Catch a Tiger by the Tail
By
THOMAS G. DONLAN of BARRON
February 14, 2005
IN 1835, THOMAS MACAULAY wrote in a "Minute on Education"
that the British were creating a class of Indians educated in English, to help
the British rule their country; they were also to be "English in taste, in
opinions, in morals and in intellect." He predicted that India would
eventually become independent, but also "an imperishable empire of our
arts and our morals, our literature and our laws."
Nearly everyone who
seeks to explain India's advantages in the global economy starts with the
English language. Although introduced by foreigners, it is nearly the native
tongue of India's political, intellectual and practical classes. Privileged
children start learning English in kindergarten; very privileged children learn
it at home. For everyone else, English has become the first hurdle for their
ambition to surmount -- if they want to succeed in most businesses. And as an
economy, India has succeeded in ways that would have astounded Macaulay and his
contemporaries.
Ask an
Indian
As many as 350
million Indians can get along in English well enough to drive taxis for
tourists and point out the sights. The country produces more than a
half-million English-speaking university graduates every year, 40% of them with
engineering or hard-science degrees.
Call centers have
become the most familiar sign of Indian entrance into the global economy. Call
the customer-service line for Dell personal computers or any of hundreds of
other products and services, especially in the evening, U.S. time, and you
probably will be greeted by "Howard," or "Sylvia," who will
ask "How may I help you?" in a distinctly Indian accent. They are
well-programmed to use computerized knowledge bases to identify and solve basic
and advanced computer problems.
And for every
call-center employee, whose chief skill is communications, there is at least
one other Indian working more invisibly for U.S. customers doing something
considerably more difficult. Writing custom software is the most
well-developed skill, but Indians are evaluating applications to
American banks for home-equity loans, or analyzing investment opportunities in
American companies or researching American legal issues. An Indian can use the
Internet as easily as an American to check the assessed valuation in homes
located in hundreds of U.S. counties, or to read Securities and Exchange
Commission filings on thousands of American companies, or to look up obscure
state cases for precedents in a complex legal action.
Surrounding the southern
city of Bangalore are modern buildings full of young Indian university
graduates doing all of these things, and the city itself is full of new
businesses catering to their middle-class needs and desires. Indeed, Bangalore
employers, which include many familiar American names -- as well as Indian
companies like Wipro, Infosys
and Tata Consulting Services -- are bidding up the
price of skilled labor so much that other Indian cities are getting in on the
action and advertising themselves as cheaper alternatives to Bangalore.
From Chandigarh in the northwestern state of Punjab to Cochin in
the southern state of Kerala, developers are throwing
up business parks on the model of Silicon Valley, in partnership with state
governments promising better electric power, highways, other infrastructure and
lighter regulation than is the norm in the country. Even Bengal, a state whose
government is dominated by Communists, has taken steps to attract the infotech industry. In a move reminiscent of Soviet labor
practices, Bengal has declared infotech a
"critical industry" -- in which strikes are forbidden.
Coming-Out
Party
Outsourcing brought
India more than $7 billion a year in revenue in 2003. That number is widely
expected to double by 2007, and double again by 2012. But outsourced business
is only the beginning of India's exploitation of its global advantages. In many
industries, Indian companies are poised to break out from outsourcing to be
independent actors on the world business stage.
Bollywood, the Bombay-based Indian movie industry,
already produces more movies each year than Hollywood. Nearly all of them are
aimed at the domestic market: The films are quirky and sometimes almost
incomprehensible to audiences outside India (although they are gaining
popularity abroad). But they are usually profitable, and Bollywood
producers thus have built a relatively firm financial foundation for their
industry.
In addition, Western
producers are leaving London and Rome and Vancouver -- their earlier refuges
from Hollywood union rules and wages -- and looking to India for inexpensive
skilled labor in lighting, sound, set-building, animation, computer graphics
and the other trades that push up the cost of movie-making. Like so many other
forms of outsourcing, this is raising Bollywood's
production values ever higher. And Bollywood's
now trying to increase its movies' global appeal.
Medical care in
India ranges from world-class to quack-class. The country is too poor to
provide anything beyond the most basic clinical care as an entitlement, so the
rest of the health-care industry is as entrepreneurial as any economist could
wish for. Private doctors, private hospitals, cash on
the desk; and at the top of the clinical ladder, it is far more cost-effective
than any Western system because costs and prices are low. People from Europe,
Japan and Canada who are rationed away from all the care they want, and people
from the U.S. who are unable to afford the care they want, are actually finding
it cheaper -- including airfare -- to fly to India to pay far less for
surgeries such as hip replacements than they would using the usual free-market
alternative in the U.S. Some 150,000 foreigners a year are already making the
trip.
India's indigenous
pharmaceutical industry already meets world standards in some respects. The
country boasts more factories certified by the U.S. Food and Drug
Administration to produce drugs and intermediate chemicals for the U.S. market
than any other country outside America. The Indian government and the industry,
however, have annoyed Western governments and companies with their attitude
toward patents. Like any infant industry, Indian drug companies regarded
patents and trade secrets as unfair barriers to their progress. The Indian
government did away with patents on substance, while upholding patents on
manufacturing processes developed in India.
On the one hand,
Indian companies acted as contract manufacturers for drugs invented elsewhere;
on the other hand they became aggressive marketers of pirated drugs locally and
in countries with an equally cavalier attitude toward patents. In recent years,
however, Indian drug companies have matured to do their own research and are
starting to invent, not merely to copy and supply. A sign of that maturity is a
new willingness by the industry and the government to protect substance patents
-- since Indian companies now or soon will have substances worth protecting.
With an eye on foreign markets, Indian companies are looking to buy into
Western drug companies.
World Leader
When the G-7 becomes
the G-8 by including Russia, it will be denying the facts. India is already a
larger economic powerhouse than Russia (so is China, for that matter). But the
recent meeting of the G-7 was the first to which India was even invited to send
an observer. That exclusion will not last, or the G-7, G-8 or whatever will be
playing second fiddle to the G-2.
The CIA recently
issued a report predicting that India and China would come to lead the world
economy as soon as 2020. While it takes no great predictive power to say that
the world's two largest countries will be the two most important when and if
they reach a high state of development, the Central Intelligence Agency's
analysts said that development will happen faster than most experts have dared to
predict.
For most
individuals, investing in India is attractive in theory, but daunting in
practice. There are a couple of closed-end mutual funds, and a few companies
have American depositary receipts trading on U.S. stock markets. In general,
however, Indian companies trade only in India on the Bombay and National Stock
Exchanges.
Fortunately for
investors, publicly traded Indian companies produce annual and quarterly
reports, in English, in formats regulated by the Indian equivalent of the SEC
that are intelligible to transoceanic investors. Merrill Lynch, Goldman Sachs
and Morgan Stanley have linked up with Indian investment banks and are covering
a broad range of Indian stocks. (They are also pumping out initial public
offerings at record rates.)
Everyone knows what
happens to the person who grabs a tiger by the tail. He's in for a wild ride.
He must hang on, or be eaten. Investing in India is probably going to be a wild
ride, but a ride worth taking for most of the 21st century. After all, exploiting
India has been profitable for the West since the 15th century. Now it's India's
turn.