesson it should have leant is that it was the divisiveness within the country that led to its downfall, along with the fact that it did not embrace technological change when it should have, such as the latest guns and ships.

 

Under Mohandas Gandhi and Nehru, followed by the Gandhi Congress Prime Ministers, Fabian socialism has ruled India. This has meant nationalization of airlines (Air India), banks, etc. It means the division of farms into smaller and smaller unproductive units (under the guise of providing employment) that cannot afford the latest farm equipment, seeds, fertilizers. Productivity of Indian farms is lower than farms the world over except sub-Saharan Africa. If the lessons of Spinning Jenny were applied, farms would be allowed to consolidate, become more productive. Famers would be freed from the annual headache of Monsoons and would stop killing themselves. Selling their farms would give them a cash cushion that could be used to start new businesses such as a tractor repair shop, etc. Some farmers would succeed, some would fail. That is capitalism. That is also life, except for socialism, where everyone is almost equally unhappy.

 

In 1947, India and South Korea had the same GDP per capita. South Korea adopted a capitalistic system, encouraged risk-taking, entrepreneurship, and large companies that formed Chaebols (such as Samsung, Hyundai, etc) that are world beaters. It’s per capital GDP is 10 times that of India. It also encourages technological advancement including cryptocurrencies, Amazon, Uber, etc.

 

In 1980, India and China had the same GDP. China undertook reforms, including that of farms and stores, that changed the world. It is now a manufacturing powerhouse, with GDP 5 times that of India. It embraces technology of all kinds, including artificial intelligence, digital payment, etc. It has world class companies including Haier, Alibaba, Tencent, etc. Any of these companies dwarf their Indian counterparts. Despite the effect the large companies had on small stores, the country has prospered.

 

When the afore mentioned Chinese companies were small, they were often funded by outsiders such as Japan’s Softbank. This despite China also having a bad experience with not only capitalism (from British and Americans) but also the Japanese atrocities during WWII.  However, the Chinese were smart. They realized the economy of scale. And capitalized on it, even if it meant getting initial capital from outside. Unlike India that was scared of outside capital, the Chinese lapped it up. Most of the initial capital for the reforms starting in 1989 came from Hong Kong (then under the British), Taiwan, and Japan.  The Chinese, like the Koreans, embraced risk-taking and entrepreneurship.

They embraced technology and did not shelter their small firms and stores from change.

 

Technological change brings challenges to small shops and outfits, as we have seen in US with Walmart and Amazon. But change also affects large companies that are slothful. Several large companies that were once leaders are now either dead or on life support, including Kodak, Blockbuster Video, Motorola, Yahoo. Change is inevitable and constant, it cannot be circumvented. Change always leads to winners and losers. But resistance to change leads to only losers, and they are those who refuse to accept change, such as India from 1575 (when the Mughal Emperor Akbar was presented with a watch by the Portuguese, and he never understood their growing technological prowess was why he could not control the Arabian Sea) to today.




Technological change is coming. Whether one likes it or not. India can hide behind socialism and try to keep it away but that will lead to the “Hindu’ rate of growth that afflicted India from 1947 till 1991.

 

As mentioned earlier, India has a very large youthful population. That population experiences the outside world through TV, print, internet, social media. The young want the same amenities and chances that those outside India have, including self-driving cars, digital technology and smart phones, better consumer services (including Amazon, Ola, etc.) etc.  It would be wasteful at best and dangerous at worst to suppress and deny the young these opportunities. Otherwise, there will be riots and may be even a revolution. The demographic dividend will become a demographic disaster. Technology and progress have to be accepted as a total package. Yes, there will be losers. But there will be more winners. India must remember the lessons of the Spinning Jenny. Always remember the Spinning Jenny. Till it does, India’s potential will never be realized.

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