What can derail the India story? - Views on News from Equitymaster

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What can derail the India story?

Jun 4, 2009

India has the worst bureaucracy
Although the Indian stock markets are having the world in their stride, the same cannot be said about its bureaucracy. Sadly, it has been voted as the least efficient among the 12 Asian economies that were surveyed by a Hong Kong based consultancy. "They are a power centre in their own right at both the national and state levels, and are extremely resistant to reform that affects them or the way they go about their duties," said the report, which involved inputs from more than 1,200 expats working in these countries. And India was not the only sufferer. Even China saw its ranking slip two places to 9th. The results may not have come as a surprise to those residing in India as most would have had a firsthand experience of the slothful ways of the Indian bureaucracy. To our misfortune, the amount of economic output lost due the bureaucratic delays cannot be readily calculated and hence, cannot be dealt with effectively. But if some studies are to be believed, improvement on this front alone could easily add a couple of percentage points to India's GDP growth.

However, the task is far from easy. For one, the size itself is huge and second, years of getting used to a certain type of work ethic will make shrugging it off a very difficult proposition, especially when there are some pretty strong vested interests at work.

Outsourcing presses on
Global downturn has rubbed many businesses the wrong way. But outsourcing is an area which seems to be getting benefitted as companies attempt to cut cost and improve operational efficiency. India, for some years now, has been on the better side of the equation with a huge pool of fairly priced well-educated English speaking youth. In contrast, the developed nations in the West are plagued by sky-rocketing infrastructure and health-care costs of an ageing population.

Though the political pressures build up to keep the jobs at home, it makes better business sense to trim costs through outsourcing jobs to countries like India. This is the reason why global companies continue to invest in India, even if curbing costs back home. Hewlett-Packard (HP) hinted at plans of establishing "HP Software University" in eight Indian cities to train in software testing. Honeywell International plans to invest US$ 50 m in an R&D facility to be set up in Bangalore. There's many more to come.

New business is coming from all verticals and geographies. As the demand is upgrading to sophisticated, high-end services, supply side is also learning newer skills. This is a good sign for the Indian IT and Outsourcing industry which is all set to breach US$ 50 bn revenue in a couple of years.

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