India's China syndrome

Pramit Pal Chaudhuri
January 27 : Hindustan Times

http://www.sulekha.com/redirectnh.asp?cid=289001

Few debates are as impoverished as the ones Indians have about their diaspora. Over the years the chattering classes of India have spoken about their overseas brethren through a spectrum of emotions ranging from whiny to jealous to ill-informed.

One remembers the pointless heartache about the brain drain. This was little more than a consequence of an overproduction of college graduates, in turn the inevitable fallout of grossly subsidizing higher education.

But rather than tackle the subsidy, Indian thinkers spent their time proposing hare-brained schemes to keep Indians back home. The more rigorous plans were clearly out of line with India’s being a constitutional democracy. Others had the government spend absurd amounts of money to entice diaspora brains back for little or no benefit to the country as a whole.

And when somebody actually sat down to measure the brain drain it was exposed as little more than a media scare. A 1998 study showed that only 2.6 to 2.7 per cent of India’s college educated had moved to other shores. In comparison: a developed country like Canada loses 0.1 to 0.2 per cent of its brains, a wealthy Asian tiger like Taiwan 8.4 to 9.2 per cent, and basketcases like Iran or Nigeria have figures in the 25 to 35 per cent range. What was remarkable was how reluctant educated Indians were to leave their country.

Investment imbroglio

The loudest bit of whingeing going on these days is why overseas Indian’s don’t invest as much money as their Chinese counterparts. Plenty of explanations are given. They are less patriotic. More stingy. Too taken with the West.

The only serious study to find out why the Chinese pour in so much more money than Indians. And the economists Amit Ray and Ashok Guha who did it for the Indian Council for Research in International Economic Relations put the difference down to circumstance.

The bulk of overseas Chinese investment comes from the diaspora that lives in an arc of countries running from Taiwan to Thailand. In these countries, the commercial classes are almost wholly of Chinese origin. These businessmen cut their globally competitive teeth during the 1970s, when the various Asian tiger economies exported their way out of poverty.

By the 1980s these same overseas Chinese factory-owners were facing rising labour costs, especially in Taiwan, Hong Kong and Singapore. So it was only natural that these makers of toys, wigs, textiles and so on shifted their assembly lines to a mainland China whose economy was opening up.

This explains the present Chinese export machine. It’s centred around making and shipping light manufactured goods because that’s the type of business overseas Chinese businessmen knew best.

It may have also led to Beijing’s remarkable dependence on the US market — that was the market overseas Chinese knew best.

The economic character of the overseas Indian is radically different. There are roughly three chunks of the diaspora who have strong economic links with the homeland: the Persian Gulf expatriate workers, the largely Gujarati and Sindhi trading diaspora and, finally, the middle-class professionals who live mostly in Great Britain and North America. Note the lack of a group with broad manufacturing experience.

Each of the three contributed economically to India according to the best of their ability. The Persian Gulf workers simply wired hard cash back to their families and, more recently, bought Indian government bonds. The traders contributed the least. But what does a trader do for a country that even after a decade of liberalisation is among the most protectionist in the world?

And then there are the Anglo-American professionals.

Not entrepreneurial by nature, what these doctors, scientists and engineers had in abundance was knowhow. And that brainpower is exactly what they have been exporting back to India in ever increasing amounts.

The most obvious example has been the overseas Indians’ role in planting the seeds for the country’s information technology boom. A study by a University of California Berkeley professor, AnnaLee Saxenian, showed that once an Indian in Silicon Valley set up a firm, he or she would promptly try to cut costs by setting up a subsidiary in India. Silicon Valley’s Indian engineers, she writes, "have become key middlemen linking US businesses to low-cost software expertise in India."

Other analysts have traced the origins of Indian infotech to the first Indian computer programmers who worked in the 1970s for early California-based computer firms like Sperry Rand.

There are other areas where overseas Indian professionals are starting to have an impact in the homeland — for example, healthcare, education, pharmaceutical and biotechnology.

Every major city in the country has a dozen or more private clinics and hospitals partnered by Indian doctors from the United States and Britain. The same goes for private educational institutes. Brain recirculation is starting to occur in pharmaceutical and biotech firms in India. Indian drug firms like Nicholas Piramal and Wockhardt get between 15 to 40 overseas Indian scientists applying for jobs on their websites each week.

Signature service

It still doesn’t add up to the kind of money the overseas Chinese are pumping in. But keep in mind that moving a software firm requires a lot more environmental preparation on the part of the motherland than transplanting a hosiery factory. And when one gets into socially sensitive areas like health and schooling, India still has miles to go in terms of laying out a proper regulatory and infrastructural red carpet for investment. The investment is less, but that's because it is a type of investment that is more difficult to make.

The economic nature of the Indian diaspora, it strikes me, could partially explain one of the continuing surprises of India’s economic reforms. Namely, that instead of repeating the East Asian success story of becoming an exporter of manufactured goods, Indian businesses found their competitive edge in the service sector.

Anyway, the point is that there are reasons why the Indian diaspora has not mimicked the overseas Chinese. And that’s because circumstances have made them as economically unlike as apples and avocados.

The study by Ray and Guha makes the point that if one looks at foreign direct investment by multinationals into India and China, a culture-neutral measure, and adjust for China’s having opened its economy a decade earlier than India, than the two Asian giants are more or less on par.

Finally, perhaps the most striking contribution of the overseas Indian has been his or her success. Under the Nehruvian system, India fell first into complacency and then stagnation. As it fell further behind, India’s leaders became experts at finding excuses for being so laggard. In the end it boiled down to the argument "We are like this only."

What a contrast with the confident middle class that is the mark of today’s India. And this is in no small part to the evidence in the United States and elsewhere that, given a proper environment, Indians not only do well but do remarkably well. It is also my view that Indians seeming preference for flourishing only in liberal democratic environments is one reason that, in the long run, will allow them to eventually outshine their Chinese neighbours. But that’s another story.