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The Road Not Taken

On Independence Day, Manmohan Singh said in his speech that there was no chance that India could have a 1991-type economic disaster. He is absolutely right--we are heading for a new type of disaster

If you study the area around any large government hospital in India, you’ll find what can only be described as a sort of a distributed, fragmented hospital that has come up to supplement the dysfunctions of the hospital itself. There will be private dispensaries, 24-hour path labs, radiology labs, ambulance services, nursing bureaus, professional blood donors, commercial blood banks, life-support equipment rental shops and finally, mortuary vans for the last journey.

If you were to read a thought-provoking article that The Economist magazine has carried in its latest issue, you’ll realise that our country’s global environs have been undergoing the same phenomena. Dubai, Abu Dhabi, Singapore, London, Colombo and many other cities around the world have  flourishing business from supplying substitutes for services whose local Indian versions are unfit for use.

We’ve all known this in bits and pieces, but the Economist does a fine job of putting everything in perspective. Here are some of the most interesting things in the article:

  • Foreigners signing business deals and joint ventures with Indians insist that the dispute resolution clauses specify Singapore or the UK as the jurisdiction where arbitration must be held and any legal disputes resolved. The reason should be clear to anyone who has dealt with the Indian courts--we have a great legal system on paper but in practice it is too slow, too antiquated and lately, too amenable to being manipulated.
  • Indian businesses try to buy as many goods and services abroad. For example, all private Indian airlines get most of their aircraft servicing done in Dubai, Malaysia and Singapore. In fact, here we can add an example much closer to home. In the beginning, ValueResearchOnline.com was operated from servers located in Delhi. However, data services in India--even in Delhi--are so over-priced compared to the rest of the world and of such poor quality, that we leased servers in the US and shifted this website in 2005, even though some 82 per cent of our readers are located in India. Compared to what we pay in the United States, service of equivalent bandwidth would cost some EIGHT TIMES and would not be of comparable quality. And we are not alone in this, thousands of Indian websites are run from infrastructure located in the US or Singapore--the Economist mentions discounts website Snapdeal.
  • An amazing 30 per cent of cargo containers coming into India transit through Colombo. Colombo has just opened a huge new container cargo terminal developed by the Chinese that is far more efficient for large ships. The cargo is then shipped to India in smaller vessels. In fact, the trans-shipment business to India is the main business model of this giant port whose capacity far exceeds domestic Lankan needs. Its developer, China Merchants Holdings International (CMHI), is fully confident that India will never be able to develop adequate high quality port infrastructure. That CMHI is a Chinese government-backed outfit and so gives China a strategic foothold in India’s backyard is a separate story altogether.
  • There are examples of Indian businesses building agro-industry plants like fertiliser and sugar in the gulf for serving the domestic market. They wouldn’t do so if there were only one or two reasons but when power, land, labour, transport, and the stability of the regulatory environment are all better then, the decision is a no-brainer.

Once upon a time, we Indians used to rue that our infrastructure was not as good as the west. Then came the time when it was not as good as China, and then not as good as South East Asia. Now, it’s not even as good as Sri Lanka. Our garment export industry has already been exported to Bangladesh because of our destructive regulations regarding small scale industries. Who knows, we will soon fall behind African countries too.

What is alarming is that this situation is not getting better. In fact it’s getting worse. The idea that India is in severe decline has now taken hold. Influential global magazines like The Economist used to do those ‘Hidden Tiger’ articles about India, now they do these ‘Decline and Fall’ articles.

The good part is that the psychological mood can change fast. The bad part is that right now it’s changing for the worse; the reversal is still some time away. Will something happen in the 2014 elections that will trigger this reversal? Let’s hope so.