Indian Economy - News & Updates - Archive

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From Emerging To Surging
Shanker Annaswamy 08.13.07, 12:00 PM ET
FORBES, NY

BANGALORE, India - As India celebrates 60 years of independence, it is appropriate to reflect upon our national direction, how business operates in a rapidly growing economy and some future challenges.

India is moving from the chrysalis of an "emerging" economy to a "surging" economy and becoming a center of innovation, the critical differentiator to ensure future growth for any nation today. India is working to transform its longstanding tradition of innovation into an engine of economic and social progress to create a better tomorrow for its citizens.

In ancient days, India conceived of "zero" and the decimal system. In modern times, India is nurturing the world's largest democracy, one of the world's fastest-growing economies and a multicultural society with tens of religions and languages.

Since its liberalization in 1991, the Indian economy has been on an exhilarating ride. The country is in the midst of a remarkable growth phase. Gross domestic product was 9.4% in 2006 after exceeding 8% annual growth for the previous three years. A growing middle class and a skilled young workforce with increased purchasing power are helping to drive hyper-growth rates. Several industries--including information technology, financial services and telecommunications--are posting double-digit increases.

Growth is not limited to large enterprises. Small- and medium-sized businesses are flourishing in cities around the country, where more than 1.7 million companies employ fewer than 500 people.

More than 60% of India's labor force works in the services sector, as in the U.S. and the U.K. Companies that originally turned to India for commodity-type outsourcing needs are now locating higher-level software development and managed services here, employing an estimated 1.6 million citizens. Now, India is perceived as not only a place to save labor costs but also as a place where innovation can take place. The combination gives India the formula for the growth it needs.

Private enterprise, supported by sound governmental policies, has been the engine of growth. India's entrepreneurs are using their technology and business prowess to create extremely favorable conditions for investors. Venture capital firms invested $508 million in India during 2006, almost double the amount in 2005. Private equity firms invested a record $7.5 billion last year, almost three times the amount from a year earlier.

Mergers and acquisition deals are reported to have increased by 73% in the first four months of 2007, to $37 billion from $21 billion in 2006, and India's leading stock exchange index, the Sensex, stands at nearly 15,000 even after the recent global pullback.

Various think tanks are already working to understand and guide India's journey up the innovation path. Led by the Confederation of Indian Industry, a coalition of business, government and academic leaders prepared a National Innovation Agenda for India. The group's findings were released in May 2007. The " Innovate India" report suggests a strategy and action plan, including development of a framework to evaluate and monitor India's progress in several areas.

The study found that innovation in India needs to extend from urban to rural businesses. In the area of human capital, the report suggests an examination of cultural values of creativity, risk taking, fear of failure and the empowerment of workers, as well as the encouragement of young people to walk the innovation route by aiming to become scientists.

We're already taking steps to execute the innovation agenda and are finding creative ways to solve problems and transform organizations. Business growth in India has kicked off a race to modernize infrastructure and improve the way that industries operate. Technology is being aligned with business strategy to enhance efficiency and productivity on many fronts.

India's Department of Telecommunications hopes to expand the country's telecommunications infrastructure to 500 million telephone lines by 2010, many of which will be mobile phones rather than fixed-line connections. India remains one of the most attractive countries for mobile telephone operators and wireless equipment makers. One company, Bharti Airtel, has more than 40 million mobile phone subscribers.

Since a sizable number of India's residents do not have access to mainstream banking or financial services, there's a need for alternative approaches. A biometric, multifunction smart card has been developed especially for Janalakshim Social Services, a Bangalore-based micro-finance institution, to help its large group of clients with relatively small accounts conduct financial transactions.

Health care providers of all sizes--ranging from primary care clinics and specialized hospitals to alternative-therapy and wellness-management centers--are springing up throughout India and demanding technology solutions. It's estimated, that by 2012, India's spending on health care could exceed $44.9 billion. The recently launched National Health Data Network, which caters to midsized hospitals of 50 to 200 hospital beds, uses a common set of software applications to share clinical and financial information to maximize patient care while holding down the cost of processing claims.

The efforts are not limited to private industry. Many public sector organizations are reinventing themselves by promoting e-governance initiatives to help their citizens. India's highest tax body, the Central Board Direct Taxes is looking to enhance operational efficiencies by creating an integrated, standardized and scalable information technology infrastructure to support its vast network across India. This initiative is a critical part of the transformation project undertaken by CBDT to improve citizens' experience in managing their taxation requirements, while increasing the agency's tax base and revenues.

These examples demonstrate how innovation doesn't just happen. It requires a process; investment from business, government, science and academia; and a passion for fostering an environment that leads to innovation. We need to continue to identify and execute changes that will benefit individual organizations and society at large and lay the foundations for a stronger India.

Shanker Annaswamy is managing director, IBM India/South Asia. He was co-chair of the Confederation of Indian Industry's Advisory Council for the National Innovation Mission for India, which published the "Innovate India" report in May.

 

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Do You Have A 'Chindia' Strategy?
Peter Sondergaard 08.13.07, 12:00 PM ET
FORBES, NY

STAMFORD, Conn. - There is no hotter topic in the high-tech industry than the impact of China and India on the industry and the world at large. If you are a strategist or a decision maker in almost any enterprise, anywhere in the world, you see the impact of India and China in new waves of technology products and services in events, decisions and strategies featured on corporate Web sites and in international news coverage.

The bilateral economy of China and India is in its infancy. Yet new momentum suggests a powerful relationship is building. China-India--"Chindia"--enterprises will have access to complementary skills and resources, and, in turn, will have the potential to lead many global markets.

New joint ventures between Indian information technology (IT) service firms and their Chinese counterparts are early illustrations of how a formidable Chindia economy could develop. Indian firms bring to the table world-class software expertise and leadership in global markets. Chinese partners have legions of capable, low-cost employees and greater know-how with clients in Japan, Korea and other Asian countries where English is less prevalent.

We see Chindia today as an early work in progress, an entity still being formed. Outcomes are far from determined, but early signs indicate continued movement in a positive direction. Leaders in China and India remember a time, before the 1962 border war, when the two countries traded cries of Hindi Chini bhai bhai-- "Indians and Chinese as brothers." China's Premier Wen Jiabao repeated it in 2006 while visiting the Indian Institute of Technology in New Delhi. As the economic strength of China and India increases worldwide, business strategists and IT decision makers need a toolkit to monitor their bilateral commercial activities.

Much of the West's mainstream attention on China and India thus far has focused on the West's outsourcing of manufacturing and low-end service jobs. Optimistic observers believe the current flow of jobs across the Pacific is immaterial in the long run because innovation remains strong in Western countries, and innovation produces new jobs and economic growth.

This view is absolutely correct on the surface, but it hides the underlying truth of what is happening in India and China today: Both countries are getting better at driving technological innovation. More and more, traditional Western high-tech firms are sourcing not just the assembly of their products from India and China but also the innovation that drives these products.

If you are in a business, you need a China strategy and you need an India strategy. You need to monitor how China and India create alliances in specific markets, alliances under what is coming to be known as the "Chindia bloc." The first signs are already clear in IT services, in automotive components and in a few other sectors.

China and India increasingly will be the dominant economic stories on the world stage, a trend that may well extend through most of the 21st century. Despite mounting stakes, however, the quality of information, research and advice on how to make key decisions related to China and India is uneven. Executives and managers need a comprehensive view not only for understanding China and India, separately as well as together, but also for gauging future threats to and opportunities for enterprise.

For effective decision making, business leaders need:

--Accurate information on the current state of global IT competitiveness in India and China for their internal markets.

--A set of realistic scenarios that explores not only the possibility of continued rapid economic growth in India and China but also potential social, political or other disruptions to these economies.

--A series of milestones that define pivotal issues in each scenario and of signposts that over time point to milestone outcomes to help determine when and where to invest, cooperate, compete, analyze or ignore these countries.

What is the significance of the current level of China-to-India and India-to-China commercial interactions? Where do the two countries stand along a potential path toward a unified economy of Chindia? Modest steps recently under way provide only a hint of what India and China collectively could bring to the global economy and global balance of power in coming decades.

China and India hardly qualify today as trading partners by conventional standards for industrialized economies. Total bilateral trade amounted to $18.7 billion in 2005, more than twice the 2003 level. This is only a small fraction of each country's foreign trade. China's total foreign trade in 2005 was $1.4 trillion, rising 23% from 2004. India's foreign trade in the 2005-06 fiscal year amounted to $241 billion, up 28%. Yet the annual growth rate of internal Chindia trade is outpacing those high-stepping totals, at an estimated 30% to 40%.

Patterns of a widening bilateral commercial partnership are visible in increasing high-level official visits and pronouncements, conference participation, cultural exchanges and, most of all, forecasts of accelerating goods, services and investment flows across the Himalayas.

There are many unanswered questions about the economic futures of China and India separately, of China and India together, and indeed of the two nations' future impact on the global economy. Can innovation be outsourced? Is it possible to compete in Asian markets without piracy of intellectual property draining away the opportunities? Will China's and India's mounting successes in world markets create a protectionist backlash among developed economies?

The answers you seek may well be among the most important for setting the long-term course and success of your enterprise. The methods by which you pursue them certainly will shape the quality and insight of what you find. As China and India increasingly redefine the future of technology and innovation, knowing how to map a course into that future will be a core competency of the most accomplished travelers.

Peter Sondergaard is a senior vice president at Gartner, where he is the global head of Gartner Research, responsible for the management and direction of the global research organization. Gartner's recent book, IT and the East, examines how China and India are altering the future of technology and innovation.

 

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A Second Chance At Independence
Robyn Meredith, 08.13.07, 12:00 PM ET
FORBES, NY

Sixty years ago, India won her political freedom from Britain.

Today, India stands at another historic threshold of independence. But this time, the freedom at stake is economic, not political.

The runaway success of India's outsourcing industry has brought big gains to a tiny slice of India's 1.1 billion people and has put the nation on the map of the world's multinationals. After many decades of economic isolation and stagnation, India now has momentum in the global economy, and the chance to finally move a majority of its people out of poverty in the coming decades.

But India faces a huge challenge because it has a disproportionately young population that is soon to become a *working-*age behemoth in need of jobs. India must create the conditions now that stimulate job creation. If India fails to fully unleash its economy while it has the attention of investors from around the world, it will pay a heavy price if young workers go from school and college to joblessness.

By 2030, India is expected to become the most populous nation on Earth, overtaking China around the point when both reach 1.45 billion. Also in 2030, economists predict, India will surpass Japan to become the world's *third-*largest economy after the U.S. and China. In that year, India will have by far the largest workforce in the world, because a disproportionate 68% of its population will be of working age. Therein lies the challenge.

India will then be home to some 986 million *working-*age people, an increase of 270 million from 2006. Demographers call this a "demographic dividend phase, a kind of sweet-spot that normally helps a nation's economy grow faster because its economically active population tends to have a higher savings rate. All things being equal, economies boom when countries have larger labor forces--just as the American economy boomed after the big post-war generation of baby boomers entered the *workforce.

For India, however, the demographic dividend could prove a grave threat. Today, 31% of India's 1.1 billion people are under *age 16. When the demographic bubble begins to reach working age, India will need far more jobs than it now has to keep living standards from declining. Creating these jobs for India's poor--most of whom live on less than $2 a day--is literally a matter of life and death.

India is thus at a critical juncture. "A unique constellation of factors now objectively indicate that India is on the threshold of a golden age of growth," explains former Finance Secretary Vijay Kelkar. "If we seize this moment, India can transit out of poverty, and coming generations can enjoy an era of unprecedented prosperity and a decisive voice in shaping the global economic order and world politics." But he offers a warning too: "It is necessary that we choose wisely, because wrong choices now can mean all future generations would remain poor forever."

A crisis prompted isolationist India to embark on much-delayed economic reforms in 1991, and those reforms and the ones that followed have unleashed the nation's economy in several sectors. Indian outsourcing companies like Infosys, Wipro (nyse: WIT - news - people ) and TCS have led the charge, and during the past five years, multinational companies including IBM (nyse: IBM - news - people ), GE, Intel (nasdaq: INTC - news - people ), Accenture (nyse: ACN - news - people ), Philips and Microsoft (nasdaq: MSFT - news - people ) have hired thousands of white-collar workers in India, bringing big-wage gains to India's college-educated workers and helping the Indian economy.

But plenty of Indians remain locked in a prison of dollar-a-day poverty. They deserve freedom too.

Whether they--and the greater number of workers coming through the demographic pipeline--will escape poverty depends on whether the Indian government will continue to encourage economic growth. To do that, it needs new roads and highways, new factories and other projects that will create hundreds of millions of better-paying blue-collar and agricultural jobs. The more enduring economic lift will come from the creation of *private-*sector jobs.

So far, the signs are not all encouraging.

What has frustrated those who want to see India continue its economic gains is that the leftist parties in the current coalition government have, in the name of protecting the poor, held up the very economic development likely to create jobs for them.

Populist politicians have delayed the building of airports and roads that could help attract new factory jobs. Sometimes their motive is to defend squatters who would be displaced. Sometimes they are defending local enterprises that object to infrastructure contracts being given to experienced foreign companies. Either way, much-needed economic growth is slowed.

In the summer of 2006, a modest plan to sell off minority stakes in *government-owned companies was scuttled when leftist parties threatened to pull out of the coalition and bring down the government. And the new special economic zones being championed by the Indian Commerce Ministry are at risk, too, as politicians maneuver for advantage. The Indian Finance Ministry has been grousing that lower tax rates in the zones will crimp government revenue, while Sonia Gandhi, the powerful leader of the Congress Party, complains that they are bad for *farmers.

The political strains come in part because of India's colonial history and in part because of the disparities between India's two worlds. Under billboards in Bombay touting the latest cellphones, credit cards and insurance policies marketed to India's new yuppies, the old India endures: stray dogs hover as men dig through piles of trash, vendors at ****** roadside stalls sell glasses of sugarcane juice for a penny, men working like oxen push *10-*foot-*long wooden carts stacked high with building materials through city streets.

What authoritarian China accomplishes by fiat, democratic India must accomplish through persuasion and logrolling. The Indian government thus must convince poor voters that the methods it uses to spur economic development will bring them gains--something that is sometimes easier to see from a distance.

India must move past the *on-*again, *off-*again reforms that slowed its economic rise until the 1990s, or the nation will risk missing a historic chance to propel hundreds of millions of people out of *poverty. Today, nothing is holding India back but the anti-outsider and anti-globalization reflexes left over from the Colonial period--an era that ended six decades ago.

 

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The Big Question: Sixty years after partition, why is India doing so much better than Pakistan?
By Andrew Buncombe, Asia Correspondent
Independent, UK
Published: 14 August 2007

Why are we asking this now?

Pakistan celebrates the 60th anniversary of its independence from Britain today (14 August) while India marks the occasion precisely 24 hours later. For much of the long campaign for independence - led by Mahatma Gandhi - the campaigners' demand was for the creation of a single independent nation in which the rights of Hindus and Muslims would be protected. The campaign for an independent Pakistan grew during the 1930s and 1940s, under the direction of Mohammed Ali Jinnah, the leader of the All India Muslim League and the man who served as Pakistan's first Governor General. In the years since Partition India has proudly and robustly championed its occasionally chaotic democracy while Pakistan has been ruled by military dictators for more than half its history (1958-71, 1977-88, 1999-present). Now, at the age of 60, India's image is that of a resurgent, confident regional power racing to compete with China and the West. Meanwhile, Pakistan's image - at least in the West - is as a broken, backward country that provides a safe haven for extremists.

How correct are these perceptions?

In recent years India has certainly been making rapid economic progress. Its economy is now the 10th biggest in the world and a new middle class of up to 200 million has been created. The economy is currently growing at about 9 per cent a year. Pakistan's is also growing. One government minister said recently it was the third fastest-growing economy is Asia. Over the next four years it is expected to grow at about 6 per cent. The UN Human Development Index - which measures a series of economic and lifestyle indicators - ranks Pakistan 134th out of 177 and India 126th. In India and Pakistan, life expectancy is 63.6 and 63.4 years respectively, the adult literacy rates are 61 per cent and 49 per cent and the GDP figures are $3,139 and $2,225. However, the Gini Co-efficient, which measures a country's economic equality, suggests there is a slightly greater disparity between the rich and the poor in India than in Pakistan.

And what about politics?

India never misses an opportunity to remind people that it is the world's largest democracy. There is a broad swath of mainstream political opinion represented. The left has a long history in India, particularly in places such as Bengal. Meanwhile 60 years after independence, Pakistan's leader, General Pervez Musharraf, who first seized power in a coup in 1999, is desperately seeking to hold on to his position ahead of elections, technically scheduled to take place before the end of the year. Of the many difficulties he faces is the increased threat from extremists, largely situated in the country's north-west where Islamabad's ability to exert influence - and also perhaps its desire to exert influence - is greatly reduced. In the aftermath of the Lal Masjid operation this summer which saw more than 100 people killed, there has been a backlash against police and troops. The US - which has been a crucial backer of General Musharraf both politically and financially - has grown increasingly unhappy with his record at confronting extremists. The public of Pakistan appear poorly served by their leaders and yet there appear few genuine alternatives to the roster currently seeking popular support - a roll-call which includes former prime ministers Benazir Bhutto and Nawaz Sharif, who both intend to return to Pakistan from exile to contest the election.

Are Pakistan's military dictators to blame for all its problems?

India's economic transformation dates to a series of reforms that were introduced in 1991 when the government removed many restrictions and opened up the country to foreign capital. Tariffs were reduced and financial markets were opened. One of the architects of the reforms was the current Prime Minister, Manmohan Singh. Pakistan's attractiveness to foreign investors, meanwhile, remains hobbled by the country's political uncertainty. At the weekend, General Musharraf claimed that the development of both Pakistan and Afghanistan was being held back by a "a small minority that preaches hate, violence and backwardness". Yet a number of commentators have pointed out that Pakistan's military leaders have paid little attention to developing the country's economy and have spend vast amounts of the nation's revenues on its military budget. Even when civilian leaders have been in power, the Pakistan military - a major owner of business, land and logistical operations - has retained crucial power.

Is there another side to all of this?

Yes. For all the confidence of its politicians and wealthy elite, India is a country that still faces huge problems. It remains riven by the caste system, especially in the rural areas, and the majority lives in abject poverty. A report published last week suggested that 77 per cent of Indians were living on 20 rupees (25p) a day. "For most of them, conditions of work are utterly deplorable and livelihood options extremely few," said the report by the state-run National Commission for Enterprises in the Unorganised Sector. And while India's middle class is frenziedly buying up consumer goods that for a long time were unavailable, the country's infrastructure remains utterly inadequate; roads are congested, ports and airports have insufficient logistical capacity and even the biggest cities are routinely struck by electricity cuts and water shortages. Many believe that India's head-long pursuit of consumerism is not the correct path for the country to take and that too many people are not being included in the country's progress.

How do Pakistanis react to the portrayal of their country versus that of India?

Since Partition the relationship between the two countries has been deeply competitive. There have been three full wars fought between them and several other conflicts, most recently in 1999 when Pakistani troops and fighters entered the Indian side of the Line of Control in Kashmir. The fighting threatened to escalate. There was huge worldwide concern because by that time, both India and Pakistan were nuclear powers. India carried out five nuclear tests in May 1998 and Pakistan responded in kind just days later. An earlier war in 1971 coincided with the eastern part of the country's own conflict with West Pakistan - a conflict that would result in East Pakistan securing its own independence as Bangladesh. India supported the separatists in their efforts. Anecdotally, one finds that the overwhelming majority of Pakistanis resent the portrayal of their country as a terrorist haven and go out of their way to show friendliness and hospitality to a visitor. They are also unfailingly inquisitive about the situation in India and whether the image of India's economic transformation is genuine.

Is India successful because of its own efforts?

Yes...

* Politicians took crucial decisions that helped transform the country's economy

* Indian politicians have proudly protected the country's democratic tradition

* India has insisted that foreign companies must work with Indian firms, thereby helping turn Indian companies into international players

No...

* India's large internal market has made it a hugely attractive option for foreign corporations

* India's large number of English speakers has helped it develop itself in industries such as the service sector

* India has not been entirely successful. There are still huge challenges facing the country

 

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Sunset, sunrise: The dramatic birth of modern India
At the cusp of Britain's exit and the rise of Indian independence there was unlikely leadership and untimely love
By Yvonne Zipp
Christian Science Monitor, MA
from the August 14, 2007 edition

Today, India is the world's most populous democracy, with a fast-growing economy that stamps Mohandas Gandhi's face on every 10 rupee note. Sixty years ago, it was unclear if the democracy would survive its first year.

After the partition of India in 1947 to create Pakistan and what became Bangladesh, riots erupted as Sikhs, Hindus, and Muslims began slaughtering one another. The atrocities lasted for weeks, and while no one knows how many people died, the most commonly cited number is 1 million. The people who had fought for decades to win India's independence from Britain never really got a chance to celebrate the victory achieved on Aug. 15: They were too busy trying to stop the bloodshed.

Indian Summer: The Secret History of the End of an Empire, Alex von Tunzelmann's first book, is a sweeping narrative history about the five historic figures at the heart of independence: Jawaharlal Nehru, India's first prime minister; Gandhi, the country's spiritual leader; Mohammed Jinnah, founder of the Muslim state of Pakistan; and Louis "Dickie" and Edwina Mountbatten, the glamorous but unlikely couple who had been sent to extricate Britain from its empire.

Complicating matters, the widowed Nehru and Edwina were conducting an affair, von Tunzelmann writes. Had it become widely known, the scandal could have been disastrous for the three countries.

Despite the book's subtitle, it's unclear what's "secret" about this history. Von Tunzelmann is witty, erudite, and thoughtful about her subject, but "Indian Summer" doesn't contain any revelatory discoveries.

As for the dishier topics, while the book jacket goes on breathlessly about the romance between Edwina and Nehru, well, this isn't "The Jewel in the Crown." Von Tunzelmann is too serious a historian to make the affair a central focus of her book, and Edwina and Nehru themselves vowed their work would take precedence over their relationship. With the country ravaged by mobs that targeted women and children, they had other things on their minds than their next tryst.

Von Tunzelmann is an opinionated and sardonic writer, and is perfectly willing to take on both saints and heroes. Neither Winston Churchill nor Gandhi fares well under her treatment, although they supply her with ample ammunition. When asked to send food during the Bengal famine of 1943 (after Britain had hoovered up the area's grain supplies to support the war), Churchill not only refused but sent a telegram asking, if millions of people were starving, "why Gandhi hadn't died yet." He is also quoted as saying, "I hate Indians. They are a beastly people with a beastly religion."

Gandhi, meanwhile, is portrayed as a terrible father and a supporter of Adolf Hitler. Von Tunzelmann also argues that, had it not been for Gandhi's dithering, India could have been independent as early as the 1920s. "Gandhi's need for spotless moral perfection hamstrung his party's progress. His principal object was to make the Indian people worthy of freedom in the eyes of God. The object of actually achieving freedom ... was secondary."

Nehru comes out of "Indian Summer" as the true hero. Von Tunzelmann's attitude toward the two leaders can best be summed up in the following statement: "Nehru saw social and economic hardship as a cause of suffering, and therefore wanted to end it. Gandhi saw hardship as noble and righteous, and therefore wanted to spread the blessings of poverty and humility to all people."

Von Tunzelmann also seems rather fond of Edwina, who transformed herself from a promiscuous socialite in the 1920s to a tireless humanitarian during World War II and the unrest in India. The Mountbattens had an unusually fraught marriage: Dickie was devoted to Edwina, but it quickly became clear she would never be faithful to him. Pragmatically, he quietly supported her affairs with a series of men, including Nehru. (He also had a mistress of his own.) For her part, Edwina was ferociously jealous of Dickie's relationships with other women, including their own daughters.

But von Tunzelmann argues that Nehru and Edwina were the great loves of each other's lives, and that in India Edwina found greater fulfillment than at any other time in her life. "The heiress to millions had never been happier than when she was working in the hot, rough, and ****** refugee camps that had been set up across the riot-scarred Punjab."

India also seemed to bring out the best in her husband. Certainly, nothing in his earlier career would have indicated that he would have been a liberal champion of Asian self-rule or, frankly, anything but a feckless bumbler.

During World War II, Mountbatten thoroughly earned his nickname as "master of disaster." He was prone to ramming his ship into other British vessels and his hare-brained schemes included an aircraft carrier molded from an iceberg. Von Tunzelmann makes the most of this rich material, which would be funny if so many young men weren't being killed. But she defends Mountbatten against charges that he deserved a court martial for the speed with which he conducted Britain's exit strategy from the subcontinent.

"There is no reason to think that the slow-boiling of communal tempers under martial law for an extra nine months would have reconciled everybody to live happily ever after," she writes. And as for the charge that he should have beefed up British troop presence to stem the violence, well, "he could not magic soldiers out of thin air."

Observers of modern international politics will see some obvious parallels to Iraq of today. Von Tunzelmann herself does not make this explicit.

While the chapters on the partition of India and the subsequent riots are some of the strongest in the book, the narrative of "Indian Summer" does have a few hiccups. The beginning, as von Tunzelmann jumps between her characters in India and Britain, can seem a little disjointed. Nehru's early years are especially frustrating, since a reader doesn't get to see his rise to power or his first meetings with Gandhi, whom Nehru revered as a second father despite their differences about religion.

But once World War II arrives, the book hits its stride in much the same way that the war helped Edwina discover a purpose for her abundant energy.

 

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India’s charging elephant tramples our stereotypes
DOUGLAS FRASER, Scottish Political Editor
The Herald, UK
August 14 2007

One flag, one president, one currency, its constitution the world's most complex, and one of the world's biggest market-places smothered in red tape. A babble of 22 official languages, racial and religious tensions, and the perpetual strains of regional exceptionalism. And all this resolved - messily and miraculously - by the common bond of a peaceful, democratic ideal.

It could be the Eurosceptic's nightmare, 50 years after the European ideal was set out. Instead, it is the Indian reality, 60 years tomorrow since Jawaharlal Nehru declared his country had made "a tryst with destiny", and was waking "to life and freedom".

Since then, some such anniversaries have focused on how much the British colonial legacy remains intact; railways, bureaucracy, the English language. More recently, a review of India's progress has been a head-scratching "isn't it doomed to fall apart?"

advertisementThis time, the anniversary provides a space to consider India's new status as fast-growing economic giant. That means it deserves a more complex and sophisticated understanding, requiring a long look back at a neglected history to see the way ahead.

A BBC documentary series, starting later this month, sets out to explain the country as a cradle of civilisation, older perhaps than language itself, and one in which its distant past and spirituality lives noisily alongside the cutting edge of software design.

It provides the perspective of 400 years ago, when India represented one-third of the world's economy. The great Mughal emperors are reckoned to have ruled over the country with the highest income level in their world. In 1770, it was the second biggest economy. By 1970, it hit a low point, with 3% of the world's economy.

Exasperating, astonishing, a cacophony of contradiction and utterly fascinating, India's billion people offer more diversity than Europe. More live in abject poverty than the whole of sub-Saharan Africa combined. Yet India has had nuclear weapons for 34 years, a space programme and is now defining the frontiers of the globalised economy.

Its challenges remain awesome: poverty, inequality, corruption and dismal governance. State education fails woefully. Its infrastructure is shocking: bone-jarring roads, slowing access to market, and poor irrigation to handle the monsoon.

Yet it has weathered so many challenges and internal tensions that it is hard to see what could pull it apart now, except, perhaps, the strain of inequality. Television newly offers the poor a window into the prosperity they lack, while the richer cities may prefer a future divorced from their backward country cousins.

Those with opportunity have it abundantly. Some 2.5 million Indians graduate from university annually, many in science and technology. A social revolution is putting young women into the workplace for the first time. The diaspora travels and settles round the world, using exceptional entrepreneurial drive and its own networks, while remaining plugged into Mother India.

Goldman Sachs is often quoted in India for projecting its economy past the US one, taking second place only to China within a generation. Income could have risen four-fold by 2020, with demand for cars up five times and four times more oil consumed.

And those comparisons with the emerging Chinese dragon are obviously inviting. They are lazily lumped together in the globalised world's mind, as two vast nations already shaping everyone's lives and doing so more in future.

What is less noted is that they are economic competitors - India doing well on services and China on manufacturing - as well as strategic rivals. They have fought one war, in 1962, over a disputed part of the Himalayas, and while China flexes its economic muscle by upgrading its military hardware, India provides a geopolitical counterweight to the south. To its north-west, Pakistan - also marking its 60th birthday, but with much less to celebrate, teeters on the edge. President Musharraf has supported western interests against radical Islamism on its Afghan and Iranian borders. If he falters, India is seen as the next best bastion. It is used to trouble on that border, having fought three wars with Pakistan.

The United States was suspicious of India through the Cold War, while it sought to be nonaligned, talked socialist values and bought arms from the Soviet Union. That has changed. Washington has agreed to share nuclear know-how with India - signalling that the dominant superpower can see the importance of having a big friend in a dangerous part of the world.

That is just one partner that is re-thinking its Indian stereotypes. The same is true of each of us whose on-screen jobs could be more efficiently done in Mumbai or Bangalore, reaching far beyond call centres. While the Indian economic elephant has been slow to get going, it carries a powerful momentum. It also remembers its proud past, and will shape its global friendships on its own terms.

 

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India: Moving Up The Food Chain
Promod Haque 08.13.07, 12:00 PM ET
FORBES, NY

I lived in New Delhi until 1972, when I came to the United States to go to school. Looking back 35 years, I think the biggest changes to India have been to the economy. Back then, the country was a controlled economy. The country didn't quite gain independence until the late 1980s and early '90s, when the economy began to transition into a capitalistic free-enterprise market system.

The initial growth of information technology in India was providing staff augmentation. You had companies in the U.S. that were looking to employ support staff and engineers at lower salaries. That built some confidence in India's technology expertise, and led to India becoming a resource for the Y2K problem. Then came the dot-com bust and the recession in the U.S., which led to even more IT work going to India. In the last few years, more of the work began shifting beyond outsourcing into product development.

Someday, many U.S. companies will have more employees in India than in the U.S. IBM (nyse: IBM - news - people ) has around 57,000 employees in India and plans to get to 80,000. The company has 130,000 domestic workers.

There is a lot of talk about the fact that salaries continue to rise in India and that retention is a big problem. People want to know if they should stop outsourcing to India and find a lower cost-center somewhere else.

I don't think that has to happen. There are some interesting parallels between what happened in the U.S. 20 years ago and what is happening in India right now. If you go back to the mid-1980s in the U.S., the cost of technology was dropping and the cost of human labor was starting to rise. And because of the rising wages, the country tried to increase productivity, and that led to the massive use of technology in the U.S. enterprise system.

Cisco (nasdaq: CSCO - news - people ), Oracle (nasdaq: ORCL - news - people ) and SAP (nyse: SAP - news - people ) were all making products that were aimed at increasing productivity for a workforce that was becoming more and more expensive. That paid off, and eventually productivity gains went up faster than the wages. I think you will see the same thing in India; the economy will continue to grow, and the use of technology will continue to grow.

Another challenge India has had to face is that the country is too far away from most markets. The challenge is that the best leading-edge products and disruptive technologies are always built in collaboration with customers that are early adopters of technologies. Silicon Valley companies work very closely with companies such as Fed Ex, DHL, Morgan Stanley (nyse: MS - news - people ) and Goldman Sachs (nyse: GS - news - people ).

When India starts using technology to increase the productivity of its own companies, innovation will happen on a more accelerated basis, and the early adopters will become corporations in Delhi, Chennai and Bangalore.

Reliance Industries wants to revolutionize retail in India. No longer will there be hundreds of small merchants, but big malls and grocery stores like in the U.S. Reliance is now using technology aggressively to improve the supply chain. Wal-Mart (nyse: WMT - news - people ) wants to do the same thing and is partnering with Pharti, a very large enterprise in India that runs a large wireless operator called Airtel. Wal-Mart is bringing the latest and greatest technology from the U.S., and Reliance will have to do so as well. Whoever does not use the best technology will fall behind.

In 2009, the banking sector in India is going to be totally open for foreign banks to come in. Only Citicorp is there now. It is still highly regulated and very difficult for banks to enter. When Bank of America (nyse: BAC - news - people ), Barclays (nyse: BCS - news - people ) or ING (nyse: IND - news - people ) walks in there and starts buying local banks, they too will bring in their latest and greatest technologies.

Large Indian enterprises will be forced, for competitive reasons, to use technology very aggressively so that productivity gains outpace wage increases.

We are also seeing Indian enterprises beginning to buy companies in the west. Tata Group just put in a bid to buy Jaguar from Ford. Another Indian company, Mahendra (the equivalent of Caterpillar (nyse: CAT - news - people ) in India), is also bidding for the business. A few weeks ago, the U.S. sold Yipes, a market leader in Ethernet services, to Reliance, a giant company in India.

This is similar to what happened with the Japanese in the 1980s. Fujitsu, Hitachi (nyse: HIT - news - people ) and Sumitomo were investors with us in a lot of our startups. Hitachi bought the IBM disk-drive division.

As more and more technology develops and more talent becomes available in India, the world is starting to see India move up the food chain.

 

[Bushroda]

Biofuel Must for India, Say Experts
By ASHOK SHARMA 08.13.07, 12:20 PM ET
FORBES, NY

NEW DELHI - Energy-starved India should invest in spurring large-scale cultivation of jatropha, a plant with seeds that can be mixed with fuel to form biodiesel, experts said Monday.

India produces nearly 30 percent of its annual crude oil requirement of nearly 120 million metric tons (132.28 million US tons). It imports 70 percent of its requirements, and experts see jatropha as a potential wonder plant.

Two key issues restraining the growth of the Indian biofuel industry were lack of sufficient government encouragement and limited availability of feedstock like jatropha and pongamia, said a study released at a workshop by Frost and Sullivan, a global growth consultant company.

India's biodiesel production is currently a few thousand metric tons against a demand of 2.6 million metric tons, at a five percent blending level with normal diesel fuel, Mark Dougan, a company consultant said.

India needs to promote jatropha cultivation more aggressively, said Sandeep Chaturvedi, president of the Biodiesel Association of India. The plant grows in arid terrain and doesn't need regular irrigation.

The experts said that the Indian government's decision last year to spend 500 million rupees ($10.7 million) to boost jatropha cultivation was not enough.

The government should reduce excise duties to boost the country's biofuel industry, Doughan said, adding that it could also enact a law making it mandatory for oil companies to sell a certain percentage of biofuels.

With India's economy growing at more than 9 percent annually over the next few years, the country's energy demand is expected to grow exponentially.

India's Petroleum Ministry estimates that by 2009 India will have around 3.1 million hectares (7.7 million acres) of jatropha plantations, and will have identified another 40 million hectares (98.8 million acres) of wasteland to grow the plant. The ministry also aims to plant around 7.5 million jatropha saplings on vacant land along the country's extensive railroad tracks.

 

[Bushroda]

Bottlenecks To Growth
Robert Malone, 08.13.07, 12:00 PM ET
FORBES, NY

The accomplishments of India are matched by daunting infrastructure and logistics problems.

The romance and mystery of India's past have transformed into a quest to overcome historically obsolete facilities by use of new services, technology, and information systems. Corporations and executives worldwide are focusing beyond China to India as a place where they might get things cheaper, and perhaps even better.

One of the key bottlenecks to this move, however, is the reality that India spends about 14% of its gross domestic product on its logistics system, versus 8% for developed nations. That does not spell cheap transportation, moving or storage.

The nation has a way to go both in adopting modern logistics methodology and in repairing a largely sub-standard transportation infrastructure. It is no wonder that the majority of foreign companies doing business in India are using the nation for programming and call centers. Neither requires much more than a workable information technology infrastructure and little in the way of goods transfer. That's where the bottlenecks develop and costs escalate.

The hope, however, is to extend India's success with software into manufacturing. Divay Goel, a senior executive of Drewry Shipping Consultant's office in India, says India wants to repeat its software success. But he warns that unwieldy labor laws and bureaucratic red tape continue to delay progress.

Overlaying Goel's concerns are the need for managers to make good use of seasoned carriers like FedEx (nyse: FDX - news - people ), UPS (nyse: UPS - news - people ) and DHL, as well as long-standing and expert third-party logistics providers (3PLs) such as Menlo Worldwide or SEKO. The advantage of the big carriers and the 3PLs is they have an existing infrastructure (both physical and electronic). They offer services to those Indian companies that are prepared to reach out.

Nevertheless, India has achieved an impressive 8.5% growth in GDP in 2006 and his heading toward 9% growth this year--this in a country that has democratic institutions and an independent judiciary in contrast to China.

The paradox of combining inefficiency and growth says a great deal about India today. The $113.1 billion of Indian imports in 2005 compares with its exports of $76.23 billion. This increased trade, even if it shows a substantial net deficit, is both a blessing and a curse. More money is chasing more business. Yet the nation still is saddled with terrible water problems, broken roads and inadequate transportation at all levels (trucks are often unlikely to have rear-view mirrors; drivers rarely have seat belts or communication systems).

India's infrastructure of roads, rails, ports and airports is the most vulnerable part of its supply-chain presence. India's roads consist of 2.4 million kilometers of paved roads and more than a million kilometers of unpaved roadway. In both cases, much of this network is questionable as to reliability for modern transportation needs. While India's rail network exceeds 63,000 kilometers, the best two-thirds are broad-gauge and old.

Randy Sinker, vice president of international operations for SEKO, a 3PL operating in India, suggests that, "while India may be the second choice after China, the transportation infrastructure is not keeping up with the growth of business in India. The biggest problem is getting goods from a seaport to truck or rail, and those are the only choices. Once on rail or truck, the second problem is getting goods inland. The rail system is very antiquated and has not been updated. It is slow and congested, while India's highway system is not what it needs to be. It is dilapidated."

India's major ports are Haldia, Vishakhapatram, New Mangalore, Mumbai, Jawaharlal Nehru Port Trust and Kandla. (Mumbai appears to be gaining fast. The new government is planning on building new facilities in New Mangalore and Krishnaptnam.) But according to Sinker, Sri Lanka ports are serving India now for large container ships. Still, even these are very congested. This can mean many extra days, or weeks, to get goods to or from an importer or exporter in India.

India's air service consists of 334 airports, 239 of which are equipped with paved runways. There are 17 major airports, but only New Delhi, Mumbai, Chennai and Kolkata are what might be considered fully developed airports by international standards. Again, there is delay.

Kamal Nath, the minister of commerce and industry for India, states that overall, India has to invest $450 billion between now and 2012 to keep up with growth.

Vineet Agarwal, executive director of Transport Corporation of India, says a host of logistics activities are already being outsourced to foreign contractors, including import/export management, out and inbound warehousing, labeling and packaging and inventory management. There is a big gap--electronic networking. India is still light on supply-chain management, warehouse management and logistics management.

The gap is, to a degree, being filled by foreign third-party logistics companies working throughout India. Menlo Worldwide, a Con-way (nyse: CNW - news - people ) company, is a big player in India. Another 3PL, SEKO, offers air, ocean, ground transport, warehousing, and customs services. This means being able to connect a local company to their complex global logistics network to accomplish freight-forwarding activity.

"The country has the largest population of consumers in the world, which is significant because these customers are attracting an increasing quantity of consumer goods into the country that impacts not only the amount of international trade but global logistics requirements," says Bill Wascher, chief executive of SEKO.

Those who wish to become a part of this growth in India might listen to Randy Sinker's advice: "Do your homework and talk to other companies in a similar business that are already in India: go over, kick the tires, come to understand the culture, get up to date on the government and its regulations (or red tape)."

The three major international carriers have made large investments in India and play a vital role. UPS is investing in new UPS Stores in New Delhi, Mumbai, Pune and Bangladore. DHL has been a service provider in India for decades in rail, truck and sea logistics.

Michael Ducker, president of FedEx Express International, says, "India is known for being a growing information economy, but it is rapidly moving into manufacturing. FedEx connects over 4,000 cities in India with logistics services." FedEx deals with specialized shipments of high value goods where speed to market is critical--including precision tools, engineered goods, fashion apparel and jewelry. The presence of FedEx allows small and large companies in India to connect to the global marketplace. Ducker sees India's government making infrastructure (air, sea, land and telecommunications) investments a top priority. He also believes that leading Indian executives are looking beyond simple transportation and warehousing, toward the complexities of the advanced technology and management practices of the supply chain.

"Manufacturing is growing at double digits yearly. Small entrepreneurs in India are now looking toward the globe. India has very young workforce, and this will become a major advantage point for the development of its economy," Says Rajesh Subramaniam, senior vice president for international marketing of FedEx services.

India may solve its logistics/supply chain and infrastructure paradox; even if it takes a decade to unravel the red tape and make the investments, the nation is on its way.

 

[Bushroda]

Banking: An Engine Of India's Growth
Ruth David, 08.13.07, 12:00 PM ET
FORBES, NY

Mumbai, India - Every year around August, scribes go scouting for people born in the historic year India became free, 1947. One such independence child is also known for spearheading a revolution at the nation's largest private sector bank, ICICI Bank.

Kundapur Vaman Kamath first joined Industrial Credit and Investment Corporation of India in 1971, when it was still under state control. As a young management graduate, he implemented the bank's computerization program and businesses like venture capital and credit rating.

After a stint with the Asian Development Bank (ADB) in the 1990s, Kamath returned to ICICI in 1996 as its chief executive officer. Two years after ICICI set up its subsidiary ICICI Bank (nyse: IBN - news - people ), Kamath worked to expand its reach through a series of acquisitions of non-banking financial companies.

He proceeded to lead the bank through several firsts, making an aggressive push into the untapped retail market and taking it online in 1997 despite skepticism that such a model would succeed in a country with abysmal rates of Internet penetration. The Mumbai-based bank started with an online customer base of 500,000 and now reaches out to about 2.5 million. It is in 18 countries, including the U.K. and Singapore, and 65% of its balance sheet is retail, while 20% is international banking.

Kamath, who often emphasizes that the bank's growth story is the story of India, made an early push into markets abroad. In 1997, ICICI became the first Indian entity to list on the NYSE; a year later ICICI Bank followed. And in 2002, Kamath merged parent company ICICI and other subsidiaries with ICICI Bank.

The last four years saw ICICI Bank double its profits. Its market capitalization touched 1 trillion rupees ($24.7 billion) last month, after a public offer in India and overseas raised a record $5 billion. The offering was oversubscribed about 11 times.

Kamath's team is now looking at rural India as the next growth driver, reaching out to the villages in partnerships with local groups to set up kiosks and give customers biometric cards for credit.

In a conversation with Forbes, Kamath talked about how he put lessons learned from the Far East into practice in India, how the bank remains ahead of the curve and what makes him proud of India.

Forbes: How has the banking sector changed in the last few decades?

Kamath: The Indian economy was a closed system. Now, not just in the banking space, but if you look at the financial services space, there's been a tremendous degree of opening up that sometimes we don't give credit for--whether it's in investment banking, private equity or asset management.

You left ICICI in 1988 for a stint with the ADB. To what extent did your experiences there help when you came back to the organization?

The time I spent in the Far East opened my eyes to a newly emerging Asia that had fully capitalized on "opening up" policies, whether it was countries like Malaysia, Thailand, Indonesia, the Philippines or China. What policy change could do to a country was very stark and gave me the ability to think through what we wanted to do in India, where I was sure policy change would happen. One driver of growth I saw in all the countries was the power of the consumer, and the momentum it gave the economy. I tried to build our own business models on those lines. Initially there was skepticism this would happen, but in the last six years the consumer has ruled.

Has competition from foreign banks that are increasingly looking at India had any effect on ICICI's operations? Given the reach of state-run banks especially, are they a threat?

When we started in early 2000, foreign banks had a lion's share of the market with most products. So they have ceded territory, and dramatically so, in the last six/seven years.

Today, ICICI Bank and other Indian banks have captured 85% to 90% of the market, and this is a fairly mature market, so anybody now trying to compete starts with a major disadvantage. We'll watch out for foreign banks, but I don't think they're a threat in the medium term. As for state banks, they need to get their product and distribution equations right. Just having a branch everywhere doesn't work. If they get it right, they're potent competitors.

As you compete with foreign banks in their traditional markets, what do you think attracts potential customers to ICICI Bank?

If we have to succeed in any global territory, we have to have a value proposition the customer likes. For instance, remittances into India, one of the fastest-growing sides of any business here and one that's growing at 25% to 30%. We have succeeded in bringing down the costs of remittance and providing online remittance capabilities. We now have about 30% market share. We believe our technology costs are about one-tenth of what global financial institutions spend per transaction. We back-end everything from our global offices to India. When we translate those gains to the customer in terms of higher interest rates, they migrate to us.

When ICICI introduced services like online banking and ATMs in a market that wasn't used to them, what was the initial response? How long did it take to catch on?

We rolled out 1,000 ATMs in a year [2002] when there were about 100 ATMs in the India. There was a great deal of skepticism even within the bank. But we found out the customer seeks convenience above everything. We were pleasantly surprised at the way Indians embraced technology.

The same thing happened with the Internet, which was initially seen as an elite feature. It now accounts for 20% of our transactions. We've come to a stage when whatever was done on the Internet can be done on a cellphone. The moment you do that and look at the fact that 7 million subscriptions are being added every month, think what sort of convenience we'll be able to put in the hands of the consumer. There's another revolution about to happen, you'll have a mass of customers transacting on cellphones in two years.

ICICI has made a concerted effort to tap the rural population. What sort of growth do you see in the sector? And on a more broad scale, to what extent do you see rural demand, whether it's for consumer products or financing, driving India's growth in the next decade?

Rural India will be the next big driver of economic activity. You start on a very low base, so there's a lot to do. Till whatever you have to do is fully done, the growth momentum is rapid.

In agriculture, consider the fact that 35% of green produce goes to waste, and there's no proper price distribution because of intermediaries eating profits. But initiatives in organized retail are attempting to connect rural to urban markets without intermediaries, so there's new economic activity. They're bringing in value addition through activities like grading and storing for fresh produce. This not only adds to the farmers' wealth but to the entire rural wealth. The next stage will be when rural customers want what people in urban India wanted seven years back: televisions, cars, etc.

[ICICI's rural business accounts for about 10% of its balance sheet and is doubling every year, but officials say the numbers are misleading because the base they're growing off is quite small.]

ICICI was a pioneer in the Indian American Depositary Receipt story. What made you take such an initiative at the time? Are you satisfied with the growth you've seen in markets there?

Going to the NYSE was an exercise in discipline. It was a tough call because we were not sure if we'd measure up to U.S. GAAP and SEC standards. But we thought that the Indian markets were not broad enough to meet even our modest capital requirements. It was probably one of the best decisions we took, since our appetite for equity kept increasing as India grew, and we grew with it.

As someone who's seen the growth of this country since independence, what are its achievements you take most pride in? And as a doyen of the industry, what are your concerns for India's growth?

I take great pride in the fact that we could grow along with democracy. We have seen so many countries grow at very rapid rates, but you didn't see democracy in any of them.

Another key takeaway I have is, when you look back in history, India will be seen as a nation that transformed itself using its knowledge, and that revolution provided momentum in the last 10 years. Going forward, the challenges I see are in terms of keeping the social fabric intact of the nation. If we don't bridge the gap between the haves and have-nots, this fabric could come under stress. But the growth path that we're on now is irreversible. There may be temporary speeding up or slowing down, but the foundation of knowledge that spurred the growth momentum will stay.

 

[Bushroda]

Wipro's CEO Sees India's Global Future
Ruth David, 08.13.07, 12:00 PM ET
FORBES, NY

Bangalore, India - Entering the fortified, tree-lined grounds of software giant Wipro Technologies' sprawling headquarters campus here is a sharp reminder of how India's first global success story is still flourishing. The chaos and noise on the city's narrow roads outside is fast forgotten along the lush pathway. And this campus on the outskirts of the city is only a fraction of Wipro's main campus in Bangalore's tech hub, spread over 125 acres and home to 20,000 employees.

India's third-largest software services firm increased profits by 44% last fiscal year, on revenues of $3.44 billion. The overall software services industry grew by 30.7%, with revenues of $39.6 billion. And even though other Indian industries, like retail, financial services and real estate, have become the talked-about growth stories, the software industry is quietly chugging along. It is moving away from its traditional stronghold in the U.S. into newer markets in Europe and Asia while sustaining double-digit growth and constantly adding more employees the world over.

On a visit to what Indians call the air-conditioned city, Forbes sat down with Wipro (nyse: WIT - news - people ) head Azim Premji, the fourth wealthiest man in India and the 21st wealthiest in the world, with a fortune estimated by Forbes at $17.1 billion. We sought his views on how software has changed the face of India, how the industry is changing and the challenges that lie ahead as Indian industries attempt to sustain high growth.

Forbes: When you first took over Wipro in 1966, did you think you'd be part of a technology revolution? At the time, what industry would you have put your money in as being the most likely to succeed on a global scale?

Premji: We went into information technology in end '79, early '80, and that was primarily to address the domestic market. At that time we were in consumer care products that had shifted from commodity-based goods to more branded products. We were looking for high-tech diversification in an area which was emerging and would give us sustainable, routine service revenues. Whether our vision was to go global at that point of time--quite frankly no. Neither was it not to go global.

We really started trying to address the global market in the late '80s, to offer a lab on hire for global services for global customers. Today we're the largest third-party R&D services company in the world. We zeroed in on IT because it was more affordable; we weren't a large company at that time.

What were the regulatory and other barriers you faced when starting up?

The biggest barrier we faced was that we were a joke being a consumer care company going into technology. That's why we changed our name from Western India Products Limited to Wipro. It was about the credibility. … But we invested a lot in R&D and talent. We put plenty of support money into building custom solutions and into building a strong after-sales service network that was not very prevalent in those days. We had no looking back because we were profitable from year two itself.

We didn't have frameworks at that time that were adequately clear-cut or transparent. The country was in a huge foreign exchange crisis. Import duties were completely prohibitive; in many cases imports were banned. So we had to rely a lot on localization for what we manufactured. You couldn't import a simple operating system at the time, so we wrote our own operating system, we wrote our own compliance. The entry barriers were high, so you had to localize.

In what ways did the software services boom change the face of India?

With the success of the software and services industry, Indians realized for the first time that a company from India could be globally competitive and build a significant customer base outside the country. You're seeing the effects of this, particularly over the past two to three years, but even more so in the past 18 months. In terms of scale of acquisitions, scale of setting up marketing networks overseas, wanting to buy overseas brands. This industry was a flag-bearer for the ambition level and confidence level of many industries in India. It built a good reputation … because it didn't over-promise and under-deliver. It left a highly satisfied and supportive customer base.

I don't think you need to sell India or the global delivery model anymore; it's a question of how you get a potential customer to accelerate that decision and how do you continue to be competitive with competition from other emerging countries.

As elections draw nearer in the U.S., we're hearing a lot more anti-outsourcing rhetoric. As competition drives up attrition and wages in India, are companies like yours investing more in local talent in the foreign destinations you're located in?

We're doing recruitment from American, European campuses and are now starting Japanese campuses. We're setting up a center in Atlanta, where we'll be recruiting from universities, and would like to build up to 500 people. We'll probably have two more centers in the U.S., typically in low-cost areas, university towns. Community sensitivity and visa concerns make this essential, and it makes sense to have a local cadre, apart from employees gained through acquisitions.

The global-delivery model today requires roughly 25% to 30% of your teams to be working on customer sites, or in proximity to them. I think what will happen with this 25% is that if today 10% of them are locals, the proportion will go up significantly. Almost 40% of our employees in Europe are locals, excluding the local engineering company we acquired … In U.S. also the trend will increase and will not necessarily raise our costs, because as we depute Indians, we have to give transfer in, transfer outs for them and their families, we have to pay global salaries. If you're able to train locals to understand the global-delivery model, to understand Wipro, it's a viable proposition.

What sort of interest do you see abroad to work at an Indian software firm?

We're seeing a dramatic difference. For a young boy and girl in information technology, to get Indian experience is a real feather in the cap. It's no longer something looked down upon. The only country that seems to be having a problem with this is Latin America. We don't have too much experience there, just a center in Brazil and Mexico. But Latin Americans, if deputed to India, want to come here only for short stints, so most of their training is local. That's not the case with Europeans or Americans. I think it is the language unfamiliarity; they're not as familiar with English.

Was there a defining moment when you first took Wipro on a global stage?

To be successful in the global marketplace in a highly service-oriented business you had to build a brand. I remember that to get admission to meet some associate assistant vice president in a $10 million company, you had to wait in corridors for hours. India had no credibility, the software industry from here had zero credibility and a software services company had sub-zero credibility. But eventually we got customers who became our reference points. Customers like Motorola, Intel and Nortel Networks, we did a good job for them and they became our early reference points.

Globally, people can't stop talking about the India story. What do you think are the roadblocks to sustainable growth when it comes to your industry and the overall industry?

The IT industry is strong, so we're not seeing any short-term roadblocks. I see a strong domestic IT market, but the price points are low, so you have to resign yourself to lower margins. And it's significantly different than the global market, which is why the industry has never concentrated on India. We did because we do a lot of systems integration; we sell hardware, software and services.

As far as India's growth is concerned, infrastructure is a serious problem, big cities are becoming chaotic. And God help us with the 100,000-rupee car [$2,500] coming on to the road. Bangalore will get choked, unless they do war action there.

Cities aren't being developed on a planned basis. Companies are driving growth outside Bangalore now. We're driving 75% of our growth to other cities all over India. Next year, that number will be 90%. Commute times are very long here, people are spending up to three hours a day commuting. It's a huge national waste of productivity. Water management is a more serious problem than the government realizes. Water tables are falling, pollution levels are going up. There is little separation between sewages, lakes and drinking water.

Tech companies like yours have been under sustained pressure since the year started because of the rupee's rapid appreciation against the dollar [it has risen close to 10% since January] and labor troubles. Do you think the worst is over?

The rupee will continue to appreciate. The economy is fundamentally strong, so a lot of money is coming in. The government has reconciled to the fact that it's not going to run this economy like China does. They will not regulate the rupee but will interfere when it suddenly over-firms up. Whatever happens to the currency, the more important criteria here is that it should happen in a phased manner, so the economy has a period to adjust. The days of the government giving crutches to the industry are gone. Such a rise has been a good sanity check, like the dot-com bust. A sense of reality is coming back into the IT sector, and you'll see more of this over the next six months.

Forbes keeps adding to its list of Indian billionaires. But the richest recently came under criticism from the prime minister for not doing enough to spread the wealth. Your thoughts?

I've found that to do scientific, effective social work is tougher than building a business. It takes a huge amount of time, effort and talent. But I think that, parallel with the growth of the industry, we need to invest in creating jobs in small towns and villages. Otherwise we'll see social problems. I don't think government subsidy schemes will serve the purpose.

What is happening in retail, with the entry of organized players, will be a driver for higher productivity in agriculture and better logistics management. Large retail formats will want to procure agricultural produce at better rates and better quality, so they'll set up logistics channels, processing centers, cold storage. The net realization to the farmer will increase, so you will see rural spending going up significantly.

But once wealth comes, you need to skill those people so they can be employed. We're contemplating introducing skills education from grade nine itself in our education programs.

But the Indian is exceptionally tolerant of others' wealth, probably because of our Hindu culture. Today in Latin America, Pakistan and other parts of Asia, a wealthy man can't roam around without armed guards. Thankfully that's not the case here. People have a respect for wealth created honestly.

 

[Bushroda]

Indian Students Flock To The U.S
Andrew White 08.13.07, 12:00 PM ET
FORBES, NY

WASHINGTON, D.C. - Sixty years after gaining independence from Britain, India's students are flocking abroad for higher education. Today, India is the leader in sending its students overseas for international educational exchange, with over 123,000 students studying outside the country in 2006. More than 76,000 of them have chosen the United States as their academic destination.

The U.S. receives more international students from India than from any other country, a trend that continues to shape and impact the cultural, economic and diplomatic dialogue between the two countries. Vigorous efforts have been undertaken by such U.S. government leaders as Under Secretary of State Karen Hughes to persuade Indian students to study in the U.S. This past March, Hughes carried her campaign to Mumbai and New Delhi.

It seems to have paid off. Six years ago, India surpassed China as the international community's leading exporter of students to America, and it seems likely to remain so for years to come.

With 10 times more college campuses than any other country in the world, the United States easily lends itself to the burgeoning international student population, which brought over $13 billion to the U.S. in 2006. While the U.K. may be a closer option, many Indian students seem eager to affirm their independence from their former ruler by choosing to study in the U.S., Australia and New Zealand.

Alan Goodman, president of the International Institute of Education (IIE) in New York City, believes this drift toward U.S.-based educational exchange can be viewed as a manifestation of Indian culture trying to distance itself from British influence.

"It's English," says Goodman. "It's the language of education in India, and with independence has come a desire to break away from Britain and to stop relying on British institutions, and the only other country that has the capacity to take on these students is the United States."

The University of Southern California leads the pack of U.S. universities having the highest international student population, according to the IIE's annual "Open Doors" report, which compiles statistics on the number of students who choose each international destination.

USC's strong Indian population is represented by the university's Indian Student Alliance, led by Gaurav Kumar, originally from Bangalore, who for more than a year has been working toward a master's degree in engineering.

He says that the United States was the best-suited destination for him simply because it had the best programs for the career path he intended to pursue. "I think it's true that most Indian students are coming to the U.S. to study when they leave India. I know a lot of people who go to the U.K., Australia and New Zealand as well, but about 80% of the people I know came to the U.S."

And while international students seem to be entering and exiting U.S. borders for academics with relative ease, since Sept. 11, 2001, the Department of Homeland Security and the U.S. Immigration and Customs Enforcement offices have enacted a number of new procedures for students entering the country, including compulsory in-person interviews at U.S. consulates, and registration in the ICE Student and Exchange Visitor Information System. SEVIS serves as an online database in which every international student in the U.S. must be registered.

IIE's Goodman says the visa procedure is not the most significant obstacle to studying in the U.S. "Probably the most difficult thing about being an international student here is the college application process," says Goodman. "Filling out the visa is probably easier than that."

Kumar, who applied to 14 schools across the globe, says that bureaucratic processes do not deter Indian students. "It's not really difficult," getting the student visa. "It's become a lot simpler for us to figure out the visa application process in past years due to the high number of Indian students coming to America. There is a lot of advising in India available for students trying to get to the U.S. to study."

Nikhil Rasiwas, an engineering Ph.D. student and vice president of the Association of Indian Graduate Students at the University of California San Diego, says the U.S. has been faster to accept international students than other countries, adding to its appeal.

"There are so many more universities," says Rasiwas. "You know more people here, you have more direct contact here with the universities than with universities in other countries--it's kind of a legacy for Indian students to come to the U.S." Rasiwas adds that in India, there is simply more information about U.S. schools than those in other countries. "When I applied two years back, I didn't have as much information on the schools in the U.K."

Rasiwas noted that for his field, engineering, a popular academic and career path for many Indian students coming to the U.S., the research opportunities just weren't there in his homeland, saying, "India is in its nascent stage as far as research is concerned--the infrastructure there is not strong enough to support meaningful research."

Although India is seeing a large percentage of its students traveling abroad to study, most see themselves returning home once they finish their studies. Rasiwas says he plans to try and get work in the U.S. for a few years once he has earned his Ph.D. "Once a person gets this top-notch education," he says, "there may not be that standard in India for such a highly educated person--but it is getting better, and I plan on going back."

Rahul Chhabra, press minister for the Indian Embassy in Washington, D.C., notes that "in a globalized economy, young people tend to gravitate toward countries that offer the best opportunities for their talent. India is a growing economy in attracting both Indian and foreign talent." Chhabra anticipates a future when India can fully accommodate its own academic force, as well as develop into a draw for foreign students and professionals from around the world.

 

[Bushroda]

India Has The Brains, But Where's The Beef?
Prabhakar Raghavan 08.13.07, 12:00 PM ET
FORBES, NY

India is full of smart, highly-trained, English-speaking computer wizards, thanks to the legendary Indian Institutes of Technology. All it needs is decent "infrastructure"--code for airports, highways and the reliable supply of utilities--and its full potential is ready to be realized.

Sound familiar? That's the shibboleth that many Western executives and journalists buy into, fed by quick fact-finding trips and endlessly repeated media myths.

In India, critics of this simplistic picture tend to attack the lack of access to primary education for hundreds of millions of children, and this has rightly been the focus of education policy. One level up, the voracious appetite of the information technology (IT) sector demands science and engineering graduates at a rate that's on par with the U.S., China and Russia.

Between the burgeoning private sector in IT training (the NIITs, a chain of vocational training schools, train over a hundred times as many IT workers annually as the Indian Institutes of Technology) and the untiring efforts of industry consortia such as the National Association of Software and Services Companies to elevate IT education as a policy priority, this shortage will also be addressed over time.

India's real infrastructure problem--with no solution in sight--is not airports or electricity; it is the virtual nonexistence of graduate education and research in information and other crucial technologies. Consider this for starters: The U.S. produces about 1,400 Ph.D.s in computer science annually and China about 3,000. By stark comparison, India's annual computer science Ph.D. production languishes at roughly 40. That number is about the same as that for Israel, a nation with roughly 5% of India's population size.

Perhaps more significant, the quality of graduate research in India lags significantly behind the U.S. and Europe, with a few rare exceptions. This seems paradoxical, considering that American academia and industry thrive on Indian scientists. The reason is that graduates from the top Indian science and engineering schools tend to head abroad to do their graduate work, where they frequently excel and settle.

The current economic boom in India further exacerbates this: The top graduates who remain in India have lucrative options ranging from IT giants to investment banks. According to news reports, all the top five graduates from one Institute of Technology last year had offers from Deutsche Bank (nyse: DB - news - people ).

What is the cost to the Indian economy and society from laggard graduate education and research? Most Indian IT jobs are in building outsourced solutions, quality control, software maintenance and support, and coding to designs created abroad--the IT workforce equivalent of C.K. Prahalad's "bottom of the pyramid."

Sure, there's good sustenance in these jobs for the masses. But a disproportionately small fraction of them are focused on technology innovation or on new product conception, design or architecture. That's because these advanced jobs require advanced training in abstraction and experimentation.

Beyond the higher value and wages that these more advanced jobs command, they often have a "drag" effect--a typical software architect is backed by a team of engineers. This in turn leads to the creation of defensible product and intellectual property assets in the locale, rather than having the ideas hatched in Silicon Valley and then sent to India for the more routine stages of development. The lack of these advanced functions means there are virtually no instances of home-brewed IT innovation in India.

Overall, the U.S. remains virtually unchallenged in IT innovation--a direct result of its second-to-none graduate education and research system, whose genesis lay in the Cold War. The result is a steady stream of new businesses being created in America and driving sustained IT industry growth. Crucially, this system exerts an influence beyond the actual granting of degrees--witness that the founders of Google (nasdaq: GOOG - news - people ), Microsoft (nasdaq: MSFT - news - people ) and Yahoo! (nasdaq: YHOO - news - people ) all have yet to complete their degree programs.

The U.S. clearly has no cultural monopoly on such innovation and entrepreneurship. In fact, Indian immigrants in the U.S. have founded more start-ups than those who've arrived from China, Taiwan, Japan and Britain put together. But in India, it is too easy at the moment to focus education policy entirely on K-12 and undergraduate education. The price of thereby conceding the growth engine of innovation is one that India can ill afford. The hardest infrastructure challenge facing India is graduate education and research.

Prabhakar Raghavan is the head of Yahoo! Research. He is a consulting professor of computer science at Stanford University and editor in chief of the Journal of the Association for Computing Machinery and serves on a number of policy and editorial boards. Raghavan received his Ph.D. from the University of California, Berkeley, and an undergraduate degree in electrical engineering from an Indian Institute of Technology in Madras, India.

 

[Bushroda]

The Indian Media Mela
Vidya Ram, 08.13.07, 12:00 PM ET
FORBES, NY

If the words "print" and "media" conjure up images of plummeting profits, shrinking readership and editors tearing their hair out as they attempt to staunch the exodus to the online universe, you clearly aren't thinking of India.

As the country celebrates the 60th anniversary of its independence from Britain, newspapers are flourishing, with growth projections that would impress even the savviest of investors. And unlike rival market favorite China, the world's largest democracy can boast a free press that is truly able to speak its mind, and the largest English-language speaking audience in Asia.

Fueled by rising consumer spending and literacy rates, the Indian print media is expected to grow by 13% a year over the next five years, according to a study by PricewaterhouseCooper. Set against the average 2.5%growth rate internationally, this is quite a remarkable figure. The total entertainment and media industry, including film, broadcast, online and print media, will be worth an estimated 1 trillion rupees ($24 billion) by 2011.

"The Indian media and entertainment industry, yet again, continues to out-perform the Indian economy and, yet again, is one of the fastest-growing sectors in India," said PwC.

While foreign investors have had access to India's entertainment industry for over a decade, until 2002 they were only able to salivate at anything that had news or current affairs content. Thanks to laws introduced just after independence--purportedly to protect national sovereignty--foreign investors were strictly forbidden from owning even a small slice of the news-industry pie.

However, the news industry has been swept up in the wave of liberalization that has washed over the country since the 1990s. For the past five years, foreign investors have been permitted to hold up to a 26% equity stake in news organizations and have full ownership of non-news media.

With the gates to the mela (festival)* open, investors have been quick to move in. One of the first to go to print in India was the International Herald Tribune. Through a privately held subsidiary, Conde Nast publishes an Indian version of Vogue, while the Pearson Group's Financial Times has teamed up with the Business Standard newspaper.

Rupert Murdoch's Star TV and India's Ananda Bazaar group jointly own the television channel Star News India, while Walt Disney (nyse: DIS - news - people ) owns its own kids television channel. Fortune and Newsweek are also publishing Indian editions through local tie-ups. Private equity players such as Blackstone, 3i, and Matrix Partners have also waded in, lured by the prospect of easy money in a burgeoning market.

Given the restrictions on investing in news, you might have expected most investors to dive into the entertainment industry. But according to PwC, eight out of the 13 proposals for foreign direct investment that went before the government for approval in 2006 were for news ventures.

While the entertainment industry is certainly attractive and growing, it is news that sparkles like the Kohinoor diamond. The numbers--Indian newspapers and magazines have a total readership of 222 million--are made all the more tantalizing by the tattered state of newspapers in the West, which have been losing customers, and those ever-so-crucial advertising revenues, to the Internet.

No wonder Indian newspapers, such as the Hindi-language daily Dainik Jagran, with a circulation of over 22 million, look as tempting to investors as candy to a five-year-old.

Even with India's higher-than-average rate of illiteracy, there is huge room for growth, particularly outside the cities. It is estimated that there are as many as 359 million literate Indians who currently do not read any publications. Just like the Indian software industry a decade ago, the print media is poised for exponential growth.

Harbinder Singh-Heer, managing director of London-based media consultancy Heernet Ventures, believes that the greatest potential lies not so much in the top national dailies as in India's regional press and local language papers. In line with this assessment, The Independent of Britain has tied up with Dainik Jagran in the north, while Blackstone has put its money into the southern Telugu-language Eenadu Group, whose flagship newspaper has the third-largest readership among all Indian dailies.

"Blackstone's investment is a vote of confidence in the excellent growth prospects for India's local language media," says Singh-Heer.

Other good opportunities lie in radio, which is just opening up to private investment, and the Internet, where advertising revenues are nearly doubling every year, albeit from a low base.

But even private equity companies, which Singh-Heer expects will dominate the foreign-investor scene, have so far been ponying up only limited amounts of cash. Blackstone, which is one of the largest investors in the market so far, has invested just $275 million. Indeed, total foreign investment since 2000 adds up to approximately $2 billion, according to London-based media consultancy, Heernet.


Shekhar Gupta, editor in chief of English-language daily The Indian Express, argues that tight government regulation is partly to blame for the hesitancy. In addition to limits on their equity stake, foreign companies are allowed virtually no management or editorial control over their Indian investment. "They have to rely on the good will and performance of the Indian editors and employees," says Gupta.

Another concern for foreign investors is the rock-bottom cover price that newspapers are charging, a necessity in a market where there is strong competition. Top English-language dailies can sell for as little as 1.50 rupees (4 cents), for example. Additionally, there are likely to be concerns about the financial soundness of some groups, which have been in private or family hands for decades. A lack of competition, until recently, has meant that some publications have been able to take their market position for granted.

As a result, foreign investors are testing the waters often only gingerly, argues Singh-Heer, who adds that most "have a long term perspective." He sees the radio market as a case in point. "There has been a tidal wave of new licenses in the past five years, but the challenge for any investor is to make sure he backs the right horse."

But some of the wariness on the part of foreign investors is a product of the Indian media groups themselves. A bullish stock market has meant those that have chosen to go down the IPO route are getting higher valuations than even private equity would be willing to pay.

There is also a certain amount of concern within the government over the political influence that foreign investors could wield. It is this same concern that seems to drive the government's determination to keep the equity cap at 26%, at least for the moment.

Aveek Sarkar, chairman of Ananda Bazaar Patrika group, which owns a major Bengali-language daily and the joint venture with Murdoch, views this as "ideological paranoia."

"We are presuming that the world has nothing better to do than acquire the Indian print media and sabotage it," said Sarkar, pointing out that raising the foreign investment cap to 40% wouldn't destroy Indian control of the media, but would make things more attractive to overseas investors.

Both Gupta and Sarkar believe that eventually, most newspaper groups will recognize that they cannot afford to give up the coveted capital that foreign investment can bring.

"By and large, there has been a broad acceptance that foreign investment has been beneficial," says Sarkar.

T.N. Ninan, editor and publisher of the Business Standard, argues that in addition to the capital investment, the Financial Times' investment in the company has brought with it other advantages, including staff exchange programs and access to the newspaper group's professional expertise.

Even in its early stages, foreign investment seems to be changing the media landscape.

Take the case of Henderson Global Investors, whose 1.2 billion rupees ($26.8 million) investment in the Hindustan Times enabled the paper to launch a Mumbai edition, and take on the granddaddy of all Indian newspapers, the Times of India. Currently, the Daily Mail of Britain is considering setting up a newspaper with Living Media, which owns the popular weekly magazine India Today. This new venture, which is expected to launch in October, will take on New Delhi's heavyweights, such as the Hindustan Times, which also has foreign investment, from the Henderson Group.

The media industry is one place where India and China--so often lumped together--part company. It is one area where having a genuine democratic system and a press not structured by the state makes a huge difference to investors.

"Money may go into the Chinese entertainment industry in the short-term, but if you look at the media businesses in the two countries, there should be no competition," said Gupta.

 

[Bushroda]

CMIE ups 07/08 GDP forecast to 9 pct
Mon Aug 13, 2007 4:30PM IST

MUMBAI (Reuters) - The Centre for Monitoring Indian Economy (CMIE), an independent think-tank, has revised upwards India's growth forecast to 9 percent in the 2007/08 fiscal year from 8.5 percent earlier, citing robust services and industry.

CMIE's forecast is higher than the Reserve Bank of India's estimate of 8.5 percent.

In its monthly review, CMIE said it expects industry to rise 9.6 percent and services sector to grow 10.7 percent in the fiscal year that began in April.

CMIE said the pace of expansion in industrial growth was sustainable as it was broadbased, covering not only capital goods and consumer durables but also intermediate goods.

CMIE said demand for capital goods continued to remain buoyant, with investments worth 47 trillion rupees on hand as at end June.

"The prevailing high interest rate has not hampered the implementation of these projects," it said.

CMIE also revised upwards its agriculture output growth estimate to 3.1 percent from 3 percent, as the area under cultivation has risen sharply and the progress of monsoon was satisfactory.

The think-tank said wholesale price inflation would remain steady or may even decline a tad in the coming months.

The appreciation of the rupee against the dollar could also offset the increase in global crude prices, CMIE said.

India's wholesale price inflation was at 4.45 percent on July 28, below the central bank's aim of containing it close to 5.0 percent in 2007/08.