Redirecting India's Economy: Shifting Dependence from a Service-Based Economy

With India's explosive growth making world headlines every week, I decided to focus this week's blog post on India after reading two news articles from the past few days of foreign corporations investing in India's future. The first article announces NYSE Euronext's decision to buy a 5% stake in the Multi Commodity Exchange (MCX), Indian's largest commodity trading platform for $55 million. Similar to NYSE Euronext's increased expression of interest in India is the press release from the second article discussing the International Finance Corporation's plan to double its investment in Indian infrastructure to about $1.1 billion by the middle of 2008. News of the ICF looking to develop infrastructure in rural areas of India demonstrates the new push to stabilizing and diversifying its strong service-based economy. So while I was perusing the blogosphere, I commented on two intriguing blogs related to these recent news events in India. The first blog called Building BRICs is a newly formed blog written by Grant, who is studying at the Graduate School of International Studies at the University of Denver. Having performed related past research and work within global economic issues, Grant has a highly credible background. I decided to comment on Indian Portfolio Investment Continues...FDI? because I was captivated by the analysis on these new economic trends in India. The second blog called Helloji: Chat & Chai is updated daily with new trends occurring in India written by two Indian bloggers Helloji and FabbyGabby. Although their credentials are indeterminable, their blog attracts many daily visitors. Despite this blog not being a highly reputable source, I commented on Of Cow and Consumerism relating to India's rise in consumerism because I considered this post to be more personal because it was actually written by Indians living in India that express their thoughts on the nation's economic situation. For convenience, my comments are posted below.

"Indian Portfolio Investment Continues...FDI?"
Comment:
I enjoyed your post about the increasing surge in portfolio investment in India. A trend with the BRIC countries is their explosive GDP growth. Without a strategic plan set in place to best handle a strong GDP in developing countries, the growth is not sustainable in the long run. As you mentioned, the International Finance Corporation's decision to double investment in Indian infrastructure is a complementary decision to the nation's economic prosperity. Nevertheless, I think your post could have benefited from discussing the utilitarian allocation of the funds. As developing nations such as India flourish, it is pertinent that policies be established to prevent the social gap from widening. I feel that it is economically sensible for the IFC to target infrastructure that will "benefit small and medium enterprises and the poor." Similarly, mentioning the IFC's recognition of Indian companies that have superior environmental practices would explain the IFC's strategy of encouraging growth in an environmentally friendly manner. Given the future world outlook of diminishing natural resources and serious environmental issues, it seems that a new business trend is having an environmentally friendly image. Emphasizing the IFC's focus on appearing to be a more e-friendly and humane corporation will help appease the tensions of its protesters. Your argument that makes the link between developing infrastructure in Indian's rural areas and the amount of future foreign direct investment is strongly justified. You gave accurate insight on how developing India's rural infrastructure will lead to increased productivity per unit of labor and will in effect make it an even more attractive destination for foreign capital. India has a long way to go before it can fully orchestrate improvements in infrastructure in a country with 1.1 billion people. However, a proper allocation of resources will hopefully result in social and economic stability across the nation. This type of stability in developing countries is what investors look for to make sure their investments carry less risk than they desire. Overall your post gave me a new perspective on India's growth and what measures need to be taken to accommodate it. Besides allocating money to develop infrastructure, what other forms of social investment do you think would help support the service driven economy of India?

"Of Cow and Consumerism"
Comment:
It was a delight to read your post "Of Cow and Consumerism." You successfully linked the story between Ramu and his uncle as a learning experience not only for Ramu, but also for the Indian people as a whole. Effectively, the moral of the story leads to your main argument of attending to the 836 million people living on half a dollar a day who will determine the future of India. You successfully explained the effects of the new booming economy in India with many vivid examples of this new age of consumerism. I thought you did a good job at introducing your argument with concise and blunt statements such as, "That is the image of India: billions of buyers." You discussed the overwhelming omnipresence of consumerism in India, whether it be in the media, in the shopping malls, on the street corners, or at the IT call centers. I enjoyed reading your short and to the point style of writing, which contributes to the strategic shift in tone from more nostalgic and humorous in the beginning to a more serious tone towards the end. Your assertion that capitalistic democracy results in a nation of buyers is well supported with punctual sentences like the following, "No one is just a bystander in the new economy. Everyone is a participant. Everyone is a buyer." The opportunities for the Indian people to seek education, secure jobs at IT calling centers right after high school, and generate enough income to buy new cell phones and cars are all modern phenomena that few Indians could experience no more than a decade ago. You raise many good questions regarding the sustainability of India's consumerism while you metaphorically predict the milk will soon run out and that we will have to feed hay to the future generations. I feel your post would have benefited greatly if you provided solutions to this imminent problem instead of leaving these questions unanswered. Personally, I strongly propose that India develop its infrastructure and manufacturing industries so that it is not so reliant on the success of its service-based economy. What are your thoughts to closing the social gap in India?

Capturing the World's Natural Resources: China's Strategic Plan

As of today, China has only six car owners per 100 people. This ratio is quite small compared to the 90% car ownership in the US and 80% in the UK. What is important to realize from most comparative statistics between China and developed countries is the enormous potential for growth that is predicted from its rising middle class. Of key importance to manufacturing new products and constructing the housing for the migratory exodus of the middle class to urban centers is the absolute necessity of having sufficient natural resources to fuel this growth. Although the one-party state is still officially ruled by a communist party, China's ironically capitalistic thinking has succeeded in realizing that its ability to acquire natural resources will determine the sustainability of its rapid growth over time.

Looking at China on a per capita basis, the country is ranked approximately 100th in the world and is still vastly a developing country with low-income wages. In statistical terms, China does not have a critical impact on the world's economies. Yet, with the largest available labor force in the world, an abundance of resources, and a vast natural market-orientated economy, China has the ideal economic factors to become the super power of the century. After China opened up its economy in 1978 and abolished its centrally-planned Soviet style economic policies, it has averaged a 9.4% annual growth in GDP which has made it the fastest growing major nation in the world.

The outcome of China's economic reforms and extraordinary growth has had direct effects on its society. As real income increases on an annual basis, an influential emerging middle class comes as a by-product. With the largest population in world of 1.3 billion people, China will have a significant consumer market over the next 20 years. The logic behind this assumption is the following: as the growth per capita increases, the amount of real income increases, which creates a large urban middle class, and in effect the members of society now have more purchasing power to spend more money on goods besides food. No longer are foreign companies focusing on the urban elite as their target market, but are now aiming at the middle class Chinese workers. These consumers are beginning to discover what it is like to spend money on products that they may have never been able to purchase before, such as expensive jewelry as seen in this image to the left. As this emerging middle class develops new tastes and a consumer frenzy sets in, it is the corporations' duties to satisfy the needs of these consumers by supplying them with the products that they want. A few of the most desired products that are now in demand in China are cellular telephones, computers, TV sets, and cars, all of which will be produced more of as the middle class proliferates.

China has done a good job at strategically planning out its long term economic policies that are in response to its emerging middle class. The truth of the matter is that China is only in the early stages of its growth. With a GDP per capita below $3,000 USD, China has a long way to go before it fits its entire population with modern universal living standards. However, the leaders of this country have taken the rudimentary steps necessary to accommodate for the radical social changes in consumer behavior that await it. China has been taking proactive measures to secure the natural resources that support its manufacturing-based economy. While essential resources such as copper, iron, steel, tin, zinc, and energy have been available to produce its exported goods, China is now aggressively looking abroad to buy up the raw materials it needs for its own hungry middle class. In contrast to Japan's explosive growth after WWII in which economic initiatives focused on investing in hotels, tourism, and electronics, China's long term prosperity will be better insured with its wise decision to invest heavily overseas in factories, land, and shares in resource-based corporations. It is not uncommon to see news of China buying new state run oil facilities in Africa and portions of mining companies in Brazil. In fact, when I speak with my friend that lives in Brazil, he often discusses Chinese businessmen coming to Brazil to buy up large plots of agricultural land for producing soybeans. All this news about China stocking up on raw materials to be used for its manufacturing-based economy further supports the reality that China will soon become an economic superpower that is here to stay.

It is important to heed the immanence of China's rise to becoming a world power because it affects us in ways that may be not so obvious. Unfortunately, there is only a limited amount of natural resources on this world. Each year humans are depleting these resources as demand continues to increase due to higher standards of living across the world. As the developing BRICs grow at exponential rates, there is no doubt that the spending power of these rising middle classes will take a toll on the world's resources and mother nature. On a trip to Beijing this past summer, I was breath taken to see a thick gray layer of smog in the air every time I looked up, as the picture that I took to the right reveals. Although it is fascinating to witness China develop as a nation through its leverage on resources, the by-products of these raw materials is definitely leaving an ugly scar on earth's environment. China may have the right to say that it is its turn to take part in the industrial revolution, but the truth is that our planet cannot sustain the rate of resource depletion that is taking place worldwide. The US, China, and the rest of the world has to make the preservation of our environment a priority or else it will be nonexistent for future generations to appreciate.