Sunday, March 14, 2010

Statehood Movements in India


India is comprised of 28 states. Since India gained independence from Britain in 1947 the country’s young democracy has endured many external and internal challenges. The economy was stagnant and closed off from the outside world until 1991 when India enacted a series of economic reforms which opened up their economy to the outside world, and allowed India to begin to become the back office powerhouse that we know of today. Besides poverty, religious, cultural, and language clashes, one of the biggest issues that has faced the young country is the issue of the creation of states. Much as America struggled to conquer territory and establish states, there is infighting in India with different cultural separations manifesting through geographic and political line drawing disputes. There are two major statehood movements that will be addressed in the subsequent sections. Most notable is the statehood movement of Telangana which has been in the news as recently as December, but dates back to the days of independence from Britain. Another important statehood movement to look at historically was the Chhattisgarh, Uttarakhand, and Jharkhand movement of the year 2000.

Telangana Movement:

The Telangana Movement is very interesting for a number of different reasons. First is the history of the region. Dating back to before British independence the Telangana region of the state of Andhra Pradesh has been a source of conflict. During British rule, Telangana (though not the whole state of AP) was an independent province. Indeed even up to 1956, Telangana existed as a separate state. It wasn’t until November of that year that it was absorbed by the state of Andhra to create AP. Needless to say even at that time the citizens were not in favor of the merger. The people of Telangana did not have a majority, and therefore faced persecution by their new majority leaders. They were made promises that the power would not be exploited, but many claim that they have been.

The main economic dispute in this statehood movement comes over the city of Hyderabad, an epicenter of technological innovation with Indian headquarters for many foreign companies located there. Multinational corporations like Microsoft, Google, Motorola, and Dell call this city home. Obviously having these powerhouses in the region should have spurred major economic growth. Unfortunately for the people living in the Telangana region, they have yet to feel the trickledown effect of that economic prosperity. The citizens (in what is an extremely poor region) feel that the large size of the AP state means that the economic success gets distributed amongst a vastly larger number of people. Understandably, the state is in no mood to let Telangana (and the thriving economy of Hyderabad) go without a fight. However the people of Telangana were ready for a change, even if they weren’t so sure it was possible. An unlikely political leader emerged, often slighted by his own political party, K. Chandrasekhar Rao decided that the time for change was now. He led the movement by initiating a hunger strike. It lasted approximately ten days before the government currently in power relented and agreed to start the process of allowing Telangana to become its own independent state. The move has sent shockwaves throughout the country, given the messy nature of the hunger strike which was handled by the government with a heavy hand (Rao was arrested, before being hospitalized). It made national news. More importantly, many people fear the repercussions in other contested statehood movement areas throughout India such as Gurkha in West Bengal. Those favoring a strong, unified national government often change their tune as the government changes hands. What is most important politically to most politicians is the powerful party in a given region. Much as gerrymandering occurs in the United States, with political parties redistricting areas so that they have strong beds of power (allowing them to win more seats in the House of Representatives), many people in the large Indian states feel that if they relinquish power by allowing a state to cede, they will have less national power. The major political parties want to maintain control over areas as large as possible, and breaking up states into smaller regions, especially those which they are in solid command of, makes no political sense. Thus the dispute endures across regions, for both historical and economic, but mostly political purposes. Ultimately, it comes down to power. Don’t cede power if you have it. Those who are not in power will call upon cultural and historical ties to make the case for their own right to statehood. We see this trend all over the world. Whether it be the creation of Pakistan, when it was decided that there needed to be a major separation of Hindi and Muslim countries, or the dispute between Israel and Palestine, the hunger for independence is strong amongst the people who feel oppressed. In the Telangana region, the city of Hyderabad is largely Muslim, and no doubt fuels the state’s disputes. The addition of the 29th state of Telangana has the potential to start a trend amongst India’s millions of poor who feel oppressed. The interesting thing to see in the coming months and years will be to observe the future of Hyderabad and whether or not the new state of Telangana is formed as promised. Given the large size of India as a country, more decentralized government has a chance to make more real gains for people as long as there is a unified message going out to foreigners, especially foreign investors. If they begin to see India as a regionalized entity with no strict control, it will make it very hard to forecast business and costs into the future. The push toward many states will be a positive force for India, especially preserving the culture, and separating religions, so long as the national government maintains strong control, and does the right thing when given the opportunity.

Recent Statehood movements – Chhattisgarh, Uttarakhand, and Jharkhand:

The three states are relatively new, all of which were established in the year 2000. The fascinating thing about these states is that they realize a fact that many parts of India have still failed to embrace. Incentives for businesses to invest in the infrastructure of the region, as well as to build on the land will quickly and efficiently bring the states up to speed with the rest of the nation, and given the relative autonomous nature of statehood, will allow them to surpass many other states if they continue with the pro-business incentives that they currently have in place. The government’s responsibility is simple. Provide basic infrastructure, such as roads and power, and then provide great incentives to business to come to the state, and finally, get out of the way. Doing these things will help catapult the fledgling states to the forefront of business in India. The three states have already garnered large investments from firms such as Tata Motors, Ashok Leyland, Sterlite Optical and Hero Honda in Uttarakhand; Tata Steel, Essar Steel, and MoUs in Chhattisgarh, and Arcelor Mittal, Tata Steel, Essar Steel, Jindal Steel & Power, and RPG Power in Jharkhand. All three states have provided strong economic incentives for companies to invest in both infrastructure and land in their area. Most importantly, because they are relatively new, they can set standards which might not be acceptable to stalwart states in other regions of India. Fresh free market, high incentive, low tax economic policies will quickly develop these new states. These three states can be a great example to Telangana, assuming that it actually does achieve the promised statehood.


Statehood movements present an interesting problem for modern day India. Where India as a nation was fighting for independence as recently as the 1940s, now cultural and religious groups are recognizing the benefits of doing the same for themselves. India’s bloated, gigantic states can lead to inefficiencies in both the economic situation as well as the political operation. Some decentralization seems inevitable as India strives to compete in the world’s economy.


Saturday, March 13, 2010

Book Review: The Elephant and the Dragon

The Elephant and the Dragon: The Rise of India and China and What it Means for All of Us

Author: Robyn Meredith

ISBN: 978-0-393-33193-6

By: W.W Norton & Company Inc.

Copyright 2008, 2007 by Robyn Meredith


The Elephant and the Dragon is a sobering and historical look at the rise of India since 1991, and the rise of China since their own economic reforms in 1978. Meredith explores the intricate political, cultural, and economic reforms that have gone on in both countries over the last 30 years. Frequently she tries to illustrate what life was like for people at every level of society. The Elephant and the Dragon intermingles facts about salaries, GDP, and living conditions alongside heartbreaking and heartwarming stories of both economic success stories, as well as those who still struggle to find economic salvation since the adoption of western economic philosophies.

The book is laid out in an interesting way, as it goes chapter by chapter alternating between China and India as it peels back another layer of the story for each country as it progresses. At the same time, it compares and contrasts the two powers even as it moves forward to unveil more of the story.

China is revealed to be the manufacturing powerhouse that all of us have come to expect in the age where “Made in America” has become “Made in China.” Notably, China’s rise to power has been facilitated by a number of factors. The rise can be attributed to four major factors. First is that China was an economic copycat of Singapore. Following on that model, the system of economic development started from the ground up (literally). They worked to first develop their infrastructure, and that in turn has allowed manufacturing progress to occur over time. Businesses have roads to rural areas that they can rely on. While electricity and other resources are scarce, they are far more advanced in many areas than those in India, and other developing countries. The third thing which spurred China’s economic growth is the discovery of the supply chain model (affectionately titled the “disassembly line by Meredith). This model, developed in part by Li and Fung allows for a distributive model, very unlike the Henry Ford assembly lines of old. The supply chain model allows for individual pieces of a finished good to be produced on different lines within the same factory, or different factories in the region, or even different factories around the world. They are then brought together under one roof for a last time and assembled. This flexibility has allowed factories to specialize in making one item. Meredith mentioned a factory which makes thousands of varieties of doll eyes. Meredith follows the production of a sweater from an upscale clothing designer in America, and shows the flow of the raw materials and the production process from start to finish. The fourth thing that has assisted China’s economy in its rapid expansion is the authoritarian nature of their government. Whereas Indian’s government has struggled to implement many reforms because they are beholden to the voters at every step of the way; for better or worse, China’s government has sole authority to dictate the path of development. While this system is unbelievably corrupt, it can also be very efficient. The government uses many of its resources to build infrastructure, spending far less on social programs for its people than other countries. Additionally, they would not think twice about displacing any of their citizens for the sake of progress. This has allowed their infrastructure to grow at an unchecked pace, and has made the area very enticing for outside companies due to cheap wages, and efficient transport means. Even if outsiders have to “grease the wheels” of some local and national government officials to get what they need, it still ends up being far cheaper to manufacture their goods in China.

India (the “Elephant”) is portrayed as just that. It is slow and plodding in its economic growth, but it is building up a head of steam. India’s path to economic reform started much more recently. In 1991, the government finally realized that if it did not fundamentally change its economic model that its citizens would starve. The country was simply too large to be self-sustaining. India had largely cut itself off from the rest of the world. It had created high tariffs on imports so that foreign goods were impossibly expensive for the average Indian, completely eliminating the market for foreign goods. The problem was that while this gave Indian companies the advantage in serving the large population of its own country, the lack of competition made the companies inefficient and complacent. They were dinosaurs which were not prepared for the economic tidal wave that started in 1991. For a long time, one of the biggest arguments for not revising the economic model was that allowing foreign companies in to the country would put many local companies out of business. Indeed it did have that effect. However, the net effect for Indians has been positive, not negative. Even though some lost their jobs in those companies, there is now a large middle class made up of call center workers, computer programmers, and other white collar workers which can do jobs for less than a third of what they might cost in America. Companies are offshoring jobs by the hundreds, often using the American workers to train their Indian successors. Many in India argue that America’s economy is incredibly versatile, and that while this shift may cause many American’s to have to shift jobs, or perhaps even find new careers, that Americans have always had a natural agility for doing that sort of thing. While there has been tremendous prosperity in India, the differences between the modern western offices of Bangalore and the slums of Dharavi are striking. Due to the large population, and the lack of labor based progress in India (mostly due to the lack of infrastructure) the main job growth is only possible for the educated in India. Many Indians, especially those living in slums, are miniature entrepreneurs, selling goods to each other. The fact that there are people who are too poor to live in a slum, is the most troubling aspect in my view. Due to the democratically elected government, the challenge is to translate this economic prosperity to the masses, otherwise the government will keep changing until someone does. If that task falls to the wrong person, it could unravel much of the progress that has been achieved this far.

The Relevance:

This book is very relevant not only to our forthcoming journey to India, but also to our lives as we evaluate the job market going forward. I find myself with an engineering degree, and while I had opportunities to work, many of the jobs that I am qualified for are quickly moving to India where qualified people will work for much less than I would accept. I find it necessary, especially in my situation, to diversify my experience to try to set me apart. Indeed the global push that India in particular is putting on America is one of the reasons that I decided to pursue my MBA. America’s struggling economy (suddenly not the rock solid example of prosperity and the right way of doing things) has caused many people to reevaluate the way they look at things. As companies continue to look for ways to save money, more and more jobs will find their way abroad.

Where Meredith Falls Short:

Meredith falls short of her most important goal. While I believe that there are many benefits for American’s to the rise of both of these large companies, she doesn’t illustrate in enough detail exactly how it effects Americans, and more importantly, why we shouldn’t be extremely worried about this economic shift. Perhaps we aren’t as worried as we should be. It seems that this entire book should be a glowing bible of evidence as to why we should be incredibly worried. To her credit, by the end, Meredith does point out areas which America needs to continue to excel in, such as education, research, and cutting edge technology.

Where Meredith Excels:

Meredith excels in her attention to detail, and research, both personally and factually. Her anecdotes about conditions in factories, slums, and rural zones make it obvious that she has actually been to many of these places. She also does a good job of laying a clear groundwork for what both the elephant and the dragon need to do going forward to be successful. I thought she gave a great summary of the position of the militaries of both countries, as well as their positions relative to America. It was interesting to see the direct ties between the way that we are doing business, especially with China, and how that is helping them have the manufacturing technology and monetary resources to start competing with us in this area. It means that America will have to continue to spend large amounts of money on its own military in order to continue to stay ahead of China.

My Recommendations and Closing Thoughts:

I would recommend this book to anyone who has had their job offshored. I think it is an important read for any businessperson especially in the service sector, or in a manufacturing business. It will help them understand the sometimes strange inner workings of these two countries, for both political and cultural reasons. It is a good read for any American who wants to know exactly where most of our consumer goods come from, and where the service comes from when those consumer goods aren’t functioning properly. Overall, an important read, especially for the forthcoming trip, and for our futures as business leaders.