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Why is India Poor? Agenda for a New India

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Kanwal Rekhi SiliconIndia, February 2001 Indians are smart and creative people. They have also proven to be hard working and thrifty. India is a well-endowed land, with a good climate and plenty of natural resources. It has a... See more » Kanwal Rekhi SiliconIndia, February 2001 Indians are smart and creative people. They have also proven to be hard working and thrifty. India is a well-endowed land, with a good climate and plenty of natural resources. It has a vibrant, enduring democracy and the rule of law prevails. So why does India continue to be dirt poor after 53 years of independence? What makes India poor and America a rich country when there is a similar political apparatus in place, similar liberal ideologies and beliefs at work and, most significantly, an identical rich resource of talented and hardworking people. Why is it that the per capita GDP of India is $500, whereas it is close to $40,000 per American? Why is an American 80 times more productive? An educated Indian is very competitive in the US as evidenced by the fact that the average GDP per Indian-American is close to $60,000. In fact, what is it about this country that makes Indians perform better than at home and, indeed, better than his American counterpart in many cases? I hear that India is poor because of its colonial legacy. But the fact of the matter is that Indians are relatively worse off compared to Americans after 53 years of independence. India was similarly situated as the Asian tigers or China not that long ago. They have all pulled ahead and left India behind in the last 40 years. Lets focus on India and the United States for the sake of argument. It is my contention that India is poor by choice and that it works very hard to stay poor. Conversely, the US is rich because it works very hard to not only maintain its wealth, but to get richer by the day. India is poor because it is fixated on poverty. Immense national resources are used to subsidize the poor and provide jobs for them. As a matter of fact jobs are sacrosanct in India, which goes to great lengths to preserve unproductive jobs. Contrast that with the United States where emphasis is put on productivity and productivity gains. In essence the relentless pursuit of productivity gains is at the heart of US prosperity and the mindless emphasis on preserving jobs is at the heart of Indian poverty. Put even more simply, the US pursues the politics of wealth creation and India pursues the politics of wealth redistribution. In the absence of national wealth, India redistributes poverty and stays poor while the US gets richer and richer. Jobs Versus Productivity India has had a fetish about jobs. I have heard from senior ministers and bureaucrats that the government is all about jobs. High duties are imposed on assembled goods to create assembly jobs in India. Screwdriver Assembly Plants became a way to go in the early 80s when the only capital equipment supplied by a manufacturer was a screwdriver. Draconian labor laws have provided extreme protection to the organized labor sector at the expense of everybody else. These laws have been a huge disincentive for businesses to hire people. Less than 6 percent of the labor force is in the organized sector. The following stories help illustrate my point as to why the emphasis on unproductive jobs leads to poverty. My favorite story comes from first hand experience in the mid-80s. As suppliers of computer networking boards, we received a request for quote from an Indian computer manufacturer for 200 unassembled boards or knocked down kits as they called them. We did not ship our boards unassembled and asked for 20 percent special handling charges, which they readily agreed to. The Indian government, to encourage local job creation, imposed only a 70 percent duty on components as compared to 300 percent duty on fully assembled boards. How can paying 20 percent more for less, that is unassembled and untested boards, be economically viable? How can those jobs be considered productive? On a recent trip to India, the Congress chief minister of Delhi lectured me, saying India was self sufficient in food. No thanks to the NRIs, she added for good measure. She said that India was proud of its economic progress since independence. Here is what I believe: 70 percent of the See less »

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Why is India Poor? Agenda for a New India

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