Like all good politicians, Indian president Abdul Kalam has set a lofty goal for his country: By the year 2020, India will have an annual GDP growth rate of 9 percent with 10 percent of the population below the poverty line—a significant drop from today's figure of 25 percent.
A panel of Indian luminaries moderated by Harvard Business School professor Tarun Khanna peered into what he described as "a murky crystal ball" to make their own forecasts for the future. The discussion took place at the India Business Conference at HBS on April 4.
Montek Singh Ahluwalia, director of the Independent Evaluation Office at the IMF, said that over the past several years, other countries have retreated from the idea that globalization is universally a good thing. The opposite is true in India, as the country gains new self-confidence in its role in the world market. Adding an extra 2 percent to India's growth rate seems feasible, he said, and added that last quarter's growth rate of 10.4 percent was unusually high.
The question of whether India will meet its 2020 goal depends to a large extent on further economic reform, which tends to proceed slowly in a "very pluralistic, democratic system," said Ahluwalia
Another question mark concerns India's regional differences. The country's growth has not been uniform, which could create tension between states and lead to political destabilization. From a positive perspective, people are learning that more liberal economic policies allow a state the freedom to leverage its particular advantages and spur growth.
| It's like the windows have been opened in a house for the first time in fifty years. |
| — Anupam Puri, General Atlantic Partners |
India's infrastructure is currently insufficient for the rate of growth it hopes to achieve, Ahluwalia added. He proposed a combination of public sector investment and private sector innovation to bring the country's roads, ports, water, and power up to speed.
Finally, it also remains to be seen whether or not India can take care of its very large fiscal deficit—"but at least the government is aware of it."
Surging or plunging?
The change in corporate India from the early 1990s to today is the difference between night and day, said Anupam Puri, a special advisor to General Atlantic Partners, a private equity firm focused on IT and outsourcing.
"It's like the windows have been opened in a house for the first time in fifty years," he said. "There are still a few cobwebs on the ceiling, but it is a completely different place."
"India is learning from the world at a rate I would not have believed possible," said Puri. "The incorporation of best practices has been very rapid. India is preparing to enter a new phase of innovation."
His portfolio companies have been extremely profitable, with average annual growth rates ranging from 20 to 80 percent and average capital returns of 40 percent, Puri said.
"There's been a big-step change in R&D," he continued. A company like Tata Motors has shown that it's possible to build a car from scratch in India at a cost unheard of in the Western world. The country as a whole is experiencing a new level of entrepreneurism and a new will to compete and win in the global market.
Gururaj "Desh" Deshpandé, founder and chairman of Sycamore Networks, forecast two starkly contrasting scenarios: India in 2020 will either be surging or plunging. "I'm reasonably optimistic that it will be surging," he added.
But there's a tough march ahead. India's working population of 430 million is growing at a rate of about 5 or 6 million each year. The IT sector will see "phenomenal" growth in the coming years, but it currently employs only 800,000 workers. To create new jobs, India must attract capital by addressing the macro issues that cropped up throughout the conference: its fiscal deficit, weak infrastructure, and neglected agriculture sector.
Looking beyond a strong economy
Vikram Gandhi (HBS MBA '89), co-head of the Global Financial Institutions Group at Morgan Stanley, suggested that India's technological expertise and entrepreneurial energy focus on improving the global standard of living. Out of a world population of six billion people, the one billion who make over $2,000 a year are the primary recipients of technology's benefits. Why not build businesses that serve those at the bottom of the pyramid?
The audience took up a similar theme in the Q&A session. One participant wondered if the panelists thought a strong economy alone would solve India's problems. What about a strong civil society and political and social leadership?
Most of India's institutions are performing quite well, Singh responded. India's government is highly participatory, with a large turnout for elections.
| Poverty will still be an issue in 2020. |
| — Gururaj Deshpandé, Sycamore Networks |
There's also a new dynamic in India, added Puri. "More people are taking things into their own hands," he said. Villagers, for example, have seen the value of education and are paying to send their children to the best schools available.
"Poverty will still be an issue in 2020," said Deshpandé, but micro-credit programs will grow dramatically in the next ten years, stimulating economic growth in rural areas.
A final question touched on the conference's hot-button topic: IT outsourcing and business process outsourcing (BPO). How can India capture its technological expertise to solve big-picture problems?
There has been a big brain drain from India, Puri conceded, and most of India's IT business models are focused on BPO. But entrepreneurial opportunities are becoming more significant. "The balance is beginning to shift," he said, sounding a note of cautious optimism that was characteristic of the panel as a whole. 