Could India become a petro-rupee state? The Indian oil minister said last week that the country has almost as much oil as Saudi Arabia, just when conventional wisdom says it’s running out. Energy independence would be excellent; relying on oil without building a real economy, disastrous.

Petrominister

[Mani] Shankar Aiyar, minister of petroleum for India… believes that India could become a petrodollar state in the 21st century… The optimism is grounded in massive oil deposits, close to 30 billion tons, in Central India. That’s twice the size of the deposits in Iraq (13 billion tons, according to the Institute of Petroleum) and just shy of Saudi deposits. With this, India, which imports 70 percent of its oil, could become an exporter… [Link]

India may exhaust its existing oil fields soon, and as its economy grows, so does its thirst:

India has oil reserves to last only till 2016, if no new discovery is made, the Petroleum Minister, Mr Mani Shankar Aiyar, said today. [Link]

ONGC’s oil output has stalled at about 520,000 barrels a day in the past couple of years and is expected to decline as older fields near the end of their productive lifespan. Mr Aiyar voiced concerns about a fall in domestic output at a time when India’s rapidly expanding economy is fuelling huge demand for energy. [Link]

Central India has oil deposits twice the size of those in Iraq and just shy of Saudi deposits. But they’re not easy to extract

India ranks sixth in the world in terms of energy demand… While India has significant reserves of coal, it is relatively poor in oil and gas resources… The majority of India’s oil reserves are located in fields offshore Bombay and onshore in Assam. Due to stagnating domestic crude production, India imports approximately 70% of its oil, much of it from the Middle East… The World Energy Outlook… projects that India’s dependence on oil imports will grow to 91.6% by the year 2020. [Link]

Nearly half [India’s] electricity, according to various estimates, gets stolen by individuals placing illegal feed wires onto power lines… [Link]

Continue reading →

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.

Continue reading →

Once upon a time, US dollars went a long way in India. Even weddings, long expensive in local terms, could be staged far more cheaply in India than in the US. Not any more. The wedding planners have arrived, and everybody wants a big extravaganza:

India’s burgeoning middle class – now 300 million strong – are turning weddings into showcases of their growing disposable incomes and newfound appetites for the goodies of the global marketplace.

The largesse has spawned an $11 billion wedding industry, growing at 25 percent annually and beginning to rival the US industry valued at $50 billion.

The minimum budget for a wedding ceremony is $34,000, say wedding planners, while the upper-middle and rich classes are known to spend upward of $2 million. (The average American wedding costs $26,327.) This doesn’t include cash and valuables given as part of a dowry. [Link]

The latest fad is to stage the whole shebang on pontoons, putting family and friends on a veritable flotilla of flaunted wealth

If you consider the fact that India’s middle class are those considered to be earning “$4,545 to $23,000 a year”, weddings are priced comparably to an Ivy League education in the US. To “help out” banks are offering specialized wedding loans (at high rates, I’m sure):

GE Money India has introduced an “auspicious” personal loan, a quick and easy loan exclusively for weddings. [Link]

India is the biggest net beneficiary of money sent home by migrants:

Officially recorded remittances worldwide exceeded $232 billion in 2005, with India receiving almost 10% of the amount ($21.7 billion). China came second with $21.3 billion, followed by Mexico ($18.1 billion), France ($12.7 billion), and the Philippines ($11.6 billion). [Link]

To put this into context, remittances worldwide are roughly the same as the GDP of Sweden, and remittances to India are roughly equivalent to the entire national output of countries such as Latvia or North Korea. India makes even more foreign exchange from sending its workers abroad than it does from exporting software.[Thanks Hammer_Sickel!] Remittances to India are roughly equivalent to the entire national economic output of Latvia. India generates more foreign exchange from sending its workers abroad than it does from software exports.

International flows of labor are now becoming economically critically, like flows of capital in the decade before before:

… remittances sent through informal channels could add at least 50 per cent to the official estimate, making remittances the largest source of external capital in many developing countries. [Link]

With the number of migrants worldwide now reaching almost 200 million, their productivity and earnings are a powerful force for poverty reduction. [Link]

An article in Indian Express discusses the barriers to transforming the world of work something we’ve long suspected –

”Companies are finding that despite India’s one-billion population, the effective employable pool for white-collar workers is smaller than anticipated. This is causing salaries to ratchet upwards”. At the same time, there is a large mass of educated and unemployed people or those stuck in jobs well below their skill and qualification.

Educated and yet unemployed / underemployed? The article asserts that the core reason is English language skills and provides a startling figure –

…Salary differences between equally qualified (non-professional/technical) candidates can be as high as 400 to 500 per cent. In fact, the more fancied jobs in airlines, hotels, media, banks and financial services only to those who know English, the rest are forced into less fancied assignments.

…The best jobs with the upmarket shopping malls, multiational fast-food chains and tony restaurants go to those who can speak English along with the mandatory fluency in local languages. The job market in the services sector is likely to expand furiously as malls, multiplexes, food courts, and large retail chains expand operations across India, moving from the cities to larger towns. This growth will only accelerate if the government eventually permits Foreign Direct Investment in the Retail Sector, letting in large retail chains such as Wal-Mart.

The English advantage really drives home the cultural globalization at work within India. Such a large pay differential implies – particularly when seen in retail & services sectors – that there are domestic, well-to-do desi consumers who pay a premium to interact with confident English speakers as part of their business experience. Message to your bro’s back home – Learn English – 400-500% is a far bigger differential than, for ex., the diff between undergrad and grad degrees.

On the flip side, I suppose some sorts of anti-globalization advocates would wipe out the 400 to 500% differential by keeping the Wal-Mart’s out and keeping everyone equally poor.

Continue reading →

As children of the brain drain (literally as well as figuratively) we are conditioned to think of India’s million-strong brain drain represents just 4.3% of its vast graduate populationthe free market in labor as a good thing for all parties involved. Certainly, free movement of talented professionals has been good for migrating professionals and for the people of the first world — 25% of the doctors in North America, Britain and Australia are immigrants who attended medical school abroad. [Link]

A trickier question concerns the implications of the brain drain for the people in the sending country, the country that the doctors are being drained from. The effects of the brain drain there can be ambiguous – while it leeches away many talented professionals, it also creates incentives for others (who might not have seen education as lucrative before) to get educated, and can therefore create a more educated population than would have existed without brain drain. Some people argue that this is why India has benefitted from/despite brain drain while other countries have been damaged by it. According to the Economist:

Indian students had little reason to learn computer coding before there was a software industry to employ them. But such an industry could not take root without computer engineers to man it. The dream of a job in Silicon Valley, however, was enough to lure many of India’s bright young things into coding, and that was enough to hatch an indigenous software industry where none existed before.

India’s valley-dwellers represent just one contingent in a much larger diaspora. According to the most exhaustive study of the brain drain, released last month by the World Bank, there were 1.04m Indian-born people, educated past secondary school, living in the 30 relatively rich countries of the OECD in 2000. (An unknown number of them acquired their education outside their country of birth, the report notes.) This largely successful diaspora is more than just something to envy and emulate. Its members can be a source of know-how and money, and provide valuable entrées into foreign markets and supply chains.

But Messrs Kapur and McHale think India’s relatively happy experience with its educated emigrés is more likely to be the exception than the rule. Its million-strong brain drain represents just 4.3% of its vast graduate population, according to the Bank. By contrast, almost 47% of Ghana’s highly educated native sons live in the OECD; for Guyana, the figure is 89%. This is not a stimulative leeching of talent; it is a haemorrhage. [Link]

Continue reading →