See these related posts, or click the India label below.
More where those came from
IIT uber alles
To have and have not
Shanghai from an Indian perspective
Battle for brainpower
Background: I come from Southern India, high achiever, made a pile as they would say, so broadening my attention to study these subjects to understand the cause of our underdevelopment and what we can do about it. I only have experience with Southern India, where I live and travel extensively; I also get to travel the world extensively so I can give detailed comparisons. While I obviously do want to help my country, I am of the "Face Reality As It Is" persuasion, so I don't worry about political correctness of any discussion here.
First, the good news: thanks to better nutrition, I have witnessed IQ go up substantially in the past 30 years. The typical South Indian immigrant you see in the US today (and they do seem to come mostly from the South these days) comes from a vastly lower social scale than the one you saw 40 years ago. The typical immigrant has parents or grandparents who would not be able to function well in Western society, because they lack the cognitive skills. So the Flynn effect seems very visible to me, from my vantage point in South India.
Second, there are even more gains to be had. Malnutrition is slowly going away in the South, but in the North, it is still very very prevalent - we are talking more than 50% of kids malnourished.
Third, a pacific temperament and a traditional respect for authority keeps lower IQ populations from the pervasive social breakdown you see in the US in similarly situated communities. Families are staying intact; if that changes in India in any large scale, I would write India off, because collectively, we Indians are still too dumb to handle "sophisticated" mating behavior (though I think even the Swedish men stay together with their mates to support their kids, in spite of the promiscuous reputation of their society) - I hope our Hindu Gods literally save us on this one!
Now the bad news. Democracy empowers the dumb, probably true everywhere, but truer in India. The elected need to be skillful at manipulating the dumb, so they tend to be smarter than those electing them. Still, all this manipulating exacts a toll. One of the manipulating they do is jobs-for-dumb-constituents, which begets appallingly bad government, particularly at local levels.
This has all sort of bad effects. With such bad local governance, much of India looks like an ungoverned mess - your senses get physically assaulted in almost any urban space in India, disgusting levels of filth and squalor. This is the result of the utter inability to plan, explained by the IQ of those in charge at local levels.
This is more serious than even that. As India urbanizes, we risk going back on Flynn effect, because poor sanitation leads to *urban* malnutrition - not lack of food, but gastrointestinal illness among kids - which lowers IQ. So not having functional lower levels of government puts India's progress at risk. This, I attribute, directly to democracy.
Given these two opposing forces, which was is it going to go? I believe the good edges out the bad, but that would be a hard case to make when you see the filth.
Only good news I can gather is that London and Hong Kong and so on were extremely filthy at a point in their development too.