Business News and Articles
StockNewsLine.com

Five Myths About India

India's 7.9% economic growth in the third quarter of 2009 vividly illustrates a dramatic transformation in the country's image, from a land of elephants and snake charmers to that of an IT powerhouse and an emerging economic giant. While both sets of perceptions are valid, they hide far more than they reveal. Indeed, when it comes to the Indian economy, what most people believe to be true contains more fiction than fact. We highlight below five common myths about India and discuss why the reality on the ground is quite different.

Myth No.1: The information technology sector has been the primary driver of India's economic growth.

India is indeed a global powerhouse in information technology and IT-enabled services. Yet the IT sector is little more than a tiny, though highly visible, niche in the Indian economy. The total revenue of this sector added up to $72 billion in 2008. Translated into value-added terms, the IT sector contributed only about 4% to India's gross domestic product last year. Its contribution to employment is even smaller: About 2 million people are directly employed, and an additional 8 million jobs are created indirectly. Those are tiny numbers in a country with a labor pool of 700 million people.

The fact that India's IT sector is just a niche is actually a blessing rather than a curse. Notwithstanding IT's annual growth rates of 25% or more, the bulk of the recent growth in India's economy has come from manufacturing and other services. Only the manufacturing sector has the scale to create jobs for hundreds of millions of people, most with relatively limited education. If India is to realize its potential as an economic superpower, it will have to keep following China's path by becoming one of the world's factories. The IT sector gives India a good brand image, but most Indian jobs will have to come from manufacturing.

Myth No.2: India is decades behind China.

Most visitors to India and China form their impressions about these countries by comparing such cities as Mumbai, New Delhi, and Bangalore with Shanghai, Beijing, and Guangzhou. The difference between the two countries' urban centers is truly stark. China's top cities now look more modern and sleeker than New York or London. By contrast, India's premier cities are still vivid examples of the third world. Yet most people overlook the fact that, even though China is clearly ahead of India, the former looks stronger than it is while the latter is stronger than it looks.

In 2008, China's GDP was just a bit more than three times that of India. If India's GDP grows at 8% to 9% a year over the next decade—a reasonable prediction based on analyses by Goldman Sachs (GS), the U.S. National Intelligence Council, and other analysts—India's GDP in 2020 will be almost the same as China's in 2008. Of course, China would have powered ahead by then, but the fact remains that India's economy is about 12 to 14 years, not decades, behind China's. This is exactly the difference from 1978, when Deng Xiaoping launched China's reforms, to 1991, when India jumped onto a similar train.

Myth No.3: India's democratic politics will prevent a rapid build-up of the country's infrastructure.

Given its fiercely democratic political system, any Indian government will find it impossible to relocate quickly a few million people from a city's center to make way for gleaming office towers and elevated expressways. Note, however, that infrastructure consists of more than beautiful roads and buildings. It also includes ports, airports, power generation and transmission systems, telecommunications, airlines, and railways.

The only aspect of infrastructure that India's democratic politics hinders in a major way is the beautification of cities. The number of people who need to be relocated to build interstate highways, intrastate expressways, and most other infrastructure components is minimal and thus largely unconstrained by democratic politics.

Regions : Asia

More articles on this topic: