India Going Global: India's Rapidly Growing Influence in International Markets
Corporate Briefing Address

Vivek Paul
Texas Pacific Group

San Francisco, December 9, 2005

A long time ago, Mark Twain described India as "India is the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend and the great grand mother of tradition".

Even the iconology of the US and India have a lot in common. If you have a dollar bill in your pockets, please pull it out now. Notice at the back of the bill, there is an image of the great seal of the US. Kautilya’s Arthashastra, written in 10 BC, talks about how the ruler must hold in one hand the weapon of war and, in the other hand, the peaceful song of cooperative action. And here on the dollar bill on the right, we see the eagle holding in one foot thirteen arrows and in the other foot a laurel branch with thirteen leaves. The eagle always looks to towards the laurel leaves, signifying a desire to always seek a peaceful solution first.

(As an aside, you might be interested to note that when President Bush came on TV to announce that he had authorized war on the people of Iraq, the background seal had the eagle looking at the arrows, a subtle signal).

While that parallel is striking, that is not all. If you look at the left side of the great seal, we see the pyramid with four sides representing varying perspectives or the different directions. However, when you get to the top, all the perspectives converge and the eye of reason opens. No different from the symbology of the third eye opening and the complete understanding that follows.

But even if we were to look at today’s world, the parallels are quite interesting. Biotech is a major growth industry for the US, and for the Valley. Let us take at the India story. We all know of Ayurveda – a part of Atharva Veda – the first text on ancient medicine – still being practiced, and of the Sushruta Samhita – a text of 10th Century BC of 120 chapters including Anatomy, Therapeutics, Toxicology and Surgery. But did you know that today India has the highest number of annual bulk drugs filings (77) with USFDA. Or that India is home to the largest number of pharmaceutical plants (61) approved by USFDA outside the US. India attracts over 100,000 global “medical tourists” annually to its healthcare industry. This year alone, a few months after endorsing the international pharmaceutical patents regime, India announced 1,312 applications for drug patents, second to the US, and 25 percent more than third-ranked.

In the 5th century AD, the discovery of “zero” or “shunya” as it is called in Sanskrit, by the astronomer Brahmagupta revolutionized mathematics forever. Today, India's IT workforce has crossed the 1 million mark. According to ComputerWire, the Top 50 global IT service firms alone target raising Indian headcount from 173,000 in September 2004 to 500,000 by the end of 2005.

Today, India’s over one billion people represent a kaleidoscope of ethnic groups, languages, religions and cultural practices. 17 major languages and 22,000 distinct dialects undergird her diversity. As a spiritual center, India was the cradle for Hinduism, Buddhism, Jainism and Sikhism. Her appetite for spiritual confluence makes India a host to one of the largest Islamic centers in the World. Christianity, Zoroastrianism and Judaism have also shared their influences in the ever expanding sphere of India’s religious diversity.

India represents one of the most unique civilizations in the annals of human history. It has been buffeted through the ages with influences from Central Asia, East Asia, the Middle East, Europe, the US and through it all, Indian culture has accepted these new thoughts and yet retained its individuality. India’s languages, its poetry, its art, its literature, its dance, its music have enriched lives way beyond its boundaries. Today Bollywood, the Indian film industry, makes 800+ movies a year, overshadowing Hollywood. Indian pop music retains its connection to its roots and has become globally popular. Indian fashion evolves at the same pace as Parisian haute couture and with its very own style. India’s history is the world’s heritage. This is something worth fighting for.

Most importantly, this strong cultural identity gives India the ability to sustain its success, to remain a tolerant, secular, liberal democracy that offers opportunity and hope to its people.

When it became independent, India had no identity as a nation state. Its boundaries were those that had never existed prior to the British Raj, and its people had never felt as one. And yet India built a great sense of national pride, gave a greater meaning to the logo of this new nation state, the flag, and its jingle, the national anthem.

To put this in context, it took the US almost 50 years after its independence to give the vote to 3% of its population and at that time even the UK had only 3% of its population with the right to vote. In the US, it took almost 100 years to have universal suffrage. India started out with universal suffrage. Currently we are seeing a social re-engineering in India, with the lower castes finding a political voice on the national platform through the democratic process. Though this can make for an apparently confusing political picture; in actuality it is society reconfiguring itself into a new shape, so the voiceless can be heard, and be relevant.

India has made terrific strides towards personal liberty. The Indian press is one of the most unfettered in the world and its commitment to democracy is unquestionable. Despite low literacy levels, the Indian population has used its electoral might to throw out governments it is dissatisfied with time and again. India already has a rule of law, strong accounting standards, good governmental institutions, a balance between central, state and local governments, a stable banking system, good adoption of global trading rules, regional alliances, strong non government organizations and a well developed environmental awareness.

India’s success as a tolerant, secular, liberal democracy makes it a strong partner in fighting terrorism as India’s secularism by serve as a role model to other developing countries where terrorism is bred in the backdrop of a loss of hope.

But what is breathtaking of India today is its youth. For despite being an ancient civilization that traces itself to the very dawn of human habitation, India is among the youngest countries in the world. More than half the country is under 25 years of age and more than a third is under 15 years of age.

Brought up in the shadow of the rise of India’s service industry boom, this group feels they can be at least as good if not better than anyone else in the world. This confidence has them demonstrating a great propensity to consume, throwing away aging ideas of asceticism and thrift. Even those that do not have enough to consume today feel that they have the capability and opportunity to do so.

The economic activity created by this combination of a growing labor pool and rising consumption demand is enough to propel India to double digit economic growth for decades. One just has to look at the impact that the baby boomers in the US had over decades of economic activity, as measured by equity and housing prices.

Today, with 54% of its population today under the age of 25, India will contribute the most to the growth of the working age population in the world over the next few decades. India also already has the highest availability of qualified engineers and almost the largest availability of skilled labor, with only the US and Singapore being slightly ahead. This comes at the same time that the developed economies of Western Europe, Japan and North America are expected to face shortages in their working age population. The US alone is projected to have a deficit of 10 million workers in the next decade.

Turning to the economy, in 1820, India accounted for 16% of the World’s GDP, by 1975 that number had shrunk to 3%. Today, India’s GDP accounts for 6% of the world’s gross domestic production and one-sixth of the world’s population. Expectations are that it will grow to 11% by 2025, at which point it will still only be 60% of the US economy.

The economy is already showing signs of broad based growth.

Reliance Petrochemicals one of the leading conglomerates in India, is already the third largest refinery in the world; Hindalco, India’s leading aluminum producer is investing US $ 320 million for implementing an expansion plan to raise its alumina capacity from 1.1 million tons to 1.8 million tons which would put it in the top five globally by production capacity. In textiles, Welspun is already the largest terry towel manufacturer in the world. Bharat Forge, is the global leader in forgings, and operates the largest single-location forging plant in the world. Ajanta Clock’s a leading Indian manufacturer moved its manufacturing unit to Shenzhen, China three years ago, this unit today is the largest clock making facility in the world.

According to a McKinsey report, India’s retail industry is expected to grow to $400 billion by 2010, ranking it in the top five in the world. The real drivers of the growing consumer goods market are India’s 40 million middle-income households, which purchase more than just the basics. In this “aspiring India,” a typical family comprises five people, lives in a city, and has an educated head of household who is an employee or a small-business owner earning $4,000 to $10,000. This new consumer group, growing by about 10 percent a year, is expected to comprise 65 million households by 2010.

A slew of low cost airlines have been launched in the last year making India one of the most competitive airline markets in the world. The government is close to putting the finishing touches on the first phase of one of India’s most ambitious highway infrastructure project since Independence. Called the “Golden Quadrilateral” project, it links the four major cities of Delhi, Calcutta, Chennai and Mumbai. The project expected to take 15 years to complete will by the time of its conclusion have paved, widened and added more than 40,000 miles to India’s highway system. This is akin to the US’ development of its national highway system which was accelerated under President Eisenhower.

While there is much positive to speak of, there are many areas to worry about as well. While much is made of India’s labor pool, , 53% of students in primary schools drop out, one third of children in fifth grade cannot read, three quarters of schools do not have a functioning toilet, female literacy is only 45% and 80 million children in the age group of 6-14 do not even attend school.

Similarly, the youth of India can be a significant liability if there is not enough employment for them. According to a forecast by the Boston Consulting Group, more than half of India’s unemployed within the next decade could be its educated youth. Focus groups conducted by a major consumer products company in India reveal that while almost every teenager is optimistic about the future, it is in the early twenties that such hope begins to get snuffed out. The attitudes differ across economic strata. The upper middle class distances themselves from the rest of India. Almost like “it is not my problem, and I hope it never impinges on my life” -- the equivalent of living in a gated community. The lower middle class and the poor, the two strata where there is the most mobility among levels, face a real fear of what lurks below and a rising frustration. As they begin to lose hope, they go from dreams of building a great future to protecting the past – they become more religious, more tied to their caste/sub-caste, more radical in their thinking, more willing to snatch than create, view dirty politics as being the only way to get mobility since economic mobility is stalled. Shobha De decries that you can hire a young man in Mumbai for a “supari” killing for five to ten thousand rupees (one to two hundred dollars), a tenth of what it used to cost just a few years ago. No country can survive if its young lose hope about their future.

There is a great degree of excitement about India’s IT and IT enabled services. They are widely viewed, and rightly so, as being engines of job creation. Add to that manufacturing exports and biotech and you might ask, surely we need not worry about employment? The hard facts are that IT/ITES account for 0.2%. Add manufacturing exports and you get to a total of 2%. Grow that at twice the growth rate of the overall economy and you still come up with under 5% of India’s population being employed in these areas.

India has no choice but to dramatically industrialize and inflate its domestic economy. Talk about leap-frogging the industrial economy is simply bogus – India has to speed through the industrialization process, not skip it.

Capital is needed to grow the economy, and on the positive side, the return on capital employed in Indian companies is 21%, as compared to 16% in China and 7% in the US. In addition, real interest rates in India are 5.7% vs. 4% in China and 2% in the US. However, tight capital controls on inflows has China getting 5 times the foreign direct investment India gets, or an advantage of $200 billion over the past 5 years. It is the classic outcome of rationing – resources go to where the approvals are, not where the need is, and demand a higher price because of an artificially created shortage.

It does not take any visitor long to figure out that India could stand to substantially improve its infrastructure. An oft cited statistic is that China spends eight times what India does on infrastructure. For all the elements of infrastructure – roads, ports, power, water, telecom -- there are plenty of statistics available that point out a painful gap. China has eight times the highway miles, and has grown roads significantly in past few years while India has only inched along. Freight costs at Indian ports vastly outstrip every average, and are almost double the worldwide average, and even higher than the average of developing countries. Privatization has helped tele-density, but it still lags most parts of the world. India’s spending on infrastructure is only 6% of GDP, constrained by its Central and State budget deficits add up to 10% of the national GDP, far higher than China and most other countries.

While certainly there is a lot to be done, a clear picture of India’s emergence as a major global player is visible. It is growing as a source of products, services, as a market in itself, as a responsible geopolitical player and as an enricher of the world’s social and cultural heritage. It is an India that integrates easily with the global economy yet maintains a unique cultural identity. India today stands poised for great success, with momentum building up, and the world is waiting. It is indeed the very dawn of India’s century – not one that will happen as surely as the sun will rise, but one that many willing hands will need to create.