Wednesday, February 08, 2006

India Shining... But for how long? - Part 1

In response to my articles on India assuming the role of the world's back office, Santosh, a college mate of mine posted a comment, "How long , I mean for how many years can these western countries feed us, there would be some limit for this. Many other countries are also coming up in competition to open back offices and software development?". I am sure it is tempting to dismiss such questions with a one-liner like ,"For as long as we offer cheap labour and quality". Very much true. However, I decided to scratch the surface a little more to analyse the factors that are currently driving work to India and the factors that might eventually be India's undoing in attracting such work in the future.

Globalization is one primary reason why the outsourcing insdustry in India is having such a gala time today. India is marching ahead at a stupendous 8.1% GDP growth, something that none of the developed world is showing.

The cold war era saw governments in control of industries and trade in their respective countries. This was driven by the principles of Socialism and Marxism that were in vogue in many of the Russian satellite countries and even many of the NAM ( Non Alignment Movement ) countries like India, Egypt and the African nations which had gained Independence just then. Perestroika* and Glasnost** were being voiced the globe over, thanks to erstwhile USSR President Gorbachev's tireless propaganda. The political and societal mood in the countries that had just thrown off the colonial yoke, was one of adopting methodologies that aim at equal wealth distribution and thus prevent exploitation, something that the citizens of these nations had endured for nearly two centuries.

80s saw the USSR disintegrate. Socialist priniciples that had been ineffectually adopted had gone horribly bad in several nations. Globalization was a new phenomenon that started catching on with the world leaders soon after the Cold War era ceased. Harping on principles like creation of a global village, wealth for everyone, stable societies and stable economies. 'globalization' struck the right note with many a country. World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank(WB) with backing from the MNCs imposed garangutan conditions on developing economies while granting them the much needed billion dollar loans. These conditions involved privatization of industries, liberalization of economies.

India was on the crossroads of whether to take the plunge or not. It was a make or a break situation for the country. Finally, Narasimha Rao's government took the hard decision and brought in the new generation economic reforms in the 90s that paved the way for India to become one with the global economy. MNCs started pouring into the country as they did into various other countries across the world that had swallowed the pill of globalization. India has managed to utilize globalization to its benefits, while numerous for numerous other countries, globalization has come in as a scourge. What did India do or have that these other nations did not ?

Await my next post to find out why India managed to while others failed to hitch hike a ride on the outsourcing bandwagon. Let us also answer the pertinent question that threw open this discussion in the first place.

Footnotes

*Perestroika : An economic policy adopted in the former Soviet Union; intended to increase automation and labour efficiency but it led eventually to the end of central planning in the Russian economy

**
Glasnost : A policy of the Soviet government allowing freer discussion of social problems

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