The WaPo reports that software and services are great bootstrap industries because, unlike heavy manufacturing and chip fabs, they don’t have a lot of dependencies on infrastructure (via Globalisation Institute):

Chennai also shows why India succeeds in software and services. To do software, you only need one functional buildingTo do software, you don’t need a broad infrastructure base; you need one functional building. I visited Tidel Park, a gleaming office block here that houses 31 software firms, two-thirds of which are foreign. There aren’t any power cuts here because the building has its own backup generators. There are no connectivity worries because it is served by six competing broadband providers. And it certainly is safe. Tidel Park boasts 150 guards and a security control room that would not look out of place on Darth Vader’s Death Star. [Link]

However, eventually you need a manufacturing base and the ability to generate economies of scale. The khadi cloth era of protecting domestic industries only made them sluggish and unresponsive and postponed global competitiveness. Relative to centralized planning, few of India’s early leaders understood adaptive systems or emergent effects:

… the opening of India’s economy has forced its manufacturers to reinvent themselves. Chennai’s auto-components firms have done this almost manically. Ten years ago, their brakes and valves were crummy enough to scare away the international car majors that considered manufacturing in India. Today, you can’t spend an hour with any of the components Actually, getting rid of the tariff barriers is where you startfirms without hearing about the international quality certifications they’ve amassed; the Deming Prize, awarded for manufacturing excellence by a Japanese committee, has acquired talismanic status… the city’s business leaders pepper their conversation with Japanese management lingo.

The results are dramatic. The TVS Group, the largest of India’s auto-components firms, now exports around a third of its output — proof that it meets international standards. The rival Rane Group reports that it has reduced defects from 10,000 parts per million to 250 and that 28 percent of its engine valves are now exported. One of the TVS companies, Sundram Fasteners, has won a General Motors “Supplier of the Year” award five times, and it supplies 100 percent of GM’s radiator caps.

Gold. The metal is synonymous with Indian culture. All the aunties that are shamelessly pressuring us younger folk to get married, are really doing so simply because it will provide them occasion to sport their bling. When my mom travels overseas she always calls me to have “the talk:”

“Abhi-beta, if something happens take care of your brother. You know where we keep the family gold right?”

She proceeds to tell me in laborious detail about the many locations, safety deposit boxes, etc., where the family jewels are kept. I shouldn’t even mention the map to the dig site in the forest behind our house. The Christian Science Monitor reports that India’s obsession with Au is actually weighing down the growth of the Indian economy:

In India, nearly all that glitters is, in fact, gold. With a stockpile already worth $200 billion, Indian gold purchases jumped nearly 40 percent this year, making the country the world’s leading consumer of the precious metal.

Gold may seem like a savvy investment as its value hits a 22-year high. But experts say it may actually be weighing down one of Asia’s fastest rising economies. It would be better if the money locked up in the glistening yellow metal went instead to finance new start-ups or better roads, boosting the Indian economy over the long term, economists contend.

That could provide quite a boost, given that the amount Indians have saved in gold – mostly as jewelry – is worth 30 percent of the country’s $690 billion economy. But Indians have a deep cultural soft spot for the soft metal – something that may hinder new efforts to introduce more modern investment strategies for India’s burgeoning middle class.

“It’s fair to say India’s economic growth would be higher if the money tied up in gold was invested more productively,” says Diana Farrell, director of the McKinsey Global Institute in San Francisco.

But really now, how are you going to convince those aunties that giving up the gold is better for their society? I myself am a silver man. I especially like it on my kaju-katli.

…earlier this year there was a mini gold rush in Tamil Nadu, where people affected by last year’s tsunami put up to half the aid money they had received into gold jewelry,” Ms. Leyland says. “They could wear it, keep it safe, and it was in a form where it couldn’t be frittered away.”

Worries over security aren’t restricted to poorer or displaced Indians, however. The country’s growing middle class is still skeptical of financial investments and even bank deposits, preferring physical assets like gold and property.

There is definitely going to be a generational conflict over the gold in my family. My mom made me a gold Om chain a long time ago but I never wear it. I’m always afraid I will lose it and I just never thought gold was that attractive (one of the many reasons I am a bad Indian son). I have always admired gold for its more pragmatic uses.

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