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India Skipping the Industrial Revolution?

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India - Skipping the Industrial Revolution?   By Gurcharan Das

Many Indians are frightened by the idea of bypassing the industrial
revolution. They ask, "But won't we still need clothes to wear and
cement and steel to build our homes?" As India prepares to leap into
the IT and communications age, this is a misguided worry. Gurcharan Das
explains why, in this excerpt from his book "India Unbound."

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he most direct answer to such fears is that the value added in the new
Information, Communication and Entertainment (ICE) economy is far
higher than in the old economy. Put another way, a little bit of Indian
software will be able to buy a great deal of a generic commodity like

Seizing the comparative advantage

In the globalized open economy governed by the World Trade Organization
(WTO), we will make only what we are good at. That means goods and
services - where we have a comparative and competitive advantage - and
we will import the rest.

With competitive advantages in agriculture and the new knowledge
economy, it may be all right for India to skip much of the industrial

Fortunately, we Indians are competitive in many areas. We will, for
example, make aluminum, cement and pharmaceuticals - but we will import
steel and fertilizers. We are also low-cost producers of at least 12
agricultural commodities.

Once we reform our agriculture and the world opens its agricultural
markets, we should be able to rapidly gain significant world market
share in this field. It is also worth remembering that the new economy
is largely a service economy - and creates many more jobs. Meanwhile,
the old economy is increasingly cutting jobs, downsizing, mechanizing -
and becoming even more capital-intensive.

Adapting to the new economy

India, with its vast intellectual capital - two million low-cost
English-speaking college graduates each year - is in an excellent
position to provide "knowledge workers" to the global economy and to
benefit from the knowledge revolution. With competitive advantages in
agriculture and the new knowledge economy, it may in the end be all
right for India to skip much of the industrial revolution.

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And yet, keen observers of modern India have this grave worry: if our
bureaucrats and politicians killed our industrial revolution, won't
they do the same with the knowledge revolution? I believe they will not
prevail this time around, for several reasons.

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   Why progress will prevail

One, because our current economic reforms are curtailing their ability
to inflict damage. Two, because high-technology business is virtual -
and it is difficult to control what you cannot see. Three, because the
Internet creates transparency and brings transactions into the public
domain. It undercuts the bureaucrat's power, which is based on the
bartering of knowledge.

In the globalized open economy governed by the World Trade
Organization, we will make only what we are good at.

Many are rightly skeptical about the new economy's ability to spread to
the masses. They can only see the "digital divide." It is true that
people will benefit only if they have education. It is also true that
four out of ten children in India are illiterate. It is worse for girls
and in the backward northern states, where teachers are often absent,
schools lack even the basic facilities, children are not motivated and
they drop out.

A thirst for education

But there is a hopeful sign. There is a new-found thirst and enormous
pressure from below for education. In the past six years, India's
literacy rate has risen from 52% to 62%. This is a huge improvement,
and if this trend continues, universal literacy is not far behind -
despite the politicians. The happiest news comes from India's most
backward states, where growth has been the highest. And among girls,
literacy has grown faster than among boys. These figures come from a
smaller sample and will hopefully be confirmed in 2001.

In some states, responsibility for education is beginning to shift to
the elected village councils. This has brought more accountability.
Madhya Pradesh and Andhra Pradesh are leading the charge. And their
citizens have returned the favor by reelecting their political leaders.

A new future for liberalism

So perhaps there is hope. In the end, if there is one thing that could
secure our future, it is vigorous attention to building human

In the end, it may be all right for India to skip much of the
industrial revolution.

For 50 years, India has been a political democracy, which has given
voice to the lower castes through the ballot box and shown the world
how political democracy can translate into social democracy. It has now
become one of the fastest-growing economies in the world. And it wants
to disseminate information technology tools to the common people.

The government's goal of "IT for All by 2008" reflects an understanding
that the spread of information technology is an opportunity to overcome
historical disabilities and compress the time needed to reach
comprehensive development goals.

There is a broader significance in all of this. If India succeeds in
its path of liberal market-based democracy - as it has every right to
expect - it will shed new light on the future of liberalism in the

November 18, 2001

Adapted from "India Unbound" by Gurcharan Das.
Copyright  2001 by Gurcharan Das.
Used by permission of the author.

Gurcharan Das is a columnist for the Times of India. He is also a
venture capitalist and former head of Proctor & Gamble India.

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