India = Silicon Valley + Africa ?

A few hundred million (relatively) affluent middle class knowledge workers surrounded by almost a billion slumdogs is not a desirable development outcome. It may in fact be unstable (see below).

The only way I know of to raise the standard of living of a billion people is through the well-traveled (but dirty and energy intensive) path of industrialization and manufacturing. That is how the West, Japan, and Asian Tigers did it, and what China is doing now. Software parks and call centers are wonderful gleaming instantiations of modernity, but only a small fraction of the population in India have the cognitive ability to write code or deliver complex services in English. India optimists are only thinking about the elite minority -- what about the rest of the population?

We have yet to discover a scalable leapfrog to modernity that avoids heavy lifting in favor of bits.

See previous India posts, like Slumdog brainpower.

WSJ: ... Ravi Venkatesan, until this week chairman of Microsoft Corp.'s India arm, says his nation is at a crossroads. "We could end up with a rather unstable society, as aspirations are increasing and those left behind are no longer content to live out their lives. You already see anger and expressions of it," he says. "I strongly have a sense we're at a tipping point: There is incredible opportunity but also dark forces. What we do as an elite and as a country in the next couple of years will be very decisive."

... "What has globalization and industrialization done for India?" asks Mr. Venkatesan, Microsoft's former India chairman. "About 400 million people have seen benefits, and 800 million haven't."

Calorie consumption by the bottom 50% of the population has been declining since 1987, according to the 2009-10 economic survey conducted by India's Ministry of Finance, even as those at the top of society struggle with rising obesity. Mainly because of malnutrition, around 46% of children younger than 3 years old are too small for their age, according to UNICEF.

Infrastructure in cities and the countryside remains woefully inadequate: In recent years, China has added, on average, more than 10 times as much power as India to its electricity grid each year.

Data from McKinsey & Co. show that the number of households in the highest-earning income bracket, making more than $34,000 a year, has risen to 2.5 million, from 1 million in 2005. But the ranks of those at the bottom, making less than $3,000 a year, also have grown, to 111 million, from 101 million in 2005.

[Can these figures be correct? There are probably > 2.5 million households in Taiwan making over $34k a year!]

... India's modernization was expected to prompt a mass movement of workers from farms to factory floors—a critical component in the transformation of China, South Korea and other Asian nations. But manufacturing as a share of India's economy stood at 16% in 2009, the same as in 1991, according to the World Bank.

Services have increased dramatically as a proportion of gross domestic product, rising to 55% in 2009, from 45% in 1991, according to the World Bank, becoming the chief engine of India's economic strength. But many of the fastest-growing areas, such as finance and technology, employ relatively few and rely heavily on skilled employees. The entire software and technology-services sector, including call centers and outsourcing, directly employs just 2.5 million workers, a tiny fraction of the overall work force.

See also the interview below.

WSJ: Vineet Nayar, chief executive of software exporter HCL Technologies, dismisses complaints about corruption in India as a distraction, arguing that the real question the country needs to ask is whether it is becoming more or less globally competitive.

“Was India more globally competitive in 1990 or in 2005, or will it be more competitive in 2015?” questions Mr. Nayar. “Are the [current and future] policies of the government more populist or will they make India more competitive in the global arena?”

In a world where consumption patterns in the U.S. and Europe are at an all time low, even as they continue to hit new peaks in emerging markets, and where power bases are shifting from the West to emerging markets like China, Brazil and India, “country competitiveness is very important because you can either be used like China is using India for consumption [of Chinese exports],” says Mr. Nayar. Or you can become an exporter yourself.

And in his opinion, India is at that cusp today: Will it be used for its billion people or will it use its billion people?

“And there, unfortunately, my answer is that we are becoming less competitive with every passing day because of lack of investment in critical segments like skill development,” he said.

... “The only real raw material we have is people,” he went on. “If you convert people into consumers, we’ll become Africa. If you convert people into labor productivity, we’ll become America. We are at a cusp between America and Africa right now.”