India

A Study on 21st
Century India: Sustaining Growth and
Understanding the Baffling Complexities of Its Predicament
Michael Korycki
September, 2010
International Business Seminar: India

Executive Summary
India's expanding urbanization, falling poverty, and growing literacy rates have paved the way
for it to become a major economic power in the 21st
century. However, its challenges are vast as India's
successes are overshadowed by the ever preset constraints of sustaining its impressive growth rate as its
cities are in dire need of massive infrastructure projects, its people are in need of jobs, and its industries
are in need of energy.
India's top down technocratic attitude has allowed for a plethora of industry reforms giving
proof that the government, as fractious as it can be in India, can move with impressive speed if the
motivation is there. However, the government has allowed for infrastructure to languish with the
corollary being a massive bottleneck in crisis with weak roads and crumbling ports. Even when
traveling on bad roads, however, a vibrant private sector is still delivering growth.
The government understands that the most important driver for growth lies in expanding access
to resources and opportunity, and many such public and private endeavors in India are doing just that.
Also, India's impressive manufacturing sector is starting to lead the global market in a range of
different industries, particular with the success of Tata Motors. However, unemployment and poverty
in India are still not just high, they are a moral indictment of the entire system.
India's viability as a nation is also threatened by its irrepressible penchant for cheap and
sustainable energy. This has posed a challenge as a cantankerous China is increasingly seeking access
to energy for its own growing population and manufacturing industry in the same sphere of influence as
India. The Indians and the Chinese will enter into a dynamic great power rivalry in the Indian Ocean,
with their shared economic interests as major trading partners locking them in an uncomfortable
embrace. The United States in keenly aware of this uncomfortable embrace and sees India as the
antidote to Chinese military expansion in the region.

Intro
To travel through Indira Gandhi International Airport a visitor now enters a terminal worthy of
the ambition, optimism, and potential of 21st
India. However, pick up the Times of India while passing
through and it will do its duty to remind you that the new airport in Delhi is not uniquely Indian – It
was designed by an American architect, managed by a firm out of Dubai, with the steel and copper
being imported from overseas. The day labor, India's great competitive advantage, however, was home
grown: it was “Swalihi”. Already confused by the country's divisive complexities, avert your eyes
from the fastidious periodical and you cannot miss a banner strung across the terminal which reads
“Will India Overtake the US as the World's Next Superpower?” Covering a range of challenges India
faces with expanding urbanism, pervasive poverty, the sophistication of labor, pressing energy needs,
and unruly geopolitics, this paper attempts to answer that very question.
Mega Cities
Most foreign observers are still unsure of what to make of India's rise to prominence. Landing
into any one of India's major cities, one sees a landscape of immense economic promise. However,
explore the city further and one begins to experience a reality of dilapidated ports, crumbling roads
with obstreperous traffic, and vast slums of ungodly destitution. It certainly begins to beg the question,
“India?” Gandhi regarded the growth of cities as “an evil thing...certainly unfortunate for India” and
over the years the cities became constitutional orphans and a dismal reality of a poor, struggling, rural
economy which soon rendered Gandhi's vision threadbare.1
Today's India, however, must come to grips
with the ever present reality that the world, especially India's, is becoming more urban with 50% of the
global population now living in cities. Urbanization and infrastructure present India's most pressing
challenges today and much work needs to be done.
Over the next two decades, India will experience a burst of urban expansion at a speed and on a
scale never before witnessed in human history. By 2030, India will be home to 68 cities with over 1
1 Nandan Nilekani “Imagining India: The Idea of a New Renewed Nation” Penguin Books. New York. 2008. p 196

million people and at least 11 such cities will be boasting populations of over 11 million residents2
To
put the upward scalability of future Indian cities into perspective, 46% of its entire population will be
living in urban centers with more than 1 million people within the next two decades, 215 million which
are expected to migrate from the rural areas, more than the current population of the whole of Brazil3
.
To just keep up, India needs to create 18 billion square feet of floor space over the next two decades,
equivalent to four New Yorks or the entire square area of Kuwait4
.
It is one thing to meet the demands of a burgeoning population and another to maintain it. A
public-service nightmare may develop in its urban centers if the government cannot provide basic
services for its population, already falling woefully short in service delivery. In 20 years, the
government will be responsible for having to construct affordable housing in the amount of 38 million
new homes; fulfill sanitation needs in the amount of processing 109 billion liters of sewage a day;
provide access to 94 billion liters of clean water daily; and service 82 million tons of garbage that will
need to be collected annually. Movement of the masses, too, is a pressing concern and India's urban
transportation construction needs to pick up urgently less risk heading toward a gridlock at a massive
scale.
To meet transportation capacity, India will need to create 35 new mass transit lines, in addition
to over 7,400 kilometers of metro rail to foster commuters from the surrounding areas. Rail, though, is
only part of the congestive solution as India will need to meet the demands of soaring automobile
ownership which will require an additional 2.5 billion square meters of road that will need to be paved,
not to mention improvement to the existing infrastructure which has already fallen into complete
disrepair in most urban areas5
. Today, there are 170 vehicles per-lane kilometer and that number is
projected to rise to 610 vehicles per-lane kilometer by 2025 – attributing to an average daily commute
2 Richard Dobbs “Mega Cities” Foreign Policy Sep/Oct 2010 pp. 332-335
3 Ibid
4 Ibid
5 Ibid

time of 5 hours.6
Already, nearly 1/3rd
of all produce rots in trucks before it gets to market.7
Without
improvement in freight transportation, a rotten problem like this can manifest into an epidemic.
Even at the current predicted urban infrastructure investment level of $300 billion allocated to
road construction over the next two decades, traffic across the country, at worst, could literally come to
a standstill.8
New Delhi has not done enough to prepare and is falling fatally short behind the Chinese
in embracing an urban future of office parks, expansive highways, and high-speed rail. 9
Although
democracy makes for populism, pandering, and delays, it also makes for long-term stability whereas in
China infrastructure projects bypass any means of public discourse which is slowly beginning to build
some descent among the populace. India, for all its political posturing, is just waking up to the urban
reality and Sheila Dikstit, chief minister of New Delhi, understands that India has “no choice but to
make our cities more livable and more attractive, even if the process proves self-defeating.”10
In 2007 the government set out a target to increase total infrastructure development from around
5% of GDP to 8.4% by 2012 which translates into $500 billion over 5 years.11
The largest factor in
delay of limited infrastructure growth has been acquisition of land which largely attributes to just
compensation. As mentioned before, where China can raise entire villages to develop a new high-way,
India is embroiled in long-term disputes over the insurance of fair compensation and traditional means
of debt financing for such compensation are fast approaching their limits.12
One avenue of exploration
to secure future funding lies in the concept of government secured infrastructure debt funds which seek
to bridge the gap between planned and actual investment.
The infrastructure debt funds, essentially, would buy loans from banks for projects that
completed construction and entered into commercial operation. All the funds, of course, would be
6 Ibid
7 Edward Luce“In Spite of the Gods: The Rise of Modern India” Anchor Books, New York 2008 p.88
8 Richard Dobbs“Mega Cities” Foreign Policy Sep/Oct 2010 pp. 332-335
9 Ibid
10 Edward Luce“In Spite of the Gods: The Rise of Modern India”.Anchor Books, New York 2008 p.213
11 “Infra Red” The Economist. Volume 396 Number 8692 p.72
12 Ibid

backed by the government to protect investors from default.13
This is a three-part win for the
government of India. For one, foreign investors undertaking a 99 year lease can diversify their risk by
holding a portfolio of projects as opposed to being wholly invested in one particular project in a
specific area exposing themselves to unsystematic risk if a project should prove unprofitable.14
Second,
domestic insurers and pension funds can take advantage of the project's steady cash flows without
being exposed to construction risk or default risk further securing Indian's social safety net.15
Lastly,
the Indian banks would be able to free up their balance-sheets and begin lending for a multitude of new
projects which could further provide funding by distributing capital from where it sits idle to where it is
badly needed.16
Even when traveling on bad roads, however, a vibrant private sector can still deliver
growth.
From Indefatigable Socialism to a Coup de Foudre with Capitalism
The rise of a new generation of Indian entrepreneurs has been timely for both India and the
world. As the world's population ages, developed markets, such as those of Europe and the United
States, need higher returns on their investments so their older citizens can meet rising pension and
social costs.17
India's entrepreneurial growth is the kind that the world's markets have been waiting for
in the opportunity for growth and innovation they present.18
And waiting for sometime they
have,which has had the world wondering, “What took so long for India to bear fruit?”
In 1947, just at the moment when what India needed most was a modern secular nationalist
leader, it got a fakir and a guru in the from of Mohandas K. Gandhi, and a rabid anti-capitalist in
Jawaharlal Nehru.19
To state the matter shortly, Mohandas Gandhi wanted India to revert to a primitive
village and dominant under a “spiritual society” which rejected modernity and displayed hostility
13 Ibid
14 Ibid
15 Ibid
16 Ibid
18 Ibid
19 Christopher Htchens “God is Not Great” Hatchet Books Group. 2008. pp 182-184

toward machinery and technology.20
Worse still, most of what is left of today's stagnated progress is a
holdover from the days of Jawaharlal Nehru, who displayed a patrician disdain for business, and his
daughter, Indira Gandhi, whose Congress Party controlled the country virtually uninterrupted since
Independence.21
Nehru, a leader in the world of non-aligned nations, was bitterly anti-colonialist. He considered
all foreign capital and expertise to be exploitation, even once remarking that “profit is a word I consider
dirty”, while leading the nonaligned nations in swearing allegiance to socialism.22
Nehru placed the
state at what he called “commanding heights of the economy” and in 1955 declared that “planning
should take place with a view to the establishment of a socialistic pattern of society, where the
principal means of production are under social ownership and control.”23
Under the Congress Party's
“commanding heights” the Indian economy languished, expanding per-capita terms by an anemic 1 to 2
percent annually that economists disparagingly called the “Hindu rate of growth.”24
In this time, only
bureaucrats, politicians, and a small elite of protected businessmen were able to flourish. However, the
environment slowly began to change and India, a nation which came to age as a socialist country, was
destined to make its fortunes as a capitalist one.25
Having been allied with Russia during the cold war and socialist in outlook, the country found
itself bankrupt in 1991, with no more than three weeks of foreign reserves left in its account.26
In this
time Manmohan Singh, then the country's finance minister, pursued an ambitious slate of economic
reforms, opening up the country to foreign investment, ending public monopolies, and encouraging
India's bloated state-run firms to behave like real commercial entities.27
Over the next two decades
these measures paved the way for India to experiment in rapid, technology driven development, to
20 Ibid
21 Jim Rogers “Adventure Capitalist” Random House, New York 2004. P. 244
22 Ibid
23 Sadanand Dhume “Slumdog Billionaires.” Foreign Policy Sep/Oct 2010 pp.160-162
24 Ibid
25 Ibid
27 Jason Miklinand and Scott Carney “Fire in the Hole” Foreign Policy Sep/Oct 2010 pp.106-112

become one of the world's most celebrated success stories. In the wake of Singh's economic reforms,
foreign investment over the next decade grew to 150x what it was in 1991.28
To put this into some
perspective, it would take 57 years in Indira's time for an Indian family to double its income whereas in
Singh's first decade, it would take just 15 years and today even less.29
India's human capital was thus
transferred from an albatross into India's most significant advantage.30
The Demographic Dividend
To Nandan Nilekani, “The change in this idea of population as a burden to a population as an
asset is central to what is driving India today.”31
Nilekani goes on to say that, “A talented pool of
workers, along with abundant capital and investment, presents us with immense opportunities for
creativity and innovation, which in turn can lead to rapid productivity growth and GDP.”32
Nilekani has
every right to be so optimistic. India already has the second largest labor reservoir in the world. It
produces 2 million English-speaking graduates a year, 15,000 of which are law graduates and 9,000
PhDs, and 300,000 new engineers a year to add to its existing pool of over 2 million engineering
graduates.33
Nilekani defines this as the “Demographic Dividend” which is a particular kind of
population increase that could dramatically drive the country's growth, not impede it, as economists
used to believe.34
One such economist who held such a uniquely despondent vision was Thomas Malthus, who
wrote that great population growth inevitably led to great famine and despair.35
His gloomy forecast,
however, shows little signs of coming to pass. Instead, India's pragmatist and dreamers, like Nilekani,
subscribe to the view of economist Julian Simon who argued that as a population increased, so did the
stock of creativity and innovation and that the “ultimate resource is human imagination”36
as well as to
28 Ibid
29 Edward Luce“In Spite of the Gods: The Rise of Modern India” Anchor Books, New York 2008 p.39
31 Ibid
32 Ibid p.49
33 Ibid
34 Ibid p 45
35 Ibid p 35
36 Julian Simon “The Ultimate Resource 2” Princeton University Press. 1998

the Kremerian Model which posits that population growth leads to more geniuses, scientist, and
engineers which fosters faster technological progress. This is proven, albeit lightly, with evidence over
long historical periods. As world population growth increased, so did the rate of growth in living
standards and regions with larger populations have enjoyed faster growth.
However, whether you eschew Malthusian or embrace Simon, immense challenges remain. The
lack of jobs for such a large surplus workforce could shake India at its very foundation, and create
large-scale political and social instability.37
To get there will require “courage and optimism to embrace
good ideas and not remain imprisoned by bad ones.”38
It is critical then that India pass reforms in labor
and education to “rev up” its domestic economy and pull more local savings out of its domestic
economy to alleviate its poor and unemployed.39
Although more Indians moved out of poverty in the
last decade than in the preceding 50 years40
the percentage of people going hungry in India has not
budged in 20 years, according to the UN Millennium Goals Report, and India holds more impoverished
citizens than the poorest 26 sub-Saharan African countries combined.41
For the government of Delhi,
poverty is a moral indictment of the entire system.
Tackling Cussed Poverty in India
What is poverty and when is a person poor? Most rally behind the “dollar-a-day” poverty line
which can be misleading considering that it judges a person to be poor if his/her daily income falls
short of a certain level.42
However, these notions of poverty may only count for a fraction who lack the
resources to buy basic goods and may in fact actually misrepresent the already staggering statistics of
India's poor where, as measured using the PMI, may make more than a few dollars a day and still lack
basic resources.43
The resources include running water, electricity, access to toilets, education, and
37 Ibid p 136
38 Ibid p xi
39 Ibid p 127
40 Fareed Zakaria “The Post American World” W. W. Norton and Co. New York 2008 p.130
42 Sabina Alkine and Emma Maria Santos“Acute Multidimensional Poverty: A New Index from Developing Countries”
OPHI Working Paper 38. July 2010.
43 Ibid

healthcare. If deprived of over 30% of the following mentioned indicators, researches then calculate a
regions “multidimensional poor”.44
This new set of internationally compared data was put together by
researchers at the Oxford Poverty and Human Development Initiative and now makes it easier for
development agencies and governments, particularly in India, to hone their focus.45
The net result is an
index for areas within a single country to draw on more data that could paint a more nuanced picture,
however this still does not account for what attributes to such staggering poverty in the first place.46
As Niall Furguson attests to in his book The Ascent of Money,
“Poverty is not the result of rapacious financiers exploiting the poor. It has much more to do
with the lack of financial institutions with the absence of banks, not their presence. Only when
borrowers have access to efficient credit networks can they escape from the clutches of loan
sharks, and only when savers can deposit their money in reliable banks can it be channeled from
the idle to the industrious or from the rich to the poor.”47
A real world example to this testament citing that the most important driver for growth lies in
expanding access to resources and opportunity could be witnessed by the mission of the Pimpri
Chincwad New Township Development Authority in Pune.
Founded in 1972, the PCNTDA authorized a mandate to develop planned urban communities
for commercial and residential use all the while expanding the opportunity for poor households to
increase their ability to innovate, experiment, and take meaningful risk. Today, the PCNTDA combines
government service and private business venture in developing a profitable and entrenched system that
promotes slum development in the form of rehabilitation. On our visit, we were guided through the
development of a fully integrated, planned township for multi-class living with ambitions to develop
new roads, schools, and even an international convention center. The planned township showcased the
opportunity to remake the area and lead the way for a new model for urban India. More importantly,
however, the slum rehabilitation provided a sense of empowerment, pride, and confidence for the
44 Ibid
45 “Economic Focus: A Wealth of Data” The Economist. Volume 396 Number 8693 p. 62
46 Ibid
47 Niall Furguson“The Ascent of Money” Penguin Books, New York. 2008. p. 16

people who were once living on the street whom can now use their new apartment as collateral in
obtaining a loan.
The PCNTDA, like Furguson, understands that “The more integrated the world's financial
markets become, the greater the opportunities for financially knowledgeable people wherever they live,
and the bigger the risk of downward mobility for the financially illiterate”48
Thus put, the reward for
understanding finance have never been so immense, and the PCNTDA gives the once slum dwellers of
Pune an opportunity to become integrated in the global financial system and avoid the penalties for
financial ignorance.49
The PCNTDA should not just stop at slum rehabilitation by providing real estate, it should also
look globally to understand how other countries are pursuing the advancement of opportunities for their
poorest citizens, particularity concerning children, to ensure that granted loans are used accordingly.
One such program that could be studied for implementation is the Bolsa Familia in Brazil which
recently instituted a Conditional Cash Transfer (CCT) program which, by common consent, has been a
stunning success.50
This model of effective social policy provides a payment of around $12/month via a
tracked debit card for 15 million households throughout Brazil to fight against child malnutrition,
provide simple amenities like cooking oil, and stipends for childhood education with the objective of
keeping children out of petty jobs and into schools51
Accounting for just 0.5% of GDP, the number of
Brazilians making less than $440/month has fallen by 8%/year since 2003 and more importantly, from
1992-2008, primary education graduation rates have risen from 70%-90% and secondary education
graduation rates have risen from a mere 22% to a stunning 52% rate over 16 years.52
Though not a
panacea, the success numbers speak for themselves and the PCNTDA should seek to implement a
similar CCT program. As much attention has been drawn to India's pressing needs to alleviate its poor,
48 Ibid
49 Ibid
50 “How to Get Children Out of Jobs and Into Schools” The Economist. Vol 396 Number 8692 pp19-20
51 Ibid
52 Ibid

more optimistic investors these days are increasingly being drawn to its successful high-tech
manufacturing sector.
The India Way
Is there an Indian way of doing business? Nitim Nohria, Dean of Harvard Business School, was
asked this question while recently on tour in India. “The India Way”, Mr. Nohria went on,
“is a yet to be branded style of management in which there is a radical re-engineering being
done to the business model that allow them to produce products at a price point that is cheaper
than their competitors. This capacity to break the price point and deliver functionality at a
dramatically lower point are far and more coming out of India than compared to any part of the
world.”53
As our DePaul International Business Seminar group experienced, this type of innovation where
business models are being changed in a radically imaginative way to create products of certain basic
functionality at a lower price point is a practice that the rest of the world – students, managers, and
executives alike - will have to come to India to learn. Perhaps no better learning experience on the
“India Way” can be obtained than with a visit to Tata Motors Corporation in Pune.
Tata Motors Corporation is perhaps the most recognizable symbol of India's growing might and
has vanished the old assumption that “Made in India” means second rate. Established in 1945 as a
locomotive manufacturing unit called Tata Engineering and Locomotive Company, the group went
through a number of iterations over the years creating a commercial vehicle arm in 1954 and a
passenger vehicle line in 1998. Under the motto “Make Cars People Love to Buy” the Tata Motor
Corporation generated $20 billion in 2009 and has since expanded to a range of passenger and
commercial vehicles, utility trucks, and defense vehicles and now boasts its most internationally
recognized success, the Nano, a $2500 passenger vehicle.
Ten years ago, as you drove around the world, one did not find many Indian products because it
had not developed the concentration of capital, the expertise, or the quality that is required to compete
53 “Excerpts of Nitin Nohria's interaction with select Indian Media” as posted in India Business Daily July 28, 2010

outside its protected borders.54
Today, in contrast, Tata is a globally recognized brand. As an indication
of its recent success, Tata Motors is on a buying spree extending its global reach through a number of
acquisitions by acquiring Jaguar-Land Rover from Ford for $12 billion, Daewoo Commercial Vehicle
Company from Korea, Hispano Carrocera from Spain, Thonburi Automotive Assembly of Thailand,
and Fiat-Marcopolo of Brazil. Last year, 65% of the group's revenues of $70.8b came from abroad,
much of which can be attributed to the group's strategic acquisitions.55
Today, the company has a clear
vision: to exploit India's low costs and the West's spending power.56
This exploitation has proved highly
successful in the wake of the recent global downturn.
Unlike its American, Japanese, and European counterparts, Tata Motors remained especially
buoyant during the global recession. Throughout the global downturn, Tata benefited from a boost in
both passenger and commercial vehicle demand experiencing a registered 24.5% jump in passenger
cars streamlined by demand for the Indica and Nano and a 40% jump in commercial vehicle sales
during the same period, a number that would surely have GM and Toyota execs salivating at the
mouth.57
With performance numbers such as these, Ratan Tata confidently addressed investors during
the 65th
annual general meeting in Mumbai stating, “The automotive industry is a barometer for
economic strength of a nation and this sector was worst hit during the meltdown, especially in the US
and Europe. By contrast, the automotive sector in Asia experienced growth. China and India were the
main drivers of growth.”58
If the automotive industry is a barometer for the economic strength of a
nation, then foreign vehicle manufactures must take notice of Tata's rise as a preeminent global auto
manufacturer.
Holding it all together across diverse industries and countries, however, has taken a firm hand
and its transformation into a world-beater is largely due to Mr. Ratan Tata's two decades of bold
55 “Succeeding a Success” The Economist Volume 396 Number 8695 p.50
56 Ibid
57 “China, India to Drive Global Auto Sales: Ratan Tata HindustanTimes.com
58 Ibid

leadership.59
However, on August 4th
of 2010 Tata Sons, the holding company for one of India's biggest
conglomerates, announced that it was seeking a replacement for Mr. Tata when he retires in 2012 at the
age of 75.60
Bain Consulting has done a study concluding that most Indian companies never bother to
discuss how new chief executives will be replaced.61
Tata, on the other hand, has bucked the national
pro-genial trend by the manner in which it is seeking Mr. Tata's replacement which is showing a
positive example to India's business community as well as the Tata Group's investors, both foreign and
domestic. As Karil Ramachandran of the Indian School of Business in Hyderabad put it, “Tata is doing
a great job of setting standards here.”62
Tata is also setting standards in other facets of operation. Tata Motor Company's marketing
division has also started to look at innovative and creative means of advertising their product line to an
ever diversifying buyer segment. From the top, Ravi Gupta, CEO, Tata Auto Company Batteries LTD,
said, “We at Tata Green Batteries are committed to using innovative marketing strategies and business
practices to build a unique image for our brand.”63
Meru Cabs, India's favorite and largest metered cab
service, has recently tied up with Tata Green Batteries into an innovative and unique deal called
“Cabvertising”.64
This has already proven to be a profitable way for Tata Green Batteries to improve
visibility in urban areas like Mumbai, Delhi, and Bangalore, since taxis, naturally, travel the “length
and breadth” of the city and capture a lot of inquiring eyes and airports and business districts.65
These
eyes otherwise have nothing more to look at since hoardings and other forms of outdoor advertising are
prohibited in business districts and airports of major cities. Also, the drive time in the cab also provides
for the brands to engage with the Meru Cabs customers.
Tata Motor Group has also been exploring some non-traditional means in outsourcing creativity
59 “Succeeding a Success” The Economist Volume 396 Number 8695 p.50
60 Ibid
61 Ibid
62 Ibid
63 “Driving Visibility in an Innovative Manner” Business Barrons:India July 2010 p.56
64 Ibid
65 Ibid

and innovation. A gathering recently occurred in San Francisco at a private conference in which some
of the world's leading experts, entrepreneurs, and captains of industry met to discuss the offering of
cash prizes through the X Prize Foundation to encourage innovation which, at $100 thousand a prize,
has been working quite well.66
For the first time in attendance, Ratan Tata chimed in on dreaming up
more challenges for the X Prize Foundation and contributed toward the $1.4 million in prizes for a
faster way to clean up oil spills from the ocean.67
Peter Diamondis, Chairman of the foundation, is
convinced that “focused and talented teams in pursuit of a prize and acclaim can change the world.”
Already this year, the X Prize Foundation has awarded 350 such prizes and Tata plans to encourage
such a foundation in India with a concentration on conservation.68
On a recent visit through a Tata Motor plant in Pune, India, the company stressed the
importance of environmental conservation. On our guided tour, we tuned in on a presentation in which
they discussed their objectives in reducing hazardous materials in vehicle components. Some of these
initiatives include, but are not limited to, developing extended life lubricants and fluids as well as using
ozone-friendly refrigerants and, much to our group's surprise, create natural wetlands in and around
areas of operation. Tata Motors also takes on social responsibility by investing in community
development and skill building initiatives by employing locals from the community in which they
operate in. Also, Tata Motor provides a number of health services and education benefits to their
employees and their families. However, for all its success, Tata does not go without criticism and often
hears the world's fowl cry of protectionism.
The question that often gets asked is “How competitive of an environment do Indian firms
compete in?” Scott Smith, a partner at Deloitte headquartered in Mumbai, complained about the slow
movement of Indian liberalization of its retail, insurance, and banking sectors - all of which present
juicy targets for American companies - as well as the 50% silent equity partnership that Deloitte must
66 “Innovation Prizes” The Economist Volume 396 Number 8694 p.79
67 Ibid
68 Ibid

abide to in order to operate in India and the negative implications that this all has on American
businesses with operations in India. Both Wal-Mart and Starbucks, for example, have similarly
complained of such equity stakes and both continue to lobby US trade officials to advocate on their
behalf to have India remove such equity stakes and to have India commit to deeper cuts of their tariffs
on foreign goods that were proposed earlier.69
As one US trade official put it, “At some stage, India is
going to have to reciprocate the opportunities that America is providing to India.”70
Mr. Smith reinforced the India position by adding that India has a “candid, anti-imperialist spirit
and feels it will slowly liberalize and deregulate autonomously without foreign intervention.” This has
been confirmed in a statement from India's recently departed ambassador to the WTO, Ujal Bhatia, who
said that the focus should be on “capturing liberalization that has already happened autonomously”
rather than striving for further opening.71
Perhaps a hardliner approach might be in America's cards
should India not reciprocate. The US does have a strong lever to encourage India to move faster.
India's thriving outsourcing industry relies on access to the American market which accounts for 80%
of its business.72
An offer to firm up the legal status of that access might make India more willing to
compromise.73
Indian officials have suggested that some flexibility might be forthcoming.74
More
importantly, however, India's great priority is to create millions of jobs for its young, bulging, skilled
population, which will be possible only if it makes huge strides in manufacturing.75
Paradoxically, the
need for higher skilled labor is shedding more jobs in certain industries in India than it is creating.
Jobs, Jobs, Jobs
“Labor is cheap in India: signs are painted by hand, bricks are piled nine-high on the crowns of
construction workers, shops are more crowded with attendants than customers.”76
Cheap as the labor
69 “The Recovery in Trade” The Economist. Volume 396 Number 8694 pp. 71-72
70 Edward Luce “In Spite of the Gods: The Rise of Modern India” Anchor Books, New York 2008 p.289
71 Ibid
72 Ibid
73 The Recovery in Trade” The Economist. Volume 396 Number 8694 pp. 71-72
74 Ibid
75 “A Himalayan Rivalry” The Economist. Vol 396 number 8696 pp 17-20
76 “Economic Focus: The Himalayas of Hiring. The Economist Volume 396 Number 8694 p.76

may be, the labor arbitrage is diminishing in margin as labor costs are rising with the sophistication of
manufacturing in India, attributing to wage rate increases of nearly 4000% over the past three
decades.77
According to the International Labor Organization, the Indian workforce will increase by
over 80 million during the next decade and three out of every ten workers by 2020 will be Indian and
those workers will be highly skilled.78
Baba Kalyan, chairman of Bharat Forge, a most impressive car-parts maker, explains how and
why Bharat moved to higher-skilled production in order to get an advantage stating that “India's
advantage does not lie in manufacturing that is labor intensive. India's manufacturers economize on
labor, despite its abundance, in favor of capital and technology.”79
This technology is seen in the form
of IT and engineering skills to design more sophisticated vehicle components, a market that is expected
to surge to $20 billion by 2012.80
“We were never competitive in the 1980s. We are extremely
competitive today. And the difference is technology.”81
Mr. Kaylan's statement has been reenforced
by the work of Deepika Wadhwa and Gunajit Kalita of the Indian Council for Research on International
Economic Relations in Delhi who have studied that the ratio of labor to capital halved over the 1990s.82
Additionally, MIT's Yasheng Huang points out in his research that Indian companies use their capital
far more effectively than Chinese companies, in part because they do not have access to unlimited
supplies of it.83
Today, Bharat is making further gains in capital to output yet some hurdles remain in
maximizing the ratio. What has hindered gains in productivity and efficiency, according to the ICRIER
is India's “archaic labor laws.”84
The central government imposes over 55 labor laws and the states another 150 more in addition
to the Industrial Disputes Act which calls for the state's permission before sacking any position.85
These
77 Ibid
78 Ibid
79 Ibid
80 “Made in India: The Next Big Manufacturing Story” McKinsey-CII Joint Report. October 2005
81 Ibid
82 Ibid
83 Yasheng Huang “Will India Overtake China?” Foreign Policy July/Aug 2003. p 77
84 Ibid
85 Ibid

tough labor laws have not impeded Indian industry as a whole, but labor intensive industries do better
in states with relatively flexible labor markets favoring the state of Karnataka over Maharashtra where
industry in the former has nearly doubled the pace of growth in the latter.86
Labor laws are just part of
the problem. As hindering to productivity as these rules and regulations may indicate, the World Bank
2006 survey states that 15% of global manufacturers cited labor restrictions as the biggest obstacle to
their operations in India with nearly double that number being most concerned about reliable
electricity.87
Pressing Energy Needs
Global energy needs are expected to rise by 45% over the next two decades with half of the
growth coming from India and China.88
As the world's oil runs dry, many – including sober analysts in
both countries – foresee a China-India rivalry redrawn as a cut-throat contest for an increasingly scarce
resource.89
China's demand for crude oil has already doubled between 1995 and 2005 and will double
again over the next 15 years90
while India is soon to equal such consumption by becoming the world's
4th
largest consumer of energy.91
India is already beginning to explore far and wide to continue to fuel
its growth.
India's coal and ore imports from far-off Mozambique are set to increase substantially, adding to
the coal and ore that India already imports from other Indian Ocean countries such as South Africa,
Indonesia, and Australia. Tete, Mozambique, a city on the Zambezi, may hold under its soil the world's
largest unexploited coal field.92
So why is India, with its own vast reserves in Chlattisgarh and
Jharlhand near $1 trillion, approaching far off Mozambique to fuel its boom? If you were to lay a map
of today's Maoist insurgency over of a map of the mining activity in India, the two would line up
86 Ibid
87 Ibid
88 International Energy Agency “World Energy Outlook 2007” Paris. 2007
89 “A Himalayan Rivalry” The Economist. Vol 396 number 8696 pp 17-20
90 US Energy Information Administration “World Oil Consumption by Region Preference Case, 1990-2030”
91 US Energy Information Administration “India Energy Data, Statistics, and Analysis”
92 “A Faltering Phoenix” The Economist. Volume 396 Number 8692 p.50

almost perfectly. 93
Major global companies like Toyota and Coca-Cola rely on mining operations in the
heart of the Maoist war zone.94
Due to the insurrection, over $80 Billion worth of projects have stalled
and India's potential steel output has been cut in half. Naturally, India seeks to diversify its risk should
the guerrilla war intensify however it may be losing a battle on another front.
With emerging markets such as those of India and China crying out for more coal, the base
around Tete is expected to develop into a huge boom for the region as well as a tense foreign direct
investment battle between India and China.95
India, however, has already lost the initiative as China
has already started building a power station downstream and is currently Mozambique's second largest
foreign direct investor after South Africa.96
India once again finds itself impeded by its own democracy
as China bypassed imposing 35 reforms on Mozambique as proposed by the G19.97
India is also making a big push to import more liquified natural gas (LNG) throughout ports
from the Indian Ocean while continuing to diversify by importing from Qatar, Malaysia, and
Indonesia.98
Of course, India's ever-restless quest for energy security involves striking deals with a
number of rouge regimes around the world. Much to the ire of the United States, India has been
forging closer ties with Iran and has signed a strategic energy partnership which will supply India with
7.5 million tons of LNG annually for 25 years and will be sufficient to take care of much of India's
energy demands even much further out than that.99
In this arena, what has been troubling the
relationship between the US and India is that business with Iran has triggered sanctions on Indian
companies that trade with Iran through the powers granted by the US Helms-Burton Act.100
Currently,
the US cannot provide an alternative to compensate these energy needs and this relationship with Iran
will continue to run down its slippery slope.
94 Ibid
95 Ibid
96 Ibid
97 Ibid
98 Robert Kaplan “Power Plays in the India Ocean: The Maritime Commons in the 21st
Century.” Foreign Affairs
March/April 2010 pp. 179-191
99 Ibid p. 182
100“ Edward Luce "In Spite of the Gods: The Rise of Modern India” Anchor Books, New York 2008 p.291

Plans are also now in the works for joining India and the Middle East at the hip by building a
gas pipeline through Pakistan, which can go a long way at stabilizing India-Pakistani relations as well
as bring in up to $1 billion in transit fees annually for the government of Pakistan, an incentive for the
government of Islamabad to pursue stability with India.101
In return for LNG, India has been helping
Iran develop the port of Chah Bahar, on the Gulf of Oman, which will also serve as a forward base for
the Iranian navy.102
India has also been playing tug-of-war with China over economic cooperation with Myanmar, a
country rich in oil, natural gas, coal, zinc, copper, uranium, timber, and hydro power. However, it has
been difficult for India as a democracy to align itself with Myanmar's junta which has opened the door
for China to donate billions in military assistance which includes the construction or upgrading of
commercial naval bases and the building of roads, waterways, and pipelines to link the Bay of Bengal
to the southern Chinese province of Yunnan.103
With international condemnation affecting India's
democratic image, all they can hope for now is the advent of a more liberal regime in Myanmar which
would undermine China's dominant position there, boost Indian influence, and quicken regional
economic integration.104
This, in turn, would pave the way for India to secure its future energy needs
by creating a network of East-West roads and energy pipelines to create a land based energy corridor
between Myanmar, Pakistan, and Iran.105
Likewise, however, the collapse of the junta in Myanmar
would threaten economies nearby and require massive sea born humanitarian intervention.106
For most Westerners, including the United States, overseas aid is as much a tool of foreign
policy as it is an expression of humanitarian concern.107
A humanitarian crisis in nearby Myanmar may
allow for an opportunity to practice “Diplomacy of generosity” or soft power ambitions in which aid is
101Robert Kaplan“Power Plays in the India Ocean: The Maritime Commons in the 21st
March/April 2010 pp. 179-191
102Ibid
103Ibid
104Ibid
105Ibid
106Ibid
107Edward Luce “In Spite of the Gods: The Rise of Modern India” Anchor Books, New York 2008 p.293

part.108
Once again turning to Brazil as an example, Brazilian foreign aid is focused more on social
programs and agriculture and does not fester the corrupt government and policy of Chinese foreign aid
in exchange for access to raw materials.109
Lavishing assistance to far off parts of the world helps Brazil
to compete with China and India for soft power influence and has also garnered support among the
world governing authority to petition support to offer a permanent seat to Brazil on the UN Security
Council.110
As important as soft power implementation has become a tool of foreign policy, India must
not wain in the face of the ever present danger of its bullying neighbor.
The Tiger and the Dragon
Monmohan Singh, India's sage-like prime minister, has often been quoted to say that “India and
China are not in competition” and that “There is economic space for the both of us.”111
Despite prime
minister Singh's good wishes, China and India are old enemies, bad neighbors, and nuclear powers and
have two of the world's biggest armies – with almost 40 million troops between them – and to many
this seems troubling, especially to those who wish for India not to repeat Nehru's callow benefit of
doubt previously given to the Chinese.112
Hindi-Chini Bhai Bhai – Indian's and Chinese are brothers! was the oft-chanted slogan in Delhi
in the early 1960s.113
Along that time, Nehru rooted India's foreign policy in abstract ideas rather than a
strategic conception of national interest.114
Nehru was an idealist and a novelist and even ceded a
permanent UN Security Council seat to China as an idealistic extension of peace.115
All the while,
Beijing, rather ominously and with a flare of effrontery, started to publish maps that redrew many
sections of the lengthy Himalayan border between India and China.116
Nehru, whose peaceful idealism
had not flagged, had found it increasingly harder to read Beijing's “cartographic aggression” and rather
108“Speak Softly and Carry a Blank Check” The Economist. Vol 396 Number 8694 p.41
109Ibid
110Ibid
111“A Himalayan Rivalry” The Economist. Volume 396 Number 8696 pp.17-20
112Ibid
114Fareed Zakaria “The Post American World” W. W. Norton and Co. New York 2008 p.148
115Ibid

than negotiate the disputed boundary with China, Nehru announced the Indian neutrality position
unilaterally, and continued its position of righteousness.117
In 1962 Nehru's peaceful idealism would forever change as the Chinese People's Liberation
Army invaded northern India driving back the Indian military, settling the dispute decisively in its
favor. This was a disaster for India and a humiliation for Nehru who never fully recovered from the
shock. He would go on to say about the Chinese invasion that “We were getting out of touch with
reality in the modern world and we were living in an artificial atmosphere of our creation.”118
Visibly
aging, emasculated, and shrinking in stature, within 18 months Nehru was dead. Two years later, China
exploded the hydrogen bomb. According to Edward Luce, “It was a tragic postscript to a life of tireless
and often inspiring international statesmanship.”119
With ruthless precision, Beijing ensured that
Nehru's fond ideals of Asian brotherhood and nuclear disarmament amounted to nothing and it was a
harsh tutorial in the ways of the world.120
It should come as no surprise to hear then that today, according to one BBC poll, 38% of
Indians have a negative view of China.121
Brajesh Mishra, former National Security Adviser and
Special Envoy to China recently stated, “China, in my view, does not want a rival in Asia. Its main
agenda is to keep India preoccupied with events in South Asia so it is constrained from playing a more
important role in Asian and global affairs.”122
Mr. Mishra is well aware of the Chinese proverb of “No
mountain can accommodate two tigers” and he will ensure that India is not the first tiger to be forced to
leave the mountain side.
Chinese expansion – be it in Myanmar, Pakistan, or through its naval buildup – is unnerving the
Indian government who fear being encircled by China unless it expands its own sphere of influence.123
117Ibid
120Ibid
121“A Himalayan Rivalry” The Economist. Volume 396 Number 8696 pp.17-20
122Ibid
123Robert Kaplan“Power Plays in the India Ocean: The Maritime Commons in the 21st
March/April 2010 p 184

India is currently enlarging its navy at the same spirit as China. India, with 169 warships, is already
one of the world's largest and it expects to add three nuclear powered submarines and three aircraft
carriers to its arsenal by 2017.124
Clearly what this armament buildup in both India and China is
indicating is that the two countries' overlapping commercial and political interests are fostering
competition, even more in the naval realm of the land.125
The rhetoric has been certainly heating up
over the years and so have the actions of China, already Pakistan's largest supplier of military hardware
- including fighter jets and guided-missile frigates - which in the past has given it weapon-grade fissile
material and a tested bomb design as part of its nuclear support.126
Zhao Nanqi, former director of the General Logistics Department of the People's Liberation
Army proclaimed in 1993, “We can no longer accept the Indian Ocean as only for the Indians”, a
precursor to China's ambitions in the region. As of recently, Zhan Ming, a Chinese Naval Analyst, has
stated that “India is China's most realistic strategic adversary”127
Both these quotes reveal that Beijing
already considers New Delhi to be a major sea power and it also sets the stage for the Indian-Chinese
rivalry that is taking on the dimensions of a maritime Great Game. The United States in keenly aware
of this and sees India as the antidote to Chinese military expansion. The goal of the United States must
be to forge a global maritime system that can minimize the risk of interstate conflict while lessening the
border of policing for the US Navy.128
And how eager is India willing to accept this role?
As Jaswant Singh stated, “India does not wish on behalf of Washington to play the role of
strategic counter balance to China.”129
In his view, India wants to remain equidistant from China and
the US while while working for good relations with both.130
However, the present reality may prove this
view to be wishful thinking and the US is hoping that India will be more willing to help and emerge as
124Ibid p.183
125Ibid
126Ibid
127Ibid
128Ibid p.185
130Ibid

the weather vane of international politics.131
Due to its sheer size and the nature of its political system,
India is seen as the only country that could counterbalance China's rise as a global power.132
Fitting for
the US, India is the most pro-American country in the world and they continues to seek a strong bi-
lateral relationship with the US.133
Also, fitting to its anti-imperialist tradition, India has never waited
for American permission to balance against China134
and has been striving to balance China since the
day the Chinese invaded Tibet.135
The US is all too aware of how much the international economy
depends on sea traffic and US admirals are thinking beyond fighting and winning wars to
responsibilities such as policing global trade agreement much akin to the thought of Alfred Thayer
Mahan who argued that the power to protect merchant fleets had been the determining factor in world
history, and nowhere is that becoming more important than in the Indian Ocean136
Today, the Indian Ocean accounts for half of the world's container traffic and 70% of the world's
petroleum makes its way from the Middle East to the Pacific through the Indian Ocean with 40% of
that petroleum passing through the Straits of Malacca, which has become just as vital to both Indian
and US national security interest as the Straits of Hormuz.137
Historically, the Straits of Malacca has
been a vital seaway corridor which provoked 15th
century historian Felipe Fernandez Armeste to once
note that “Whoever is Lord of Malacca has his hand on the throat of Venice” , then the world's greatest
seafaring power, and alluding to the straight's vital importance to extensive commerce with Asia. As
Robert Kaplan notes, “The Indians and the Chinese will enter into a dynamic great power rivalry in
these waters, with their shared economic interests as major trading partners locking them in an
uncomfortable embrace. The United States, meanwhile, will serve as a stabilizing power in this newly
131Robert Kaplan “Power Plays in the India Ocean: The Maritime Commons in the 21st
March/April 2010 p.188
132Ibid p.278
133Pew Global Attitudes Survey June 2008
134C.R. Mohan, remarks at council on foreign relations. June 19 2006
135C.R. Mohan “India and the Balance of Power” Foreign Affairs July/August 2006 p.17
136Robert Kaplan “Power Plays in the India Ocean: The Maritime Commons in the 21st
March/April 2010 p.187
137Ibid p 182

complex area with indispensability, rather than dominance, being its goal.”138
Without a strong US
diplomatic, economic, and military presence in the Indian Ocean, the region is at the mercy of tensions
between dynamically growing and highly nationalistic states that could quickly put a sobering end to
India's economic miracle.139
Conclusion
As Fareed Zakaria eloquently concludes in The Post American World, the Indian economic
miracle “can still capitalize on its advantages – a vast, growing economy, an attractive political
democracy, a vibrant model of secularism and tolerance, a keen knowledge of East and West, and a
special relationship with America.”140
This special relationship has allowed for a whole generation of
Indians abroad in the US to play a crucial role in continuing to open up the mother country. They
return to India with money, investment ideas, global standards, and, most importantly, a sense that
Indians can achieve anything.141
In this century India will have a society able to respond superbly to the
opportunities of a globalized world and will continue to prosper in the global economy and society.142
So will India overtake the United States as the world's next superpower? Surely there is much to put
into consideration.
Notes
“A Faltering Phoenix” The Economist Volume 396 Number 8692 p 50
“A Himalayan Rivalry” The Economist Volume 396 Number 8696 pp 17-20
“China, India to Drive Global Auto Sales: Ratan Tata” HindustanTimes.com
“Driving Visibility in an Innovative Manner” Business Barrons: India July 2010 p 56
“Economic Focus: A Wealth of Data” The Economist Volume 396 Number 8693 p 62
138Ibid p 190
139Ibid
141Ibid p 151
142Ibid p 166

“Economic Focus: The Himalayas of Hiring” The Economist Volume 396 Number 8694 p 76
“Excerpts of Nitin Nohria's Interaction with Select India Media” India Business Daily July 28, 2010
“How To Get Children Out of Jobs and Into Schools” The Economist Volume 396 Number 8692 pp 19-
20
“Infra Red” The Economist Volume 396 Number 8692 p 72
“Innovation Prizes” The Economist Volume 396 Number 8694 p 79
“Made in India: The Next Big Manufacturing Story” A McKinsey-CII Joint Report October 2005
“Speak Softly and Carry a Blank Check” The Economist Volume 396 Number 8694 p 41
“Succeeding a Success” The Economist Volume 396 Number 8695 p 50
“The Recovery In India” The Economist Volume 396 Number 8694 pp 71-72
Blackwill, Robert D. “Journalist Roundtable on India” Hosted by David B. Ensor Feb 23, 2006
(Transcript)
Dhume, Sadanand “Slumdog Billionaires” Foreign Policy Sep/Oct 2010 pp 160-162
Furguson, Niall The Ascent of Money New York: Penguin Books 2008
Hitchens, Christopher God is Not Great New York: Hatchet Books Group 2008 pp182-184
International Energy Agency “World Energy Outlook 2007” Paris 2007
Jason Miklinand and Scott Carney “Fire in the Hole: How India's Economic Rise Turned an Obscure
Communist Revolt Into a Raging Resource War” Foreign Policy Sep/Oct 2010 pp 106-112
Kaplan, Robert “Power Plays in the Indian Ocean: The Maritime Commons in the 21st
Century”
Foreign Affairs March/April 2009 pp 179-191
Luce, Edward In Spite of the Gods: The Rise of Modern India New York: Anchor Books 2008
Mohan, C.R. “India and the Balance of Power” Foreign Affairs 85 July/August 2006 p 17
Mohan, C.R. “Remarks at Council on Foreign Relations” June 19 2006
Nilekani, Nandan Imaging India: The Idea of a Renewed Nation New York: Penguin Books 2008
Rogers, Jim Adventure Capitalist New York: Random House 2004
Sabina Alkine and Emma Maria “Acute Multidimensional Poverty: A New Index for Developing
Countries” OPHI Working Paper 38 July 2010

Simon, Julian “The Ultimate Resource 2” Princeton University Press 1998
US Energy Information Administration “India Energy Data, Statistics, and Analysis”
US Energy Information Administration “World Oil Consumption by Region Preference Case 1990-
2030”
Zakaria, Fareed The Post American World New York: W.W. Norton and Company 2008

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