India is making huge strides, yet no one seems to notice. To be sure India has its boosters. Its GDP growth rates, second only to China, have given rise to the oft-heard “Chindia.” But most analysts are quick to point out the huge differences between them.
India’s detractors point to two things: government and infrastructure. India may be a democracy, but its governments have been socialist for most of its existence. The consequence is that the federal government and each province have set up their own protectionist measures for local industry. Often these are accompanied by bribes. It has become cliché that it is easier to get a product out of the country then into the next province.
The other complaint is infrastructure. Even if you have the paperwork, you can’t get there from here. Many commentaries on India start with the mandatory 3 AM flight into Chennai because the roads become too clogged during the day. The commentaries continue with complaints of power outages and lack of broadband. Frustrated, and trying to understand the hype, detractors often mistakenly point to India’s IT call-centres as an explanation for GDP growth and return home.
But India’s governments seem to have found realism in the last few years. Many of the taxes and tariffs have been removed as India fights to stay competitive with other low-cost Asian producers. Further, India has implemented financial supports like the Technology Upgradation Fund Scheme for the textile industry to automate mills and increase productivity – even at the risk of higher unemployment. Policies like this would have been unheard of 10 years ago.
India also has greatly expanded its special economic zones (where import tariffs are waived if the resulting manufactured good is for export). These have been highly successful in many developing nations as regional development tools.
However no company would invest in this arrangement if it couldn’t bring products in and out. From 2003 to 2005, India spent over $3 billion (US) on transportation infrastructure, $12 billion on telcom infrastructure and over $5 billion on energy infrastructure and the amounts increase annually. India ranks second, behind the US, for the most roads in any country. This growing accessibility is reflected in the trade figures. Exports grew by compound annual rate of 21.4% between April 2002 and December 2004. More impressively, imports grew at a 26.0% rate over the same period.
Indicators of success are everywhere: financially (the Sensex, India’s primary stock exchange hit record highs recently), politically (negotiations with the U.S. and E.U. on free trade deals), and judicially (high profile politicians losing their criminal immunity and going to jail). Perhaps most stunning is the recent joint venture between Wal-Mart and Indian Entrepreneurial Superstar Sunil Mittal to open a series of small-format, air-conditioned, and standardized retail outlets throughout India. Would big-box, supply-chain driven Wal-Mart enter into this deal if there were no synergies? Clearly Wal-Mart believes the infrastructure landscape is changing.
The other important piece to understand is that India is not so much about IT. India is about agriculture (the second largest producer in the world which, together with allied industries accounts for over 18% of GDP and over 60% of the workforce), automobiles, textiles, gems/jewellery, chemicals, steel, transportation equipment, cement, mining, petroleum, and pharmaceuticals. In fact, Indian industrial growth last quarter came in at a torrid 14.4% annual rate.
All of this is very important to Canada. Economists have a tool called a trade gravity model which very roughly predicts the potential of trade between two nations. India is second only to Italy in underperforming its trade potential with Canada; a legacy of too much government and poor infrastructure. Yet Canadian firms are beginning to grab the new opportunity. For example, the Indian paper industry has been growing at 8.1% in no small part because of Atlantic Canadian pulp and paper exports. Other major growth exports for Canada include dairy products, recycled and mined metals and metalworking machinery. There is no reason why Canada cannot build on these successes.
Yes, many problems remain. But the rate at which they are being solved is staggering and the growth curves prove it. You can sense a feeling of optimism when you talk to people from India – a feeling that you can do business without getting bogged down in the corruption and paperwork that squashed so many earlier deals. Canada needs to get active early; it’s time to give India some respect.
Stephen Kymlicka is a Senior Policy Analyst with the Atlantic Institute for Market Studies, a Halifax-based think tank.