Diversifying the economy: Lessons from India
Mbongeni Mguni | Friday January 27, 2017 15:53
Arriving in New Delhi in the middle of a smog crisis was not the best start to developing an article on how India is transforming its economy away from a reliance on agriculture and towards services.
The smog, so thick one could not see the stars at night, was caused by farmers in neighbouring states to the capital burning stubble in the old, frowned upon ‘slash and burn’ method of preparing fields.
Agriculture is still very much an anchor of the Indian economy, supporting many households and boosting food self-sufficiency in the country. Farmers in the states of Punjab and Haryana, whose smoke was choking Delhi, are the nation’s breadbasket in terms of wheat and rice. But beneath the smog, lies an economic miracle possibly unparalleled throughout the world.
In July 1991, Manmohan Singh, then Indian prime minister, shook up South Asia and the world in a remarkable two-hour budget speech in which he moved towards a liberalised India. As described by Bloomberg, Singh “dismantled government control over the economy, opened up Indian markets to foreign investment, cut trade tariffs, devalued the rupee and broke down the walls of the protected economy to the rest of the world”.
The reforms ushered in largely private sector led investment in Information Technology (IT), which anchored other economic reforms, while government made IT development a national priority and a key to unlocking the benefits of globalisation.
The quickfire spread of Internet coverage and the robust competitiveness offered by India, saw the IT sector make leaps that in retrospect appear impossible.
Today, India is renowned for its IT sector, both soft and hardware, which by some estimates accounts for two-thirds of the global market in revenue. The industry accounts for 25% of jobs and has championed India’s approach to carving a niche in the world – low cost solutions and innovation. By some estimates IT services in India are 34 times cheaper than the US, with export components and whole products from there highly competitive.
Homegrown companies such as Tata Consultancy Services, Infosys, Cognizant, Wipro, and HCL Technologies are now global brands, some of them operational in Botswana.
The IT sector in India is now a global leader in services such as e-commerce, networking, data warehousing, offshore development, virtual software organisations and others, providing global support in Business Process Outsourcing, banking, insurance, tourism, construction, manufacturing and others.
The industry’s share of total Indian exports (goods and services) shot up from less than four percent in 1998 to about 25% in 2012.
In Chanakyapuri, an affluent, old neighbourhood in Delhi, I sit down with Shobha Mishra Ghosh, the senior director of the Federation of Indian Chambers of Commerce and Industry (FICCI).
“Ten years ago, when mobile phones first came into the market, our bills were $300 per month to use them,” she recalls.
“Today, providers are saying they’ll provide the voice service for free and you only pay for data. We went down to $10, then eventually free. “Market forces are the leveller.”
Anchoring the growth of the IT industry has been the equally remarkable growth of the tertiary education sector, producing increasingly innovative, specialised and globally-accredited courses. India has 46,000 colleges and 831 colleges, all anchored on the IT-miracle where many courses have an IT component with campuses and lecturers connected countrywide and studies enhanced by the latest innovation.
The growth of the tertiary education sector has mirrored IT’s miracle, and has also become a significant economic contributor, with a late 2016 Ernst and Young report indicating that by 2025, India will have the largest domestic education market in the world with 185 million students. The same survey estimates that by 2025, one out of every four graduates produced globally will have been educated in India.
Furqan Qamar, secretary general of the Association of Indian Universities says 3,000 foreign students arrive in India annually and about 15% of the current student body of 34 million are foreign, coming from 192 countries.
“The question is how to improve this,” he says. “Everyone says we offer cost advantage and are generally tolerant of other people. Why are more people not coming?
“What we see is that there are barriers outside the higher education system, such as restrictions on visas, as well as the social and political climate like the view that women are not safe in India. The distances in the country are also great.
“The most important, however, is that many foreigners say the lifestyle is not compatible and they’re not talking about food. They mean living conditions, the hygiene factors, teachers who can communicate properly.
“Institutions that can do this are getting students.”
However, from my viewpoint, having studied the tertiary education sector in India from afar, the biggest challenge is the perceptions of quality and accreditation. Many Batswana are eager to sign up for the comparatively cheaper Indian courses, but there’s a fear that the qualification one gets will ultimately be useless.
During a FICCI-sponsored Higher Education fair, featuring more than 200 universities, I ask the same question and receive roughly the same answer from one exhibitor to the next: there are no accredited online universities from India.
“It’s a very skewed regulation,” Ghosh explains. “The government allows online universities but they are restricted to acting as study centres. They cannot open these study centres outside their home state.
“That’s silly because online is for the convenience of students, so that the exams are within their reach.
“Online education has not really set off in India, as it has with the US, largely because the mindset has not changed.”
The Indian government, in an effort to make its tertiary sector more credible and globally competitive, is setting up a tier-accreditation structure where those institutions with higher standards, will enjoy less regulation.
Prakash Javadekar, the Indian government’s Union Minister of Ministry of Human Resource Development, explains the South Asian giant’s approach.
“When I became minister, I was asked my priorities for higher education and I said, first is quality, second is quality and third is quality,” he says.
“Among many measures, we have introduced national ranking for universities, without the best enjoying full autonomy, those with 50% standard compliance enjoying 50% autonomy and so on.”
Besides being revenue spinners for the Indian community, as well as viable diversified sectors away from agriculture, the focus on IT and education is key to India’s future.
“Education is key for any development, for wealth creation and eradication of poverty,” chief minister, Chandrababu Naidu says.
The focus on IT and innovative education in India, according to Naidu, is in preparation for the Fourth Industrial Revolution, a global economic era highly anticipated by the world’s foremost economists.
Professor Klaus Schwab, founder of the World Economic Forum describes the Fourth Industrial Revolution this way on the Forum’s website: “The First Industrial Revolution used steam power to mechanise production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third.
“It is characterised by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”
Naidu says the focus on tertiary education and IT is preparing students for a future where jobs are dominated by Artificial Intelligence (AI), digitalisation and robotics, a trend expected to balloon according to most studies, including Ernst and Young’s.
Harshavardhan Neotia, FICCI’s immediate past president says the Fourth Industrial Revolutions is around the corner.
“Robotics, AI, the Internet of Things, 3D printing and others are some of the things that will change the way we live and work.
“The Fourth Industrial Revolution is knocking at our doors.
“It may lead to two-thirds of jobs being lost and without rapid moves, these jobs will go for good.
“We have to rethink the traditional education model and government must take the lead.”
Ghosh believes there are lessons for Botswana in India’s story, its policies and its preparation for the future. She believes the starting point should be further liberalisation of the economy and government ceding control to the private sector.
“It’s about simultaneously upgrading citizens. When government is fixing prices and regulating everything, the private sector cannot thrive. “Wherever market correction is required, government can look at that.”
I think about the unfinished, slow journey towards cost-reflective electricity tariffs and how the Botswana Power Corporation’s entire Masa 2020 strategy depends on securing balanced tariffs. I remember the debates around how cost-reflective tariffs could hurt even middle-income households and how the Water Utilities’ rates are skewed to the point where city dwellers subsidise rural consumers.
I also ponder the debate on greater government funding of private tertiary institutions and efforts towards ensuring more sponsorship goes to courses that the economy will support.
Botswana is walking where India has already been, on a smaller scale, and the optimism the South Asians have can be shared locally.