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

Saturday, October 20, 2007

Looking for the future in India

Perhaps the greatest economic development challenge of our time is India. I am traveling there this week with a business contingent of 70 Minnesotans to see for myself.

A group of people about the size of the population of the United States lives what we would consider to be a middle-class lifestyle in India, leaving the remaining 800 million people in poverty. That’s a lot of poor people but the country’s annual GDP growth rate of 9 percent offers great hope. Banashri Bose Harrison, the minister of commerce for India at the U.S. Embassy in Washington, D.C., says the ranks of the middle class are growing at a rate of 5 percent per year. At that rate, about 500 million of the country’s poor could advance to middle class lifestyles within 35 years.

Gov. Tim Pawlenty is leading the group of about 50 business leaders, six journalist, a dozen state officials and four travel professionals on the first India mission ever led by a Minnesota governor. Pawlenty wants to promote business between the countries. He says that while the population in the United States is holding relatively flat, the population in India is growing. If Minnesota-based companies are to expand their markets, they are going to have to consider selling in countries that offer growing populations.

Last month, Ashok Kumar Attri, an Indian diplomat living in Chicago, addressed the business delegation during a pre-mission briefing. He described GDP growth of 9.3 percent during the last two years, a rate that he claims is accelerating. During the first three decades after the country gained its independence in 1947, the country’s economy grew at a rate of about 3.5 percent – comparable to the current rate of U.S. GDP growth. It grew to 5.7 percent in the 1980s and it averaged 6.0 percent between 1990 and 2005. Attri says the country expects growth topping 10 percent in the coming years.

He makes that claim based largely on a robust work force – 52 percent of the country’s population is below the age of 25. Even as far into the future as 2025, the median age of the population will only be 30 years old. The total workforce, that is, people between the ages of 15 and 59 currently is 696 million people. That figure is expected to grow to 1.02 billion by 2050.

The country has a solid intellectual base on which to build. Literacy is not confined to the middle class; with a literacy rate of 61 percent, a significant portion of the country’s poor can read. And, among the country’s better-off folks, 380 universities and 11,200 colleges produce more than 50,000 computer professionals per year, and more than 360,000 engineers.

Attri identified eight business sectors that he said offer the greatest prospects for propelling the economy: infrastructure, real estate, retail, IT, pharmaceuticals, biotechnology, entertainment and automobiles. Pawlenty would like Minnesota businesses with expertise in those areas to make the most of the opportunity.

Economists, however, worry about the country’s high rate of inflation, the effects of which have been masked in recent years by the extraordinary economic growth. Rising real estate prices have fueled a good part of that growth. The same easy credit that led to the housing bust in the United States is facilitating a lot of real estate deals in India. If the country were to experience a real estate collapse anything like what the United States is experiencing, it could hurt the country’s economy.

The information packet that Minnesota delegates were given by Pawlenty’s administration noted other problems that plague the country, including a robust human trafficking industry. “India has been on the Tier 2 Watch List since 2004 for its failure to show evidence of increasing efforts to address trafficking in persons,” the state’s briefing states.

The Minnesota delegation will get a whirlwind tour of the country, beginning in New Delhi, the country’s capital, with 12.7 million people. The visit will open with sight seeing at the Taj Mahal, four hours away by bus in Agra. Monday and Tuesday morning are devoted to business in New Delhi, with a reception Monday night at the U.S. Embassy hosted by the U.S. Ambassador to India. Tuesday evening, the group travels to Bangalore, the country’s I.T. center. After two days in the city of 5.7 million people, the group travels to Bombay, which took the name Mumbai in 1995. The island city of 16.4 million is features one of the most dense urban populations in the world.

Pawlenty noted that $129.5 million of the state’s $15 billion in exports go to India, making it the state’s 22nd-largest export country. About half the state’s exports to India are computers made by IBM in Rochester. Pawlenty also noted increasing investment in Minnesota by Indian companies. The Essar Group, for example, is investing $1.6 billion in the Iron Range to open a new mining and steel manufacturing plant. .

Tony Lorusso, the executive director of the Minnesota Trade Office, said: “This trip is just a start of what I hope will be a long relationship with India.”

While the business opportunity is motivating most of the people in this trade mission, I am intrigued by the possibility of a half a billion people moving up and out of poverty over the next 35 to 50 years, grace of a robust economy. Can it really happen? What role can Minnesota companies play in developing India’s economy? More business for Minnesota companies could mean a stronger economy for Indians. One retired businessman I talked to who has been to India several times said he is skeptical. “There are so many people living in poverty, I don’t see how they can do it,” he said.

Certainly there are obstacles, but certainly there is hope. Tom Friedman writes in his book, The World is Flat, that India is the future. It’s educational system, population growth and British-based legal system give it the edge over China, another country experiencing amazing economic growth. I have some expectations about what I will see here: congested traffic, overcrowded sidewalks, beautiful new buildings next to shanty-towns. But what I am going to be looking for is the future. If the country cannot grow its middle class, then perhaps when I look all I will see is the past. But I am going to look really hard to see the future.

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