Sizzling Economy Revitalizes India
daniel at netgods.net
Mon Oct 20 06:39:18 PDT 2003
India's economy is expected to grow by better than 7% this year, but
much of that increase is being spurred by the emergence of American-style
consumerism among India's burgeoning middle class. Mobile phones, motorcycles,
and trips to the mall--all the trapping of the American individualistic life
are cropping up. The feedback loop where increasing standards of living lead
to increasing consumption and, therefore, more jobs and further increases in
standard of life has nearly taken hold with its own inescapable logic.
There couldn't be much better news for the world in general, or America in
particular, than that the world's largest democracy is reaching a point where
it's internal growth will suffice to drive it to Western standards of living.
Forget about exporting software skills, forget about offshoring and the
giant sucking sound in Adam's brain as Indians improve their lives, the consumer
potential of a billion happy and productive people should suffice to drive
global growth for a generation.
October 20, 2003
Sizzling Economy Revitalizes India
By AMY WALDMAN
URGAON, India -- Tarun Narula, a 25-year-old computer instructor, celebrated
Mohandas K. Gandhi's birthday on Oct. 2 by going to the Metropolitan Mall.
So did so many thousands of others that the parking lot was full, as were
those of the other two malls across and down the street. Indian-made sport
utility vehicles, cars and motorcycles fought for space, choking the roads
of this satellite city south of Delhi.
Inside the malls, young people sipped coffee at Barista Coffee, the Starbucks
of India. They wandered through Indian department stores, Marks and Spencer,
Lacoste and Reebok. Families took children to McDonald's, or the Subway
sandwich shop. Moviegoers chose between "Boom," a Bollywood film with a
decidedly Western touch of vulgarity, and "2 Fast 2 Furious."
This is no longer the India of Gandhi, among history's most famous ascetics.
The change in values, habits and options in India -- not just from his day,
but from a mere decade ago -- is undeniable, and so is the sense of optimism
about India's economic prospects.
Much of India is still mired in poverty, but just over a decade after the
Indian economy began shaking off its statist shackles and opening to the
outside world, it is booming. The surge is based on strong industry and
agriculture, rising Indian and foreign investment and American-style consumer
spending by a growing middle class, including the people under age 25 who
now make up half the country's population.
After growing just 4.3 percent last year, India's economy, the second
fastest growing in the world, after China, is widely expected to grow close
to 7 percent this year.
The growth of the past decade has put more money in the pockets of an
expanding middle class, 250 million to 300 million strong, and more choices
in front of them. Their appetites are helping to fuel demand-led growth for
the first time in decades.
India is now the world's fastest growing telecom market, with more than one
million new mobile phone subscriptions sold each month. Indians are buying
about 10,000 motorcycles a day. Banks are now making $15 billion a year in
home loans, with the lowest interest rates in decades helping to spur the
spending, building and borrowing. Credit and debit cards are slowly gaining.
The potential for even more market growth is enormous, a fact recognized
by multinationals and Indian companies alike. In 2001, according to census
figures, only 31.6 percent of India's 192 million households had a television,
and only 2.5 percent a car, jeep or van.
Foreign institutional investors have poured nearly $5 billion into the Indian
market this year, already more than six times last year's total. The Bombay
Stock Exchange's benchmark Sensitive Index has risen by more than 50 percent
since April, hitting a three-year high. Foreign exchange reserves are at a
record $90 billion.
After huffing and puffing in place for eight or nine years, "the train has
left the station," C. K. Prahalad, a professor at the University of Michigan
Business School, said of the Indian economy.
More than a decade after India began opening its economy by reducing
protectionism and red tape, slowly lifting restrictions on foreign
investment and reforming its financial sector, the changes are starting
to show substantial results.
Companies that stumbled in the face of recession and new competitive pressures
in the 1990's have increased productivity and are showing record profits.
India is slowly making a name not just for software exports and service
outsourcing, but also as an exporter of autos, auto parts and motorcycles.
Nature has played a part as well. The seasonal monsoon that ended recently
was the best this agriculture-dependent economy has seen in at least five
years, with normal or excess rainfall in 33 of 36 of the country's
sub-regions. That, in turn, is putting income and credit in rural pockets,
spurring a run on consumer goods that will only strengthen when the harvest
comes in later this year.
In some places, the economic transformation is startling. Look at islands
of prosperity like Gurgaon, or Bangalore, and you see an India that many
Americans -- not to speak of Indians -- would not recognize.
It is a place where a young fashion designer like Swati Bhargava, 27, who
works for a company that exports clothes to American and French chains, can
buy stylish Indian clothes, eat at Pizza Hut, drink at Barista and contemplate
the country mutating around her.
"The culture is changing," she said. "People are becoming more broad-minded."
One sign of change is the proliferation of malls. India's first opened only
in 1999, and its second in 2000, according to Harminder Sahni, a principal
in KSA Technopak, a management consulting firm in New Delhi. By the end of
next year, it will have almost 150.
Of course, truisms about what holds India back have not disappeared. The
shortfalls in infrastructure, particularly power and education, are
staggering. Twenty-six percent of Indians still live in poverty, and data
suggest inequality is widening even as the poverty rate falls. Overall
employment is essentially stagnating.
The heavy dependence on agriculture, which still accounts for 25 percent
of gross domestic product and 70 percent of employment, means that a bad
monsoon, like the one last year, can hobble the economy.
The country remains politically dependent on subsidies that have helped swell
fiscal deficits that limit growth and investment in education and health. A
recent Supreme Court ruling suspending the sale of shares in significant
state-owned industries prompted concerns about the slowing of economic
reforms, as do continuing red tape and corruption.
Moreover, not everyone embraces change. Many bemoan the aping of Western
culture at the expense of a much older and richer Indian one.
Still, an acceleration of the transformation seems inevitable, in part
because the booming consumer culture is being driven by the young. The
youth of India's population is a demographic trend of such economic and
cultural significance that even the country's aging leadership recognizes
Yogesh Samat, the chief executive of Barista, which was founded four years
ago and now has 125 coffee bars across the country, said that before economic
liberalization began in 1991, "there was a great deal of guilt associated
with spending of any kind; saving was the done thing." But today's youth --
those born in the 1980's -- never experienced either the shortages or the
psychological constraints of the country's socialist, Soviet-oriented past,
"Consumerism as a term is no longer seen as a bad word," Mr. Samat observed,
"and the acquisition of material things is no longer seen as going against
The young people at the Gurgaon malls would agree. Most of those interviewed
here work, a change itself from the past, when jobs for college-age students
Most of them have jobs in service industries, like hotels or marketing, that
now constitute about half the economy. They tend to live at home with their
parents, following Indian tradition, meaning that almost all of their income
Mr. Narula, the computer instructor, for example, earns $2,173 a year, more
than four times India's per capita income of about $480. He lives at home,
and has spent his money on a Nokia phone, a Maruti car and clothes. On
Gandhi's birthday, he spent about five hours with his friends at the mall,
eating at McDonald's and watching "Boom."
The lifestyle changes for this cohort have come at warp speed. Mr. Sahni
of KSA Technopak is only 35, but marvels at the variety open to young
Indians today. "When I was a young person, nothing was happening -- every
day, life was the same," he said.
No longer. A year ago, India was in a national funk over China having surged
ahead economically. Now, there is a cautious sense that over time, India
could prove the turtle to China's hare, thanks to its entrepreneurial spirit,
its strong higher education system and its democracy.
"There's a lot of confidence in India today, even in respect to China," said
Jairam Ramesh, the senior economic adviser to the opposition Congress Party.
India now has a $500 million trade surplus with China, and Indian companies
increasingly see China less as a threat than an opportunity. A delegation of
Indian industrialists is now in China to market everything from steel to
Indian companies say the advantages of the country's high-skilled, low-cost
work force are outweighing the disadvantages imposed by its infrastructure
and bureaucracy, and even there they see improvement.
Ratul Puri, the executive director of Moser Baer India, which has become the
world's third largest producer of recordable media like DVD's and CD's,
said his company had recently built the world's largest production site for
such devices -- 1.5 million square feet -= in Noida, another Delhi satellite
city, in just six and a half months.
"Pre-1991, it would have been impossible," Mr. Puri said. "We would have
spent six and a half months trying to get the license for construction."
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