Thursday, June 9, 2011

India: Growth Despite Government

Absolutely essential reading from The New York Times: an article on India's extraordinary economic growth that has come despite a government that struggles to provide even the most basic infrastructure:

In Gurgaon [a suburb of New Delhi] and elsewhere in India, the answer is that growth usually occurs despite the government rather than because of it. India and China are often considered to be the world’s rising economic powers, yet if China’s growth has been led by the state, India’s growth is often impeded by the state. China’s authoritarian leaders have built world-class infrastructure; India’s infrastructure and bureaucracy are both considered woefully outdated.

Yet over the past decade, India has emerged as one of the world’s most important new engines of growth, despite itself. Even now, with its economy feeling the pressure from global inflation and higher interest rates, some economists predict that India will become the world’s third largest economy within 15 years and could much sooner supplant China as the fastest-growing major economy.

Moreover, India’s unorthodox path illustrates, on a grand scale, the struggles of many smaller developing countries to deliver growth despite weak, ineffective governments. Many have tried to emulate China’s top-down economic model, but most are stuck with the Indian reality. In India, Gurgaon epitomizes that reality, managing to be both a complete mess and an economic powerhouse, a microcosm of Indian dynamism and dysfunction.

In Gurgaon, economic growth is often the product of a private sector improvising to overcome the inadequacies of the government.

To compensate for electricity blackouts, Gurgaon’s companies and real estate developers operate massive diesel generators capable of powering small towns. No water? Drill private borewells. No public transportation? Companies employ hundreds of private buses and taxis. Worried about crime? Gurgaon has almost four times as many private security guards as police officers.

“You could call it the United States of Gurgaon,” said Sanjay Kaul, an activist critical of the city’s lack of planning who argues that Gurgaon is a patchwork of private islands more than an interconnected city. “You are on your own.”

I am busy today so I'll only add this thought: Much of this reveals a pattern of allowing the wealthy minority to build for themselves a society within a society. But this will soon test India's democratic identity, for this cannot go on indefinitely without the 90% of India that is left out. The state must begin to step in and start to provide essential services for those who cannot afford to buy them privately. And the private provision of these services is usually hugely inefficient and will eventually become a major drag on growth.  India needs to begin aggressively inserting the state back into the fray in other words.

It also reminds me a bit of Brazil, but for all the corruption and inefficiency in Brazil, the state is much better functioning in general.  They lost control of the favelas, but have began a program of re-integrating favelas into the bureaucracy: providing services, enforcing building codes, etc.  This might be a model for India.

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