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Saturday, October 25, 2003

Happy Diwali and Congratulations to Pankaj Advani

Happy Diwali to everyone. Also celebrating apparently will be young Indian billiards champ Pankaj Advani:

The Billiards and Snooker Federation of India (BSFI) today hailed the victory of teenager Pankaj Advani, at the world snooker championship as "terrific" and said the feat would encourage youngsters to take to the indoor sport in greater numbers. "Its a terrific and fantastic news. He has done all of us proud by winning the coveted title at such a raw age," BSFI President, P N Roy, said , a short while after the 19-year-old Advani got past Pakistan's Saleh Mohammad 11-6 in the final at Jiangmen in China. A visibly elated Roy said the BSFI's move to send Advani for training in England last month as part of preparations for the big event has paid rich dividends. "We will surely give him a grand welcome on his return from China," he said.
Source; Hindu News

Now all of this may appear somewhat frivolous, but that's not my take. Looking across the gambit of Indian sport, there is more than a smattering of 'old colonial' influence. I don't know whether Billiards was brought to India by the British (although they do tell me that it's more than likely the bagpipes arrived in Scotland at the end of a voyage which started in India), but imagining that it was: is this a good, or a bad thing for India? I, personally, have no idea. I don't like billards. Second question: Advani was apparently sent to England for training by the BSFI, was this a good or a bad move on their part? Third question: Indian youngsters may now take to the sport "in great numbers", is this a good or a bad thing for India? Trivial questions? Maybe. But I have a nasty feeling that a lot about India's future might depend on finding the answers.

Friday, October 24, 2003

Welcome to Prashant Kothari

Well, It seems that we're adding people at the rate of about one a day, and clearly this can't go on like this. So with Prashant we're nearly done (although watch this space, there may be one or two last minute surprises). Prashant informs us of several things about him on his sidebar, among them that he has 'insatiable curiousity' (again he probably isn't the only one round here with what used to be a considered a problem, Atanu is a self proclaimed sufferer from attention-deficit disorder, and I fear there may be more of us in the closet). He tells us he'd "ideally love to write separate blogs" on each of following topics:

- Current affairs in India and the US
- Literature, especially Indo-Anglian writing
- Outsourcing white-collar services to India (aka Business Process Outsourcing)
- Economics and finance

He would also combine this with occasional posts on technology, online content, history, philosophy, evolutionary biology, rock music and such like topics (and many more). (Have I left anything out Prashant??). He goes on to tell us, however, that "that would be a lot of fun, but requires far more time than this entrepreneur can spare".

As someone who has definitely contracted 'blogitis' I know exactly what he means. Still here on IEW he has the opportunity to fulfill at least one of his ambitions. As an intro I am presenting a post of his which I thinks gives a flavour of who Prashant is as well as anything I've seen:

Vegetarian-only buildings in Mumbai causing tension

The Wall Street Journal (subscription required) has a lead article on vegetarian-only buildings in Mumbai:

A number of buildings, old and new, in the wealthiest precincts of this teeming city (Mumbai) of more than 12 million are going (sic) vegetarian and are enforcing an unofficial ban on meat eaters.
When ancient asceticism meets up with modern real-estate markets, the result can cause some heartburn.

In Bombay, however, there is also a small-but-influential minority of strict vegetarians. Many are prosperous traders, diamond merchants and property developers originally from the neighboring state of Gujarat, home of Mahatma Gandhi and some of India's most exacting vegetarians. Many are adherents of Jainism, an ancient faith based on the principle of ahimsa, or nonviolence. India has about 3.4 million Jains in total. The observant don't eat meat, eggs, or root vegetables, such as onions or carrots, that have been ripped from the soil.

My take:

1) Contrary to what the WSJ may say, vegetarian-only buildings in Mumbai are not a new phenomena. Many buildings have been vegetarian-only for decades, going back to pre-World War II.

2) As a libertarian, I'm all for letting people do as they wish in the privacy of their homes, as long as they're impinging on other people's freedoms. Based on that logic, I see no reason why an individual or a group of individuals should not set up vegetarian-only buildings.

After all, as the Journal reports

Vegetarians are often willing to pay a premium for an environment in harmony with their religious beliefs and no-meat lifestyle. "There's an excellent market for vegetarian buildings," says Sunil Bajaj, a Bombay broker who endorses the concept. "It's as simple as having a nonsmoking area. People want pure veg areas, also."

Well put. All that these vegetarians in Mumbai want is the freedom to live in a vegetarian area, and are willing to pay a premia for doing so. What's wrong with that?

3) While the Sanjay Narang story (about how he was allegedly forced to close down his restaurant because of harassment from the residents of the building) is disturbing IF true, it's also plausible (as the article narrates) that there just wasn't enough traffic.

4) Not surprisingly, the Shiv Sena neo-Nazis have stepped in (the Sena is a regional Hindu nationalist party that carries out a lethal combination of thuggery and extortion under a garb of Hindutva and Maratha pride). According to one of their leaders, Pramod Navalkar:

"This nonsense (sic) will not do! If I come to know of new vegetarian buildings, I'll send the occupants Bombay duck."

Would love to know what Mr. Navalkar and his worthies deem nonsense -- the freedom and liberty to follow one's beliefs in peace, or the Sena's forcible foisting of views (a la the Taliban)?

Full disclosure: I'm a Jain, and I have several relatives in Mumbai, most of whom live in vegetarian-only buildings. None of them has ever tried to convert a non-vegetarian to vegetarianism, overtly or covertly.

I (Edward) have only two things to add.

Full disclosure 1: I don't read the WSJ, never have and (never say never) probably never will do. From where I'm sitting it's full of crackpot ideas. We Brits are definitely eccentric, that's why we like cricket, not baseball (rounders?) and read the FT. This is probably one of the few topics left were I really have no difficulty agreeing with Krugman.

Full Disclosure 2. I have a strong and secret affection for Bombay Duck. Chicken Tika Massala may now be the official national dish in the UK, but my hankerings normally drift towards the poor old 'pato'. This is simply a silly and romantic association from my past. In the late sixties, as a poor and hungry student at the LSE I regularly used to drift over to India House to line up for the brilliant subsidised staff lunch, where pride of place once a week went to this local 'delicay'. Be that as it may, I wouldn't want to be forced to eat even my favourite meal by anyone, and certainly not by Shiv Sena. I'm with you Prashant: long live (pragmatic) libertarianism. Under the paving stones lie the beach etc etc.

Don't Get Tangled in the Spaghetti Bowl!

Returning to an earlier post from Kaushik on the world after Cancun, it seems the poorer and weaker states will inevitably be the most prejudiced. This is indeed a tragedy when you think of all the energy expended by the anti-globalisation lobby in derailing the Doha round, purportedly to help the very people who it now seems clear could suffer most.

What is a bane for the WTO looks like turning into a boon for airlines and hoteliers. Negotiators will be racking up the air miles for years to come as they criss-cross the globe to complete a raft of regional and one-on-one market-opening deals which have sprouted like mushrooms since the collapse of World Trade Organisation talks last month in the Mexican resort of Cancun.

To their supporters, bilateral and regional free trade agreements (FTAs) help shore up the multilateral trading system by spurring laggards to tear down barriers or suffer slower growth in trade and incomes than more open economies. "Our experience is that all three tracks or roads to opening up markets are valued and not opposed to each other," Mexican President Vicente Fox said on at a two-day summit of the Asia-Pacific Economic Cooperation (Apec) forum.

To their detractors, however, FTAs are a second-best solution that create what Columbia University professor Jagdish Bhagwati calls a "spaghetti bowl" of conflicting rules which distort trade flows at the expense of a single set of WTO-policed regulations.Detaching officials and lawyers to negotiate FTAs also leaves less time and energy to devote to WTO talks, critics say. But perhaps the biggest objection to two-way deals is that poor states are likely to be left in the cold. That would make them two-time losers because it is they which stand to benefit most from new global rules to lower barriers to their exports.
Source: Times of Malta

Branding India

Reuben sent me this interview with N.R. Narayana Murphy and Santosh Desai. The interview comes from Business Today and I've put it on site. The principal argument is what India lacks is image: a brand. Obviously this is part of the picture, but the other part which rears its little head from time to time: infrastructure. Like in the airports. Its a good thing to have the image, but its kinda handy to have a the reality to back it up too.

The world's second-most populous country, the sixth-biggest in terms of land mass, and home to one of the largest pools of engineering talent. Yet, Indiaremains a global pygmy, with just 1 per cent share of the world trade. The good news: things are changing, and for the better. The "land of snake charmers" has given way to a land of code jocks; Indian generics are flying off shop shelves in the US; a Mercedes or a Ford actually sports at least something Indian under the bonnet; and a cheaper, more effective back-office in Gurgaon is just a phone call away from Georgia. Slowly, but surely, India is going global.

The bad news: its pace sucks. Primarily because there is no national blueprint for globalisation. A Ranbaxy or an i-flex happens because of the dreams of a few. Can a billion people be taught to dream and execute on their dreams? Possibly not. But can we create, first, a need and then an agenda for globalisation? Absolutely. It is with this objective in mind that BT decided to launch a series on "Taking India Global". Periodically, BT will bring together industry thought-leaders to brainstorm on issues central to globalisation. We kick off the series with a debate on Brand India-as seen by US, the Indians, and them-everybody else outside the country. Does it exist? Do we need one at all? What should it be about? And who is responsible for creating it-the government, industry, individual companies, or simply individuals?

Exploring and seeking answers to these questions are two well-known, but diverse, personalities. Infosys' Chief Mentor, N.R. Narayana Murthy, who has built a global it services brand in Infosys, and Santosh Desai, President of McCann Erickson India, a strategic thinker and a man who helps companies create powerful brands. The face-off moderator: BT's Associate Editor, Vidya Viswanathan. Welcome to the first face-off on Taking India Global:

Thursday, October 23, 2003

Welcome to Rajesh Jain

I'm sure Rajesh needs no introduction to most readers at IEW. Rajesh is a busy man, and most of you probably already follow his informative and interesting posts over at Emergic (if you don't you should, at least if you want to keep abreast of what's going on). It's my big bet that Indian IT will really let the world know it has finally arrived when we see some 'point of view changing' software or some platform revolutionising hardware having its origin there. If I was to try watching the future to see whether it was going to work, then it would be in the direction of people like Rajesh that I'd be looking. High on the list of interesting ideas he is propagating: the 50 dollar thin client computer.

The reference hardware architecture for small -and medium--ized enterprises (SMEs) needs to ensure that even as the total cost of ownership is kept low, there is no compromise in performance. By making computers affordable, it will become possible for SMEs to provide one to every employee in the organisation. This ubiquitous presence of the computer will create the platform for the software applications to revamp existing business processes and make the enterprise as a whole more productive.

The two fundamental components for the hardware architecture are thin clients and thick servers. The thin clients are low-cost, low-configuration computers. It should be possible to create these for about USD 50 (Rs 2,250). Add to that a refurbished monitor for USD 40, and keyboard and mouse for USD 10, and one has a USD 100 desktop solution.

How will the USD 50 base unit become possible? This "virtual computer" needs to be only able to work as a "dumb terminal", though fully capable of displaying the graphics that one sees as part of existing desktops (in Windows and Linux). It needs to have a processor of about 100 Mhz, 2 MB RAM, a couple of USB ports for the keyboard and mouse, LAN support (either for 100 Mbps Ethernet or WiFi) and should be capable of driving a monitor/display unit.

Traditionally, thin clients have been used in companies for reducing cost of administration, rather than the cost of the actual solution itself (if one takes into account the software costs of solutions like Citrix). This is what is different about the approach being presented here: we want to create architectures which can bring down costs across the board - of hardware, software and management. In other words, we do want the best of all worlds!

There are many options to build such a thin client: a 486-class motherboards, existing PDA or cellphone architectures, set-top box designs or even game console units. The point is that there is a need for a solution which does the bare bones processing only, shifting the entire load on the server. The key is the cost for such a unit - only at these low price points will it be possible to achieve a 1:1 employee:computer ratio in the SMEs.

Per capita income growth among states

Kaushik warned about the dangers of skewed economic development a few days ago. Here is a study by the always interesting Jayati Ghosh and C. P. Chandrasekhar on income growth in Indian states.

Uttar Pradesh, the second largest state economy in aggregate terms, is among the lowest in per capita terms. Meanwhile, Punjab and Haryana, which have relatively small total SDP, have the highest and third highest per capita incomes.

Of course, all this says nothing about intra-State inequalities, which also cannot be assumed to be similar across states. The NSS estimates show that some of the States with highest per capita income have also the highest internal inequalities in terms of per capita consumption expenditure. Thus, the two States with the highest Gini coefficients for per capita consumption (indicating the greatest inequality) are Tamil Nadu (with a Gini ratio of 0.398 in 1999-1000) and Maharashtra (with a Gini ratio of 0.345). These two States are among the highest in per capita SDP.

However, other States with high per capita SDP show relatively less inequality in consumption expenditure. Thus Punjab showed a Gini coefficient of 0.29, while Haryana had a Gini ratio of 0.285 in the same period, for per capita consumption expenditure. Conversely, some States with low per capita SDP had relatively high inequality — such as Uttar Pradesh with a Gini ratio of 0.327 and Bihar with a Gini ratio of 0.318.


Wednesday, October 22, 2003

Welcome to Atanu Dey

I'm trying to find a way to say welcome to new IEW member Atanu Dey . It's hard to know how to do this, since saying too little is to 'damn with faint praise' and to say to much is, well, kinda OTT (and hence in bad taste). So I'd just like to give the best introduction I know, which is a piece of Atanu's own work (a piece which connects-in nicely with this ), and say, welcome, friend.

The breast beating about the skewed sex ratio in India has always puzzled me. What is all this bitching and moaning about, really? Why don't these people analyse the situation in its entirety?
Consider the facts:

A. India is overpopulated.
B. Girls are valued less than boys.

C. Neglect of an unwanted child is a greater evil than the aborting of a foetus.

D. The lower supply of women of marriagable age will increase their 'price' leading to a 'negative dowry'.

E. The lower supply of women would retard population growth.

A little reflection on the facts leads one to conclude that the skewed sex ratio is a consequence of other underlying facts such as resource constraints, exhorbitant cost of dowry for getting daughters married, female illiteracy, and so on. Poor families have severe resource constraints, ranging from calories to clothing to education. If sons have a greater net present value (due to their future earning capacity), girls are disadvantaged in the share that they get of the limited resources.
It all boils down to the fact that this is a second-best world. There are multiple problems which conspire to create the skewed sex ratio. Merely addressing the effect leads to idiotic policy recommendations such as banning the determination of the sex of a foetus. One unforunate consequence of that ban could well be the increase in the number of new-born female infants killed, or worse still, chronic neglect of the unwanted girl child.

So what should be the policy response? Either remove all the distortions that lead to the effect or do nothing. For instance, enforce a ban on dowry, enforce a strict limit on the number of pregnancies a woman can have, provide information and materials for effective contraception, increase the marriage age so as to delay the first pregnancy, enforce compulsory and free education for all children, and so on.

All the above may be more than there are resources for. So as a first step, the policy should be to let people make their own decision whether to have a girl child or not by aborting female foetuses. Collectively, it is a rational decision made under the existing constraints.

Of course, if a particular group goes overboard and has no female children, they should be awarded the Darwin Prize for having selected themselves out of the gene pool.

Female Infanticide and Colonialism

Well, so there is a must read article in the Economic and Political Weekly about Female Infanticide and Gender in Punjab: Imperial Claims and Contemporary Discourse. The article suggests that colonial policies might have accentuated gender differences in Punjab. Going back to Edward's post. Tim Dyson writes in his paper on Indian fertility rates, " [F]or present purposes it will suffice to say that northern society tends to place greater stress upon the male line." Hmm...

The greater stress on males in northern society, might have something to do with colonial policy. For example, among the issues Veena Talwar Oldenburg explores in her book, Dowry Murder: The Imperial Origins of a Cultural Crime is the effects of British policy of recruiting "martial races" for the British Indian army. Oldenburg writes:

The British generated new job opportunities for 'martial races' towards defence and development. All this and the effects of recruiting in British Indian Army from the ranks of Punjabi peasants, particularly the land tilling jats, generated a demand for strong young men who would be employed with a cash wage, awards of land and eventually pensions led to a preference for a 'gender targeted family' and in these days it could only be done through selective female infanticide [Oldenburg 2003:15]

This is not to say that things in Punjab were hunky dory before the Anglo-Sikh wars. Female infanticide was practised before the British arrived particularly among the high castes. The British identified the high caste khatris, bedis and rajputs as primarily responsible for infanticide in pre-colonial India.

I haven't read Oldenburg's book but am about too.

But what article reminded me off was a very good essay on Nirad Choudhary by Ian Buruma in his collection, The Missionary and the Libertine: Love and War in East and West. (its also a must read) Buruma writes:

So there was [Nirad] Chaudhuri, lover of Mozart, Pascal, Burke, Wordsworth and Dante, ruled by Englishman whose intellectual tastes were adequately served by Kipling's Barrack-Room Ballads. Their fantasy of Englishness did not inclde the literary Bengali babu, for whom they felt contempt and distrust. More congenial to the British New Imperialists were the brave and philistine warriors of the northern frontiers, Muslims whose tribal pride mirrored the 'muscular Christianity' of the British....

Ian Buruma understates the extent to which both 'literary Begali babu' and 'brave and philistine warriors' were constructs. Nevertheless its an interesting thought...
BPO revenues grow to $2.6 billion in 2002-2003

Seems like BPO revenues are increasing faster than thought, according to India Telecom News.

The branding of India as high quality centre at lower costs by the IT software sector over a decade has enabled the nascent BPO (business process outsourcing) segment to notch export revenue of $2.6 billion by the end of the fiscal 2002-03, constituting 28 per cent of the total IT exports of $9.6 billion.

But with a growth rate of 75 percent currently as against 30 per cent by the IT services sector, the BPO sector is set to achieve the $10 billion target much earlier than 2008, the timeframe set by the McKinsey-Nasscom study. In the current fiscal (2003-04), the BPO sector is estimated to post export revenue of $5.3 billion, which will surge to $8.11 billion by 2006 and $11.7 billion by 2008.

The global BPO industry, which is currently valued at $142 billion, is estimated to touch $540 billion by 2007 and cross $1.2 trillion by the end of the current decade. About 60 per cent of this global market is projected to originate from the US alone, with Europe, Far East and the Asia Pacific region contributing the rest

At this pace, bandwidth is going to become an issue. Hopefully, the govt will remove the bottlenecks to allow the industry to keep growing a rapid clip.
Number of IIT's to go up to 12

The Indian govt has decide to increase the number of IIT's (Indian Institute of Technology) to 12 from the current 7, by upgrading the Regional Engineering Colleges. I guess if the quality of education can be maintained at the old IIT levels, this is a good sign.

PS: For those not in the know, the IIT is arguably the most selective university in the world, with an admission percentage of about 1-2%, compared to 10-11% at Harvard. A very high percentage of start-ups in Silicon Valley are either owned or run by IIT alumni.

Tuesday, October 21, 2003

India and Pakistan send men to Iraq

Just not troops. According to a report in the Financial Times US sub-contractors in Iraq are importing cheap labor from South Asia rather than hiring Iraqis. One key reason, according to the article, is security and force protection. (link via Josh Marshall)
When rich doesn't mean modern

So more disturbing news about the declining child sex ratio (in the age group 0 to 6) in the country. Especially in northern India. The Indian Express carries a story on the front page.

The national average dropped to 927 girls per 1000 boys in 2001 from 945 per 1000 in 1991. And Punjab, Haryana, Gujarat and Himachal Pradesh had a child sex ratio of less than 800 girls for every 1000 boys.

The sad part is that all the worst states are among India's richest . The worst offenders are Punjab, Haryana, Gujarat, Maharashtra, Delhi, Himachal. Needless to add these are all states where the BJP or its allies are a force to be reckoned with.

What will be the economic consequences of the missing girl child? Edward take it from here...

Here comes Bollywood

There is a sea change in the sort of movies that are being made, and a lot of the movies are increasingly made with a worldwide audiences in mind. Taking cognizance of the fact, Time Asia is carrying the "new" Bollywood as its cover story.

The film world has heard rumors of an Indian invasion for years. In London in particular, the success of cross-cultural writers like Vikram Seth, Hari Kunzru and Monica Ali, Andrew Lloyd Webber's Bombay Dreams, department store Selfridges' decision to adopt a Bollywood theme, and a host of wildly successful Indian TV comedies has long convinced the British public that it was set for a Bollywood bonanza. Often, the sheer size of the Indian film industry—releasing an average 1,000 films a year, compared with Hollywood's 740; and attracting an annual world audience, from Kuala Lumpur to Cape Town, of 3.6 billion, compared with Hollywood's 2.6 billion—made it seem as though the West was the last to catch on.

So what's changed? Everything. Rai's [ed: Aishwarya] unchallenged position in the industry is partly due to her determined pursuit of "different, against the grain" roles, such as her 1997 part in Tamil director Mani Rathnam's little-seen but acclaimed art-house movie Iruvar. But Rai is not some solitary crusader, rather the most successful disciple of a new mantra of innovation that has swept Indian film in the past year. Because in 2002 Bollywood truly bombed. All but 12 of the year's 132 mainstream Hindi releases flopped, and the $1.3 billion-a-year industry, used to comfortable annual growth of 15%, groaned under unaccustomed losses of some $60 million. The formulas suddenly weren't commercial anymore. And although some moviemakers groped around for new blueprints—horror, skin flicks, anything—a band of urban and Westernized writers, directors, producers and actors, loosely grouped under the banner "New Bollywood," overran the industry.

The issue also has interviews with Aishwarya Rai (who also graces the cover), Amitabh Bachchan, Rahul Bose, Ram Gopal Varma, Aamir Khan and also an essay written by long-time Bollywood junkie (and one of my favourite movie reviewers), Richard Corliss.

Bollywood is the world's largest movie machine. Big Bollywood stars like Amitabh Bachchan and Aishwarya Rai arguably command a larger fan base than most Hollwood stars. In fact, Bachchan was voted Star of the Millennium in a BBC poll, leaving names like Sir Lawrence Olivier, Robert De Niro and Homer Simpson behind. Bollywood and India are the only sources of competition to Hollywood and the U.S. in the domain of pop culture. I have always maintained that India does not make any use of the "soft-power" potential inherent in this cultural dominance. Clearly, that's a lesson India (and Bollywood) need to learn from the U.S. -- it's not just nuclear explosions that gain you influence in the world. It's also "Friends," "Simpsons" and Rock n' Roll.

Monday, October 20, 2003

China-India Differences as Seen At the Asia Summit of the World Economic Forum

Going back to Vivek and the differences between India and China, Andy Xie was at the WEF meeting in Singapore. He was most impressed with the mayor of Wushi:

I attended the Asia Summit held in Singapore on October 13-14 organized by the World Economic Forum. Most participants were from Southeast Asia. A number of national leaders from Southeast and South Asian countries also attended. The conference mostly focused on microeconomic issues ranging from corporate governance to trade integration. Geopolitical issues attracted most attention, I thought, with China and India looming large over this ASEAN-centered conference.

I noted how few participants at the conference were from China compared to India or Southeast Asia. It reflects how differently China is organized, I thought. India has an established English-speaking wealthy class. So does Southeast Asia. Both have long histories of private sector-driven economies and, less appealingly, regulation-driven profits.

China is quite different from either in two respects. Its development model is about cutthroat competition. When one company becomes profitable in a business, thousands follow. Such a model maximizes GDP but may not be the best for profitability. Because it is so difficult to make profits, riches are often achieved using illegitimate means, usually through defrauding banks.

I was on the same panel as the mayor of Wushi in the session on China. What he said tells much about why China is so different from Southeast Asia or India. In his speech, he talked about nothing but the advantages of investing in Wushi and explained how he could help foreign investors. When the gong sounded that his time was up, he carried on for another five minutes extolling the virtues of Wushi.

Wushi is situated 200 kilometers to the northwest of Shanghai with a population of 4.4 million. Its GDP has increased tenfold since 1990 and its per capita income is four times the national average. Its economic success has been driven by trade. Multinational companies have turned it into a major production center for electronics and other consumer goods. The city has achieved so much because its government is 100% focused on economic development.

The ruling elite in China are bureaucrats who are both salesmen and decision-makers. While the system lacks checks and balances, which could pose problems in the long term, it is extremely efficient at fostering economic development. The mayor of Wushi, for example, promotes Wushi as an investment destination and can make decisions that meet any interested investor's demands. The ruling elite in other Asian countries tend to be rich businessmen or politicians from the same class. They have to balance between protecting their profits and encouraging economic growth. This handicap makes them uncompetitive against China.

The Chinese do not realize how competitive they are in the world today. Chinese workers are becoming as productive as those in middle-income countries, yet because there are so many of them, their wages are similar to workers in poor countries. The difference is the reason for the current global attention on the Chinese currency. As long as there are hundreds of millions of people looking for work, the Chinese government will not push up its labor costs artificially through appreciating the currency. This would only cause wage deflation.

There are hundreds of cities like Wushi in China. They are learning from the success of cities on the coast and are going all out to develop infrastructure and attract investment. While China will likely experience high volatility, its competitiveness will keep pulling ahead of others, in my view. The tension between China and other competing economies is thus likely to grow, and will only disappear if the Chinese slow down or others step up the pace. I don't see either as possible.
Source: Morgan Stanley Global Economic Forum

India's Demographic Divide

Following-on Kaushik's post about India's lack of homogeneity. This is also reflected in the demographics. Forgive me if I cite at length from Tim Dyson's paper at the recent UN 'declining fertility' experts meeting. The good news is that fertility is coming down - this is India's great window of opportunity. The bad news: it ain't even.

Although massive generalisations are involved, the main point ........is that northern and southern parts of the Indian subcontinent appear to have long been governed by rather different demographic regimes. The north always seems to have experienced somewhat higher levels of fertility and mortality, an earlier age at marriage for women and greater excess female mortality.......... Fertility is highest in the four core northern states. And census child woman ratios (CWRs) suggest that until about the last third of the twentieth century fertility in Punjab, Haryana and Gujarat was also comparatively high. Fertility always seems to have been comparatively low in the south; and the southern states experienced fertility declines earlier than the core northern states. Interestingly analysis using district-level CWRs for the period 1951-91 shows fertility decline spreading gradually throughout southern India from an initial 'bridgehead' in the extreme south; this is followed a little later by a second slower emanation of fertility decline from a bridgehead in Punjab/Haryana in the north. As previously intimated, differences in the timing of fertility declines have probably accentuated the current size of the former north/south differential. But the key point is that this differential probably existed prior to the onset of the fertility transition. ................the exceptional masculinity of India's population is largely a northern feature. This differential too is deeply ingrained and of longstanding. Sex ratios from the census have always been unusually masculine in the north - especially in Punjab/Haryana and neighbouring areas of western UP.

The explanation for this demographic contrast is complex (Dyson and Moore, 1983). But for present purposes it will suffice to say that northern society tends to place greater stress upon the male line. The main social units are patrilineally related groups of males (i.e. fathers and sons). Marriages rules are exogamic; 'wife-giving' groups are socially inferior to 'wife-taking' groups; and dowry (i.e. resources which go from the bride's family to that of the groom) is the main marriage transaction. Therefore in the northern kinship system as well as being a fundamental arrangement for the having and rearing of children (especially male heirs) marriage represents a statement of the relationship between different groups. It is central to the structure of the wider society. When women marry they often move over long distances into households where they are strangers. Their levels of personal autonomy are extremely low and son preference is very strong. A daughter will usually require the provision of a dowry. Producing a son is the chief route for a bride to raise her status. It is often said that son preference in India reflects the Hindu requirement for a son to light the funeral pyre. But this rite can be performed by others than a son, and the highest level of religious merit also requires that a daughter be given in marriage. So the real basis for strong son preference - and daughter neglect - lies in the fundamental arrangements of kinship, inheritance and marriage..............

In my view there are several reasons why the basic north/south contrast will mean that during the foreseeable future, say the next twenty-five years, below-replacement fertility is much more likely to prevail in southern than in northern India. First, there is the basic fact that fertility seems always to have been a little lower in the south. Of course, because something is of longstanding does not mean that it will necessarily persist, but at the same time this consideration cannot be entirely discounted. Second, other things equal, the particularly strong level of son preference found in the north should tend to promote somewhat higher levels of fertility there. Third, as argued above, in the north the institution of marriage is pivotal to the construction of the wider society. This is relevant chiefly because it implies that it will take northern women longer to explore avenues of life apart from the domestic domain. Indeed, southern women have long had a significant advantage in terms of their levels of 'freedom', 'autonomy', 'personal
decision-making', call it what you will.

It is also important to note that, in general, south Indian society and economy are appreciably more dynamic than those of the north. This is not to deny the existence of 'bright spots' in the north, such as Delhi, Punjab and Haryana (although these places all have relatively small populations). Gujarat too is as socially and economically dynamic as is Maharashtra immediately to its south. But, that said, travelling around India there is certainly a lack of 'buzz' about the northern, inland, Gangetic core. In contrast, south India, both its urban and its rural parts, has a very different feel. Thus, compared to the core northern states, rates of per capita income growth have generally been much faster in the south. The southern states also tend to be more urban. In addition, most of the more vibrant, big urban centres - e.g. Mumbai, Pune, Bangalore, Hyderabad, Chennai - are located in the south. It is these cities, especially, which have benefited from the liberalisation of the economy since the early 1990s, and where many new investment opportunities have been created. These are the main locations for the growing numbers of high-tech jobs, places where the newly installed high-capacity telephone lines have led to the establishment of large call-centres (often employing young women) which service overseas markets.

Please excuse the length of the post. Any takers?

Where China scored over us

Kaushik just wrote about the potential for social discord because of skewed development.

BTW Paul Krugman has written about the difference between Red and Blue America too. Read this and this

But I wanted to write about China. It has its share of problems about inter-regional disparities too.

However, one of the least advertised aspects of Chinese economic reform (atleast in India) is the widespread support for reform in rural China. There exists a large rural constituency that broadly supports economic reform.

You see, the first reforms to affect China's economy were instituted between 1979 and 1984. A major thrust of the reform was agriculture.

In China, the economic reform program decollectivized agriculture through a contract responsibility system based on individual households. The people's communes established under Mao were largely replaced with a system of family-based farming. The rural reforms successfully increased productivity, the amount of available arable land, and peasant per capita income. All of these were major reform achievements. Their success stimulated substantial support in the countryside for the expansion and deepening of the reform agenda (read this)

If I remember right, Minxin Pei pointed out in the Foreign Affairs article, "China's Governance Crisis" last year (membership required) that despite all their troubles the peasantry in China still have a lot of faith in the central party leadership. They blame their current troubles mostly on the corruption, venality and incompetence of local officials.

No such constituency for reform exists in rural India.

Infact, economic reform in India has meant starving the countryside of public investment (in irrigation, new agriculture research etc). Remember agriculture supports 70% of India's population.

Little wonder then that political parties are so hesitant to embrace reform. Economic reform can hardly take off in a democracy bypassing two-third's of the population.

The right reform strategy should take the rural India along with investments in irrigation, agri-research, rural roads etc. Do that, create a "vote bank" and no trade unions will be able to hold you hostage over disinvesment. Good policy is also good politics.
A word of caution

This is a slightly off topic post. But I think it is important to consider the peripheral issues effecting economy and to look at India in the context of what is happening elsewhere in the world.

But let me first note that I am thrilled to read Amy Wildman's story on Indian economy that Rueben posted below. A story like this, on the NYT homepage, is a big deal. And frankly, this worries me a little. I too believe that India has an opportunity here that a country rarely gets. But I also think that Vivek Uberoi (who recently joined us in IndiaEconomyWatch) hit the bull's eye when he said on an e-mail to the group:

There is so much breathless commentry on the Indian economy in the western press these days--which is quite nice. However, India remains a desperately poor country and life for a lot of Indians is still nasty brutish and short. We should not loose sight of these people at IEW.

I worry that if we are not careful, the growth may accelerate the endemic corruption of Indian institutions and the increasing fragmentation of our politics that is eating away our society. I have been wondering, what effects the essentially regional nature of the current IT and BPO boom may have, on Indian politics and society.

I was reading Kenichi Ohmae a few weeks back. Ohmae is the prophet of the rise of Regional economies. In his last book, now slightly dated, He talked about, how in Japan, some regions have been bearing a disproportionate part of national developmental burden in and how this has created huge social dischord.

Of the country's (Japan's) 47 prefectures, 44 are net recipients of government subsidies. The other three - Tokyo, Osaka and Aichi (Nagoya) - pay the rest. ….More than 85% of the nation's wealth is created in the regions of Tokyo, Osaka and Fukuoka, Sapporo, and Nagoya. All the others receive more from the central government than they pay in.

.. This arrangement is both reflected in and sustained by the country’s voting patterns. The heart of the LDP's traditional support came from the rural areas, to which is returned a disproportionate share of the centrally provided subsidies, in the form either of direct grants of money or services or for indirect protection like trade barriers against the import of foreign rice or beef.

… If I live in one of Japan's three major cities, this arrangement quickly begins to lose its appeal. I may be as reasonable as the next man, but it is hard to see why I should keep footing this kind of bill.

Yesterday, in his rejoinder in Slate (which is worth reading in its entirety) to David Brook's new column in NYT, Daniel Gross nailed one of the core economic issue underlying the current tumult in USA:

Essentially, the Northeast (for my definition here, I use New England plus New Jersey and New York) subsidizes the federal government to a massive degree. Incomes are far higher in the Northeast—and the equally Democratic West Coast—than they are in other regions. Meanwhile, many other regions—say, the South and the Great Plains—subsist on federal largesse. On a per capita basis, those in the Northeast pay far more taxes and receive far fewer benefits than people in other regions.

On a percentage basis, those with the largest disconnect between the amount they ship to Washington and they amount they receive back are in the Northeast. New Jersey receives only 62 cents back on every dollar shipped to Washington, while Connecticut and New Hampshire receive 65 cents and 66 cents, respectively.

The data flies in the face of received notions about wealth, partisan affiliation, and dependence on the federal government. The five largest recipients of federal largesse in 2002 were all non-Northeast states: New Mexico, North Dakota, Alaska, Mississippi, and West Virginia (four of which went Republican in 2000). The states shortchanged the most were New Jersey, Connecticut, New Hampshire, Nevada, and Massachusetts- four of five of which are in the Northeast, and four of which voted Democratic in 2000. In fact, when you look at the voting behavior of states- based on 2000 per capita income - 11 of the 13 wealthiest states voted for Gore while 15 of the poorest 17 states voted for Bush.

So, skewed development and the resulting social dischord exists in two of the biggest economies in the world. But the relative homogeneity of people in countries like Japan or USA have so far held the ensuing social polarization in check. India has a lot of things. But one thing we dont have is homogeneity.

I don't think anyone would dispute that we are right now looking at the development of three powerful regional economies in India. In the South, there is what I would call the golden triangle of Bangalore, Madras and Hyderabad. New Delhi and the satellite towns of Gurgaon, Noida and Faridabad in the North and the Bombay (or Mumbai, if you prefer that) - Pune corridor in the West are the two other key hubs that together with the Southern cities form the center of gravity of the IT / BPO / biotech boom in India.

But unlike Japan or USA, India also has the problem of an increasingly fragmenting and violent political system. All the Southern states are run by regional parties. The center of gravity of political power resides in the Gangetic valley of Northern India which is largely being bypassed by the technology led economic rejuvination in India. If you consider the fact that the large food and fertilizer subsidies are mostly going to big farmers in Northern India, that the bedrock of caste and religion based politics is in UP and Bihar and that basic distrust that often exists between the Hindi speaking North and the Dravidian states has not gone away, you would probably agree that we are looking at a potentially much bigger social upheaval in India unless we can figure out how to bootstrap the rest of the country.
NYT on India's Sizzling Economy

Looks like that 7% GDP growth number have caught people's eyes. Tomorrow's New York Times is a carrying a lead story on the sizzling Indian economy.

After growing just 4.3 percent last year, India's economy, the second fastest growing in the world, after China, is widely expected to grow close to 7 percent this year. The growth of the past decade has put more money in the pockets of an expanding middle class, 250 to 300 million strong, and more choices in front of them. Their appetites are helping to fuel demand-led growth for the first time in decades.

India is now the world's fastest growing telecom market, with more than one million new mobile phone subscriptions sold each month. Indians are buying about 10,000 motorcycles a day. Banks are now making $15 billion a year in home loans, with the lowest interest rates in decades helping to spur the spending, building and borrowing. Credit and debit cards are slowly gaining. The potential for even more market growth is enormous, a fact recognized by multinationals and Indian companies alike. In 2001, according to census figures, only 31.6 percent of India's 192 million households had a television, and only 2.5 percent a car, jeep or van.

Foreign institutional investors have poured nearly $5 billion into the Indian market this year, already more than six times last year's total. The Bombay Stock Exchange's benchmark Sensitive Index has risen by more than 50 percent since April, hitting a three-year high. Foreign exchange reserves are at a record $90 billion.

After huffing and puffing in place for eight or nine years, "the train has left the station," C. K. Prahalad, a professor at the University of Michigan Business School, said of the Indian economy.