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India's next test: spreading prosperity

By Scott BaldaufStaff writer of The Christian Science Monitor / June 26, 2006


In a giant project called the "Golden Quadrilateral," India is building a state-of-the-art interstate highway system. Yet truckers who ply those roads must pay import duties from one state to another – almost as if their rigs were entering another country.

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India has had nearly 60 years free of famine, growing enough food for its 1.1 billion people. Yet nearly 40 percent of its vegetables rot in warehouses before reaching market. The country has a space program – yet 30 percent of the population lives on less than $1 a day; 78 percent on less than $2.

Will the real India stand up?

Much has been written about the incredible strides India has taken since 1991, when it opened up its markets to foreign investors and slashed regulations. With 6 percent to 8 percent growth rates over the past decade, India has become a hot spot for investors, a dynamo in the outsourcing and high-tech industries, and a competitor for headlines with that other emerging economic power, China.

Yet, while India has changed dramatically – with a rising consumer economy attracting everyone from Dell to Honda to Starbucks – a growing number of foreign diplomats, Indian academics, and businesses warn that the booming growth will fizzle unless India acts soon to spread the benefits to a wider population and boost investment in roads and airports, electricity and water, and basic education.

"Despite the hype about India's emergence as a global power, I fret for India," says Sumit Ganguly, director of the India Studies Department at Indiana University in Bloomington. Aside from problems such as illiteracy, malnutrition, and lack of adequate housing, Dr. Ganguly says, India suffers from major bottlenecks in its economy, including lack of electricity, inadequate airports and seaports, and insufficient roads. "Unless India can tackle these three bottlenecks, I cannot see how it will sustain its current levels of growth."

The question, academics like Ganguly say, is not whether India is currently prospering, but rather: How can India expand its boom beyond Bangalore? In a three-part series, the Monitor looks at how far India has come, and where it needs to go to include large segments of society who have thus far benefited little from the prosperity. The series will highlight Indians who are trying to make a difference in the economy, and who are putting pressure on officials to make the tough choices the country needs in order to succeed.

India's story of prosperity and growth is best seen in southern cities like Bangalore and Hyderabad, where computer companies like Infosys, Wipro, and Satyam have clocked 30 percent growth rates this year. Drive around Hyderabad's HI-TEC City, an impressive suburb of glass-and-steel office parks, and you might think you have stumbled into an Asian version of the Silicon Valley. And you would be right.

Credit flows with new, well-paid jobs

Indian high-tech and service companies – unburdened by many British-era labor laws that still hold back India's manufacturing businesses – have turned a sluggish economy into a regional dynamo, creating tens of thousands of new jobs, including well-paid jobs in call centers.

Indian banks that once required detailed explanations for every expenditure and forbade any Indian to withdraw more than $500 in foreign currency before traveling abroad now give out loans for housing, cars, and business ventures, all at low interest rates. Middle-class consumption has increased, a sign of hope for foreign investors who have plumped $8 billion into the Indian economy in 2005, and are expected to invest an additional $12 billion this year. (China's foreign direct investment intake was $60 billion last year.)