Emergic: Rajesh Jain's Blog

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India’s Boom and the Future

April 3rd, 2004 · No Comments

Knowledge@Emory writes about the impact:

Professors at Emory University and its Goizueta Business School who know India well say that they have seen tremendous economic and social changes in this huge nation since the service boom began just a few years ago, and they predict even greater changes and challenges in the years ahead.

India today feels a bit like the U.S. during the dotcom boom, Goizuetas India-watchers say, where a small class of young people are suddenly making much more money than most people had ever dreamed. Although the new industries dont employ all that many people most estimates say IT and business process outsourcing employs fewer than a million workers in this nation of over 1 billion this sectors success has had an enormous impact not only on the economy but on the countrys culture and self-confidence.

One key indication of the magnitude of the shift: Indias foreign exchange reserves have grown from almost nothing to about $100 billion in just two years a huge number for a country whose gross domestic product is forecast to reach $650 billion in the coming year.

Most professors expect growing pains as the country develops. While most Indians now feel that the country as a whole is benefiting from the service boom, Joy Mazumdar says the growth in income inequality could lead to social trouble down the line, as software developers receiving salaries approaching Western standards try to live side by side with people getting along on several hundred dollars a year.

Mazumdar notes that the lack of infrastructure is probably one reason the service exports have grown more quickly than manufactured goods. For example, goods that might ship out of China in hours can take up to 18 days to leave India, he says. But with service exports, things were very, very different because you did not have these transportation hurdles. All you had to do was send it along on a phone line or a satellite link.

Finding jobs for Indias billion plus people is another key challenge that the service boom has thus far not addressed. To employ its young and growing population, Jagadish Sheth says that country needs to look outside its service-sector base and export more manufactured and agricultural goods. He says that theres a lot of potential in these sectors. For instance: India has the largest dairy industry in the world, but doesnt export any of its dairy products. However, things may be changing. Now, he says, a farmers cooperative he spoke to last year about the idea has just concluded a contract with Wal-Mart.

Mazumdar says he expects that the current neat division between India as a servicing hub and China as a manufacturing powerhouse will change. If these had been fairly small countries, I would say, this specialization is going to continue in the future, but given that these countries are large, theres enough of a variety of talent that they should actually be able to have a very diversified export portfolio.

Tags: Emerging Markets

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