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					                                                      AIB-SE (USA) 2005 Annual Meeting, Charleston, SC


                                   Narendra C. Bhandari, Pace University

     India is making efforts and strides in various areas of its economy, agriculture, education, population, and
bureaucracy. There are several trends, some of which are positive and some of which and negative. The purpose of
this paper is to examine these trends and their impact on the country. A model is then presented to help the country
move from its negative trends toward those that are positive.


     The Indian economy is growing at a rate of 6% a year. At this rate, it can overtake the German economy as the
third largest world economic power in three decades. The Chinese economy, which is growing at a rate of 9.5% a
year, can over take the United States economy by the middle of the century (Engardio 2005).
     India is a preferred destination for job outsourcing by many of the developed countries. The numerous reasons
for this include its skilled, experienced, and inexpensive personnel who speak English and are easy to work with.
Various kinds of jobs, such as back office, accounting, tax accounting, billing, tech support, mortgage applications,
and medical claims are going from the developed countries to India regularly. Any job that can be done by computer
or telephone can be done in India.
    Indian companies are also increasingly undertaking high-skill technical and managerial jobs. The Indian
company, Tata Motors Ltd., a partner of Cummins, an American company, is helping it design engines, power
generators, and components (Engardio and Arndt 2005). Pharmaceutical firms, such as Nicholas Piramal Inida,
Ranbaxy Laboratories, and Biocon are patenting their own drug compounds (Hamm 2005). HCL has designed a
backup navigation system for the AirBus A340 and A320 jetliners (Hamm, 2005). Tata Consultancy Services is
designing human body parts for an American company. Dan Scheinman, a senior vice-president of Cisco says, “We
came to India for the costs, we stayed for the quality, and we are now investing for the innovation” (Engardio 2005).
     There are several negative trends going on at the same time. While socialism does not have as much of a
stronghold in India as it used to, India’s economy is still a hybrid of public (government) and private sector
enterprises. Government continues to control a substantial part of India’s overall economy which includes a wide
range of industries, such as media, railroad, shipping, airlines, medicine, defense, and others. Many firms in these
industries are marked by bureaucracy and inefficiency.
    India’s 6% annual rate of economic growth, while encouraging, is lower than China’s 9.5%. Worse, it is not
enough to provide jobs to the new entrants to the job market. Its population is growing at an average annual rate of
1.6% (Table 1), while its labor force is growing at an average annual rate of 2.1% (1998-2004) (Table 1).
Unemployment continues to grow (Engardio 2005). At least 200 million people earn less than $1 day, if and when
they can find work (Kriplani 2005b). No wonder the Bhartiya Janata Party, the one in power at the time, lost to the
Congress Party in the 2004 elections.
    While improving, India’s infrastructure is still small and inefficient. India lacks roads, subways, expressways,
bridges, tunnels, airports, and railroads. The way its cities have been planned slows down traffic, increases pollution,
and wastes energy.
    With a population of 1.08 billion in 2004, India has a per capita GDP of $3,100 compared to $5,600 for China,
$9,600 for Mexico, $40,100 for the United States, and $58,900 for Luxembourg. The per capita gross national
income (GNI, formerly known as GNP) for India is only $620. That is a tiny $1.70 per day per capita. Twenty-nine
percent of India’s population is below the national poverty line (Table 1).

                                                      AIB-SE (USA) 2005 Annual Meeting, Charleston, SC

    While India’s trade is growing and service trade is glowing, India’s negative resource balance of payment has
continued to increase from -$4.6 billion in 1984 to -$12.3 billion in 2004 (Table 1).
     Many people resist technology because, at least initially, it causes unemployment. This explains, at least in
part, the strong position of labor unions, strong labor laws, and frequency of strikes and lockouts in India.

     India’s agriculture has its own contradictions. Thanks to the Indian farmers and the agricultural sciences, India
continues to enjoy an agricultural surplus. It exports various types of agricultural products. Using computers,
farmers can bypass intermediaries to sell their products in a manner which is more timely and profitable. This is a
bio-techno miracle that the pessimist priest Thomas Robert Malthus would have never believed. Indian folklore
brags about the Ram Raj (Lord Rama’s kingdom), with its rivers over-flowing with milk, yogurt, and ghee. While
the historical facts don’t support the theory of Ram Raj, today India is enjoying thousands of tons of agricultural
surplus—in spite of its exploding population.
    On the negative side, however, this agricultural surplus has not been able to eliminate rampant starvation in
India. Millions of people, including children, starve everyday—as grains and crops rot in open fields and enclosed
warehouses. The rate of child malnutrition (percentage of children under age 5) is at 47% (Table 1). Government
bureaucracy and corruption is as overflowing as the agricultural products.

Education and Literacy
     The Indian Institutes of Technology, their high standards of quality education, and the contributions that their
graduates make to the world economy are widely known and admired. For each IIT student, the government spends
$18,500 (Puliyenthuruthel 2005). Support that corporations give to these institutions is extra. While not as famous as
the IITs, India has many other institutions of learning with very high standards of education.
     Most educational institutions in India, including those managed by the private foundations and trusts, are fully
or largely supported by the government—although not nearly as much as the IITs. That support makes it possible for
most students studying at the government funded-institutions to complete their education for a very small amount of
money, if any, compared to what a student pays for a four-year college education in the United States (about
$40,000 to $120,000 and growing). To look at this phenomenon from a different perspective, every time a student
educated in India comes to the United States to work, it saves the United States $40,000 to $120,000 in educational
expenses. This is an interesting example of foreign aid flowing from India to the United States.
     However, the educational picture and promise are not as pretty for millions of other students in India. Many
schools lack proper buildings, classrooms, libraries, equipment, furniture, drinking water, latrines, drainage
facilities, and playgrounds.
    Many teachers are untrained and lack motivation to teach. Students lack motivation to learn because of poverty
and lack of parental support. Parents need their children to work to make ends meet. It is no wonder that the
graduation rate among students in India is declining, although the rate of enrollment is increasing.
    The situation is particularly disturbing in the schools located in villages and industrial slums. It is not
uncommon to see the school children ragged and bare footed, playing in the garbage piled up in front of their
    Class sizes are large and the curriculum is politicized. There was one kind of curriculum when the Bhartiya
Janata Party was in power. There has been another kind of curriculum since the Congress Party came into power in
2004. Political parties often misuse students to go on strikes in order to serve their political agenda.
    While India’s literacy rate has been growing over the years, 39% of its population 15+ years old is still illiterate
(Table 1).
     Within this overall national average, the female literacy rate in India is only 54%, compared to a 76% male
literacy rate (2001 Indian Census).
    It is important to note that government spending on education is only 3.5% of India’s GDP, as compared to
China’s 8% (Kriplani 2005a).

                                                      AIB-SE (USA) 2005 Annual Meeting, Charleston, SC

    India’s population is estimated to have reached 1.1 billion in 2005. According to the United Nations, this
number, at median variant, is projected to explode to 1.6 billion by 2050. For a comparison, the corresponding
numbers for China (which today has about 300 million more people than India) are as follows: 1.3 billion in 2005,
and 1.4 billion in 2050. India, with an estimated population of 1.449 billion in 2030, is projected to surpass China’s
population of 1.446 billion the same year (United Nations).
     To put these statistics in even starker perspective, the per square kilometer density of the world’s population in
2005 is estimated to be a mere 48; for China, it is 137; and for India, it is 336. For 2050, these numbers are projected
to be 67, 145, and 485, respectively (United Nations).
     As India’s population increases, its per capita availability of resources declines. There is also an increase in its
per capita cost of education, medical care, housing, transportation, and other vital services. It adversely affects
efforts at asset building and community development—as it weakens its democratic principles and practices. It is the
single most important problem India faces today. It is also one of the most ignored problems in the world.

Bureaucracy and Corruption
     Since 1991, India has made large improvements in encouraging entrepreneurship at home and attracting
investments from abroad. The foreign direct investment in India has increased from $983 million in 1994 to $4
billion in 2004 (Table 1). Modern multistory corporate campuses are being established all over the country, many in
collaboration with multinational firms.
      On the other hand, this is a country that is suffering from a well entrenched bureaucracy and corruption that
stifle entrepreneurship and economy every step of the way. These evils are so widespread that they are taken for
granted. Many times it takes weeks, months, or years to receive licenses, to get construction permits, to get
certificates of occupancy, to clear shipments from the government owned railways, or to see an officer in charge.
That India is growing and glowing in spite of all these hurdles is a tribute to the entrepreneurship and efforts of the
Indian business community.


      So what is India? A backroom office complex for international corporations, an emerging research lab to
conduct both applied and fundamental research, a country of poor and unemployed citizens, a country of food
surplus and starving people, a country with increasing unfavorable balance of payment, a country of the IITs and the
illiterates, a country of rising entrepreneurship and bulging bureaucracy?
    India is all of that and more. Actually, India is on the cross roads of its future. Depending upon what and how
well it does today would determine how successfully it can transform itself into a successful and sustainable
economic power in the years ahead, or get into an economic mess and a political chaos. Here are my
     First and foremost, India should control its population. Without that, unemployment, poverty, and social
injustice would continue to keep India from making any reasonable and sustainable economic progress.
     Genuine and effective efforts at population control will help India build an array of durable assets of an
economic, educational, medical, infrastructural, social, and human nature that are also accessible to the vast majority
of its poor and lower middle class people. Population control is also a primary requirement to help India maintain
and strengthen its democratic principles and practices. Controlling population alone would help India eliminate
many of its negative trends.
    India should emphasize, among other steps, the use of both its private business firms and non-governmental
organizations in the very important task of family planning and population control—through the use of voluntary,
non-violent, affordable, and practical methods to prevent human conception.

                                                     AIB-SE (USA) 2005 Annual Meeting, Charleston, SC

    Second, India should manage its food surplus properly and make sure that nobody goes hungry.
     Third, India should eliminate bureaucracy and corruption. Requirements and processes for various kinds of
licenses should be simplified and expedited. People taking and giving bribes should both be punished to the fullest
extent of the law.
     Fourth, the private enterprise system should be encouraged to its fullest potential. The role of the public
enterprises should be minimized. Most government enterprises should be privatized. This will help increase
efficiency, reduce corruption, and increase employment. It will foster creativity and entrepreneurship.
     Fifth, India should educate its people and unions that technology is good for India. It is the technology that is
bringing jobs from all over the world to India. It increases productivity. It increases standards of living. It would
increase jobs. People who are displaced from their jobs due to advances in automation and technology should be
provided with help to retrain and reeducate themselves so that they can find other jobs.
     Sixth, incentives should be provided for students to complete their education. The free lunch program should be
extended by adding free breakfast and a free snack at the end of the day. This will encourage students to stay in the
school all day. Before leaving for home, each student should be given a box of meals to take home that is enough for
at least two persons to eat. This unique help for the parents would go a long way in motivating parents to send their
children to school and keep them there all day. What could be a better example of the rewards of education for a
poor family, than a child earning meals for the family even before he or she has started working in the real world.
   The bureaucracy involved in getting admission to colleges can be eliminated by establishing open universities.
Anyone who can obtain a passing grade from a nationally recognized entrance exam should have the right to be
admitted to a college in the area.
    It is a large order, a very large order. However, it can be filled. It requires support and contributions from

                                                  AIB-SE (USA) 2005 Annual Meeting, Charleston, SC


Poverty and Social

Item                                                        Period          Data
Population (mid year in millions)                           2004-05 est.    1,079.7
Gross national income per capita (Atlas method, US$)        2004-05 est.    620
Gross national income (Atlas method, US$ billions)          2004-05 est.    672.8

Selected items, most recent estimate (latest year available 1998-2004)

Item                                                        Period          Data
Poverty (% of population below national poverty line        1998-2004       29
Child malnutrition (% of children under age 5),             1998-2004       47
Illiteracy (% of population age 15+)                        1998-2004       39
Gross primary enrollment (% of school-age population        1998-2004       99
Average annual growth of GDP, %                             2004-2008       6.1
Average annual growth of population, %                      1998-2004       1.6
Average annual growth of labor force, %                     1998-2004       2.1

Balance of payment (US$ millions)

Item                              1984          1994        2003           2004
Export of goods and services      13,508        32,990      90,568         108,948
Imports of goods and services     18,065        41,437      96,590         121,250
Resource balance                  -4,557        -8,447      -6,022         -12,302
GDP (US$ billions)                206.5         322.6       600.7          688.7
GDP per capita (US$ est.)                                                  3,100

Per Capita GDP

Country            Period       Amount          Country        Period       Amount
World              2004 est.    8,300           Mexico         2004 est.    9,600
Luxembourg         2004 est.    $58,900         Brazil         2004 est.    8,100
United States      2004 est.    $40,100         Thailand       2004 est.    8,100
United Kingdom     2004 est.    $29,600         China          2004 est.    5,600
Russia             2004 est.    9,800           India          2004 est.    3,100

Source: World Bank Data

                                                   AIB-SE (USA) 2005 Annual Meeting, Charleston, SC

Engardio, Pete (2005), “A New World Economy,” Business Week, August 22/29, p. 55

Engardio, Pete, and Machael Arndt (2005), “How Cummins Does It”, Business Week, August 22/29, p. 82.

Hamm, Steve (2005), “Scrambling up the Development Ladder,” Business Week, August 22/29, p. 113.

2001 Indian Census

Kriplani, Manjeet (2005a). “India: A nation of dropouts,” BusinessWeek Online,, January
28, p. 1.

Kriplani, Manjeet (2005b), “India’s Untold Story,” Business Week, August 22/29, p. 132.

Puliyenthuruthel, Josey (2005), “The Other MIT”, Business Week, August 22/29, p. 98.

United Nations data.

World Bank data (2005), India, August 1.


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