tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Monday, October 22, 2007

Getting down to business

Our trade mission began Monday with a day-long seminar on the Indian economy and business environment. In Ballroom I of the Hyatt where we are staying, we got a thorough economic overview, presented by officials from the American Embassy here, and from various Indian trade groups.

While much of the opportunity here related to the growing middle class was re-iterated, the challenges of doing business also were explained. Manish Mathur, a principal with the consulting firm A.T. Kearney Ltd., explained, for example, logistical difficulties. Average ship turn-around time in an Indian seaport is seven days, compared to a place such as Singapore, where it is six to eight hours. The average ground speed of transportation is 30 to 40 kilometers per hour. “That is too slow,” Mathur said. “I see this holding the country’s growth back for five years.”

To be sure, enormous investments in infrastructure are expected. John Davison, minister counselor for economic affairs with the U.S. State Department, said $500 billion will need to be invested in the country’s roads in the next five years.

Logistical challenges, plus other factors, cause India to be ranked low compared to other countries in terms of “ease of doing business.” Based on numerous factors, Mathur said his firm ranks India 120th in the world. The United States ranks 3rd and China ranks 83rd. More specifically, India ranked 111th for ease of starting a business, 134th for licensing, and 177th for enforcing contracts.

Still, investment is pouring into the country. India currently ranks second in the world (behind China) for direct foreign investment (DFI), up from 15th in 2002. Davison noted that in the first six months of 2007, DFI was at an all-time high for India.

Holly Higgins, minister counselor for agricultural affairs with the U.S. Department of Agriculture, described the country’s farm economy. Farming is important here, making up 20 percent of the country’s GDP, although that proportion is diminishing as other sectors grow. The nation has 114 million farms, averaging 3.5 acres in size. About 120 million people depend on farming directly for their livelihood, while another 600 million depend on it indirectly.

Higgins noted that farms within 120 miles of major cities are faring the best because there is opportunity for them to bring their commodities to markets, where demand for good fresh-grown produce and farm products is strong.

I have often heard India described as a country of contrasts and I guess that aptly describes a country where 600 million people live on less than $2 per day, yet cell phones are selling at a rate of 7 million per month. In the evening, we left our comfortable hotel surroundings on a bus to visit with David Mulford, the distinguished U.S. Ambassador to India. As we drove to his palatial residence – a building which inspired the architecture for the Kennedy Center in Washington, D.C. – we saw what must have been thousands of people living in squalor. The roads are lined with shanties of mud, canvas tarp and scraps of metal. I had seen these kinds of living conditions in Bogota, but here they go on seemingly forever. In Bogota, they were confined to smaller areas.

I am told people are coming to Delhi to live from the countryside at a rate of 300,000 per year. At that rate, it seems the makeshift housing will only grow. Can these millions of people be lifted into a standard of living where they have sufficient housing, clothing, and regular meals? Clearly, the Indian government recognizes the challenge. The mantra of the current government is “inclusive growth.” Strong GDP growth won’t mean much if it fails to include three-fourths of the country’s population.

That’s one of the reasons the Indian government is happy to host trade missions like the one I am on. Ambassador Mulford said the United States is eager to help and noted trade missions from other states which recently had been through Delhi. Business delegations from three other states are scheduled to come through in the next month, he said.

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