India after the Boom

Contrary to the popular vision of an India that is so powerful and dynamic that many see it as the next China, this author looks beyond the hype and sees a harsh reality – corruption, chaos, frustrated youth and crumbling infrastructure.

Indian corporate hubris peaked in 2007-2008. In 2007, Amitabh Bachchan, the famed Bollywood actor and tout-for-hire mouthed a script for one of his sponsors that declared: “A pulsating, dynamic, new India is emerging; an India whose faith in success is far greater than its fear of failure. An India that no longer boycotts foreign-made goods but buys out the companies that make them instead.”

He was referring to a spate of foreign acquisitions by Indian companies. In 2007, Tata Steel acquired Corus, a European steelmaker after a bidding war against a Brazilian firm took the offer price from $7.6 billion to $12 billion. The next year, Tata Motors bought the Jaguar and Land Rover brands from Ford for $2.3 billion. Bharti Airtel’s $9-billion acquisition of the African operations of Kuwaiti telecom operator Zain in 2010 was another landmark deal towards the tail end of Indian corporate euphoria. These and many other deals, including those by the giant Reliance, by Suzlon (green energy), and by Aban (energy) have mostly not gone well. In practically every case (except the Jaguar, Land Rover deal), the Indian buyers paid too much, had to write off large amounts within a few years, and became saddled with foreign operations that they have had difficulty integrating or running.

Indian companies’ foreign acquisitions were fueled by supercharged valuations at home and an ability to raise credit abroad on the basis of their domestic businesses. In the global narrative playing out at the time, India was being trumpeted as the next China. Indeed, it was supposed to be emerging as a better China with an English-speaking population, democratic institutions, and a proven model of integration into the global marketplace, best exemplified by its software sector.

But it soon became evident that India is not China. It doesn’t have the growth rate, the infrastructure, the investments, the discipline, or even the stability of China. And in the years since the peak of the hubris, India has been a disappointment even to itself.

Sure, India’s growth rate still hovers over five per cent. But while that is impressive by western standards, it is growth from a very low base. And even a brief visit to India is enough to make one wonder how that growth rate is possible, given all of the obstacles a business faces. Still, even if the growth rate is accurate, is it sustainable?

India may have a population that is as large as China’s, but its investments in education are paltry, a reality that has turned the large population into a drag on the economy rather than an asset. India’s productivity per person is half of China’s. Alarmingly, future growth has been undermined. A generation of youth is being raised on dreams drawn from aspirational global media. That same youth has been unable to realize those dreams, mainly because of lack of education and a paucity of jobs. The political ramifications of the inevitable frustration of those dreams are hard to fathom: What might happen when several hundred million youth get angry?

India’s infrastructure, too, is archaic and crumbling under the strain of the economy’s growth rate. Power cuts are common, clean water is a luxury, the roads are crowded and pot-holed and the ports are clogged.

Solutions to these problems might be possible if there were a political commitment to progress. But there isn’t. The central government is a precariously perched coalition of disparate parties. Corruption is endemic to both the political and bureaucratic class, causing practically every government program to leak most of its funds before they reach their intended beneficiaries. Efforts to improve schools, build bridges and power plants, and make the movement of goods more efficient are stymied by graft, theft, and incompetence.

In recent years, as educated Indians have enviously observed the rise of China, many have sought comfort in the argument that India’s rate of growth is slower but more sustainable in the long term because it is built on a foundation of democracy. Freedom, they say, has a price.

In the coming years, that illusion will give way to the reality that India is no longer in China’s league. China’s population has an education and healthcare, and the country has a world-class infrastructure. India, by contrast, will continue to lag as Indians mistake chaos for freedom and inertia for democracy.

Amitabh Bachchan plays powerful men on screen, but his declaration that “a pulsating, dynamic, new India is emerging” remains as fanciful as a Bollywood movie.