Terror feasts on India -- worst victims

The figure is startling. Since 1994, over 50,000 have died in terrorist-related violence in India. According to the South Asia Terrorism Portal (SATP), 23,955 terrorists, 19,662 civilians and 7,320 security force personnel have been killed in such incidents between 1994 and June, 2005.

At present, Iraq scores higher on the daily violence scale. But then, Iraq may be considered to be in a different category: it’s a country at war.

Unlike recent victims of terror like the US and UK, countries such as Israel and Sri Lanka have a long history of fighting such violence. So has India, which has borne the brunt of the scourge since the late ’80s.

As security analyst C Uday Bhaskar points out, "India has one of the highest numbers of terrorism related incident, both quantitatively as well as on the temporal spectrum."

The weapon haul further illustrates the enormity of India’s problem. "We have recovered 30,000 Kalashnikovs and 60,000 hand grenades and tonnes of RDX in Kashmir alone," says G C Saxena, former governor of J&K.

Former intelligence brass B Raman is of the view that the recent spurt in such activities, including Saturday’s serial blasts in Delhi, could be the outcome of Prime Minister Manmohan Singh’s recent successful visit to the US.

"One has to take into account that the Al-Qaida and other terrorist outfits like the International Terrorist Front might now target India because of its open alignment, as seen by them, with the US on matters affecting the vital interests of the Islamic Ummah," he says.

Indian economy more balanced than China's

"The Indian economy is very different as private consumption is driving its growth."

This has to be music to the ears of India's economic administrators. India's economy is more balanced than China's and the country can sustain over 7 per cent growth for a long period of time, according to Stephen S Roach, managing director and chief economist of Morgan Stanley, and one of Wall Street's most influential economists.

In an exclusive interview with Business Standard, Roach said, "The Asian growth model is essentially flawed as it depends on exports and fixed investments. The Indian economy is very different as private consumption is driving its growth. Domestic private consumption accounts for 65 per cent of India's GDP, while it is only 42 per cent in China. It is an amazing story."

This is Roach's third trip to India over the last 18 months and he wants to come to India more often. After all, he has been to China 35 times over the last eight years.

On a four-day visit to India -- split between Mumbai and Delhi -- Roche met Prime Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Adviser to Finance Minister Parthasarathi Shome, Housing Development Finance Corporation chairman Deepak Parekh, Reliance Industries chairman Mukesh Ambani and the chiefs of quite a few Indian corporations and MNCs, including HLL, GE Caps, HSBC, Standard Chartered and McDonalds.

"Nine months ago, on my second trip to India, I was a bit disappointed and felt that the government was going slow on reforms. But this time, I am feeling more encouraged than I have ever been on the India growth story. There are very strong positive signs," said Roche.

According to him, India's "horrible" infrastructure is "getting better".

Similarly, foreign direct investment, too, has a long way to go. But all these not-so-positive factors have been more than balanced by the growth in private consumption.

"You have a long way to go....I also know that you are growing on a lower base. But the growth will be sustainable because it is balanced and led by internal factors. It is not dependent on exports,' he pointed out.

On the prospects of outsourcing and information technology-enabled services, Roche admitted that during his first visit to India, he had a bit of 'exaggerated' sense of the sector's role in the economy.

"It is a very small part of the economy. India needs to combine IT with its manufacturing strength. The IT-enabled services are not getting the kind of attention from the government which it should get," he said.

Roche described the stock market volatility as a 'healthy correction'. "The yield play by global investors in a market flush with liquidity will no longer be there. With interest rates going up, the days of carry trade are also over. The market will turn volatile and risky but fundamentally good stocks will continue to appreciate as the India story is now on a more stronger footing," he said.

Samsung Thinks Big in the Indian Market

Samsung Electronics is intensifying forays into the world's second most populous nation India, aiming to expand sales there six times from $950 million last year to US$5.5 billion by 2010. The firm said Sunday it held a strategic meeting for the Indian market in Delhi on Friday, attended by vice chairman Yun Jong-yong, where ways of building a first-class brand image and product differentiation strategies to command premium prices were discussed. To achieve the $5.5 billion sales aim, Samsung decided to build a local handset factory and expand its sales networks for household appliances. India has continued to grow about 7 percent annually, and with that the electronics and IT sectors expand exponentially. “India is an important market that expects sustained economic growth and burgeoning middle and affluent classes. Samsung needs to make a second leap forward by harnessing all its business strengths,” Yun said.

China got the basics right, India botched obvious stuff: Fortune

Bad government and inadequate infrastructure has prevented India from matching China's economic growth although both nations started reforms in early 1990s, the Fortune magazine said on Friday.

Slow divestment of public sector units, high tax rates and lack of labour reforms also came in the way of India attaining the same pace of growth as its Asian neighbour, the Hong Kong-based magazine said in an article to be published in October 31.

Comparing India and China, it said: "China's economic miracle was achieved by getting the basics right. India, by contrast, is the global economy's idiot savant. India flubs the obvious stuff."

The observation comes close on the heels of Finance Minister P Chidambaram admission that China's growth was 'furious' while India's growth remained 'satisfactory.'

Though India and China had the same per capita income in early 1990s and started economic reforms at the same time, Fortune said: "Per capita income in China is more than twice what it is in India, and China takes in 12 times as much foreign investment."

The problem with India, Fortune said, is "bad government and an almost willful disregard for the fundamentals of developmental economics."

Fortune appreciated India's rising exports and GDP growth despite jump in global oil prices. Though India's vigorous economy has won the respect from the United States, it said: "The road ahead is still bumpy."

Despite a booming technology sector, growing middle class and sizzling economy, Fortune said: "India still faces enormous problems."

"Red tape and corruption discourage foreign investment, as do restrictions on how firms deploy foreign workers," Fortune said.

Portraying a dismal picture of India's infrastructure, it said "the national roadway network is in shambles and the power grid even worse."

Moreover, it said one-third of India's population and more than half of women can't read or write.

"India has moved grudgingly to lower tariffs and baulked at turning money-losing state-owned enterprises over to the private sector," it said referring slow tax reforms and divestment process.

In contrast, China had build good roads, educated women and young girls, loosened labour restrictions and opened up their economy to competition and foreign trade.

Otherwise, Fortune was all praise for India's capability of producing hundreds of thousands of brilliant engineers a year, software houses managing complex data across thousands of miles for the world's most sophisticated clients.

"India has world-class business leaders and, unlike China, solvent banks," it said, adding "yet, India flubs the obvious stuff."

80 Percent of the World Knows Samsung

Four out of five people worldwide have heard of Samsung, a survey suggests. The Korea Trade-Investment Promotion Agency (KOTRA) on Thursday released a survey of 5,287 consumers in 100 cities in 70 countries on the image of Korea. Among Korean companies and brands, Samsung enjoyed the highest level of international recognition with 82.6 percent. It was followed by Hyundai with 79.8, Daewoo with 76.5 and LG with 69.2 percent. Samsung’s highest level of recognition was 92.4 percent in North America, while Hyundai was best-known in Japan with 89.4 percent, and Daewoo in the former Soviet Union with 85.2 percent. Upon hearing “Korea,” 34 percent of respondents said the first company that came to mind was Samsung, and 18.1 percent said Hyundai. LG and Daewoo followed with 15.6 and 9 percent. Korean small and mid-sized companies enjoyed a fairly high level of recognition. Humax was recognized by 15.3 percent in the Middle East and Africa, Reigncom by 14.4 percent in China, and Pantech & Curitel by 27 percent in the Commonwealth of Independent States. Also, E Land, 777 or Three Seven, and Lineage made by NCsoft had relatively high recognition levels in China, and Romanson in the CIS countries.

Incredible! Corruption in India is down

Contrary to popular perception that corruption was on the rise in India, an international organisation on Tuesday said it had in fact decreased in the past one year and placed the country 88th among 159 nations, down by two ranks.

The Transparency International's Corruption Perception Index for 2004 had placed India 90th among 146 countries. India scored 2.9 in 2005 on a 10 to 0 scale of the index indicating the cleanest score and 0 the most corrupt.

Last year India had scored 2.8. The survey is not just limited to estimating monetary value of petty corruption but also ranking public services and states. The study looks into systematic aspects of corruption in public services, Transparency International India's working chairman S D Sharma said in New Delhi, while releasing the report.

Among India's neighbouring countries, Berlin-based TI placed China and Sri Lanka at 78th position ranking it least corrupt than India with a score of 3.2 while Afghanistan and Nepal have been jointly placed at 117th with a score of 2.5, Pakistan 144th with a score of 2.1 and Myanmar 155th (1.8).

Iceland is the least corrupt country with a score of 9.7 while Bangladesh and Chad have jointly been described as the most corrupt nations in the world ranking 158th (1.7).

The United Kingdom has been placed 11th jointly with Netherland (8.6) while United States has been placed at 17th with a score of 7.6 in the index.

As per the composite ranking of states in petty corruption cases involving common citizens and in the 11 public services, Kerala stands as the least corrupt state in India while Bihar tops the list.

Jammu and Kashmir has been ranked the second most corrupt state of the country while Madhya Pradesh, Karnataka, Rajasthan and Assam are also badly afflicted with the problem. Delhi stands 10th in the list.

The study said all services in Bihar are ranked as the most corrupt in the country. Except hospitals, all services in Jammu and Kashmir are also corrupt while in Madhya Pradesh, municipal services are ranked relatively better.

In Karnataka services like income tax, judiciary, municipalities figure among the top corrupt services in the country while in Rajasthan judiciary (lower) ranks among the less corrupt services.

In Assam, police and electricity figure as the most corrupt services in the country. In Himachal Pradesh most services are ranked as relatively less corrupt. Gujarat is ranked as less corrupt in comparison to other states.

In Tamil Nadu, schools, hospitals, income tax and municipalities rank among the most corrupt departments in the country while in West Bengal water supply service is ranked as the most corrupt service in the country.

India trumps China in FDI returns

China is a more attractive destination for foreign investors, but return on assets in India has been much higher, Germany-based Deutsche Bank said in a commentary on the world's two largest emerging economies, which are changing the way global businesses are conducted.

"Although India started economic reforms only a decade later than China, it is far more advanced in its institutional infrastructure and corporate governance. This is reflected in contrasting outcomes. Foreign direct investment is considerably lower than in China, but returns on investment are better on average," according to an analysis titled "China & India - A visual essay" by Deutche Bank.

India has better corporate governance standards and its companies are more commercially-driven. Hence, despite China's superior economic growth and macro-economic stability, India's rate of return on assets has been much higher and the stock market performance much better. Even the amount of non-performing loans in the banking sector is much lower compared to China.

China's GDP per capital is now 2.2 times higher than India, in dollar purchasing power parity terms. Until the early 1990s, GDP per capital in China and India was at comparable levels.

Deutsche said the two economies are poised to change the global economic landscape as they two are increasingly integrated with the world. It said the chinese economy is much more integrated with the world economy through international trade and investment, which helps to explain its stronger rate of GDP growth during most of the past three decades.

For its economic development, China has relied on industry and India on services. China's ratios of domestic savings and investment to GDP are roughly double those of India's.

Both the economies currently enjoy strong external positions, with ample foreign exchange reserves. Higher oil prices are not likely to have a significant adverse impact on external liquidity.

China and India have low external debt as a percentage of GDP, and the ratio of short-term external debt to foreign reserves is low. Deutsche, however, noted that despite declining fiscal deficits, the level of public sector debt is a cause for concern, especially in India.

Interest payments as a percentage of general government revenue are very high in India, making the prospect of fiscal consolidation more remote.

Excess domestic liquidity presents a bigger challenge to China than India. Money supply in China is heading towards 200 per cent of GDP with domestic credit almost 170 per cent of GDP.

Social indicators reflect generally improving living conditions for the average Chinese. China also enjoys superior physical infrastructure, although in India the availability of skilled workers is much higher.

What is India's per capita income?

What is India's per capita income? If media reports are believed, in his lecture (2005 Trumbull Lecture), the finance minister said India's per capita income is now $800.

This is per capita income through the Atlas method, using official exchange rates for conversion. It is not per capita income using purchasing power parity, which adjusts exchange rates for purchasing power of currencies.

From the World Development Indicators database, we know India's PPP per capita income was $3,100 in 2004, leading to a rank of 145th out of 208 countries ranked. Understandably, PPP blows up incomes of developing countries, in relative terms.

In a recent piece Shankar Acharya has advanced the attractive, but speculative, argument that in India-China comparisons, the higher share of non-tradables in Indian national income tends to favour India in PPP conversions.

Again, in relative terms. But let's leave PPP aside. This is about Atlas figures, which people tend to relate to more. If one asks around about what India's Atlas per capita income is, most people (except the knowledgeable) are likely to suggest something around $550. $800 is a surprise. What is India's per capita income and did Mr Chidambaram actually say $800?

He didn't. The title of his lecture was "US -- India Economic Relations and the Evolving World Economy", a lecture delivered on September 22 and this is what the finance minister said. "With a GDP of nearly $800 billion, each 10 per cent rise in India's GDP will contribute $80 billion to world output." He gave an aggregate GDP figure, not a per capita one.

How accurate is this GDP figure of $800 billion? There is a marginal difference between GDP and gross national income, but not much. From the WDI, we know India's GDP was $688.7 billion in 2004 and GNI was $672.8 billion.

There isn't much of an exchange rate valuation issue between 2004 and 2005, unless you deliberately pick rupee/dollar rates for specific months. Applied on a GDP base of $690 billion in 2004 and using 7 per cent as the growth rate, the 2005 GDP should be $738 billion and no more.

You don't get $800 billion unless you assume a growth rate of 15.9 per cent or unless you assume a particularly favourable exchange rate. But there is a further catch and that becomes clear from another quote from FM's speech.he nominal GDP is now about US $800 billion. With a little more than a billion people, this translates [into] a per capita income of approximately US $750 a year."

This is a nominal GDP figure. We don't know what the implicit GDP deflator (measure of inflation) will be in 2005, compared to 2004. Five per cent is a reasonable guess and 5 plus 7 is 12. Twelve per cent on a base of $690 billion in 2004 gets us to $772.8 billion, pretty close to $800.

How did the media get a per capita figure of $800, especially when Mr Chidambaram said approximately $750? Probably by dividing $800 billion by a population of 1 billion. The actual population in 2005 is estimated to be 1.08 billion.

Eight hundred billion divided by 1.08 billion gives us a per capita income figure of $740.7, not that far away from $750. WDI figures show a per capita income figure of $470 in 2002, $530 in 2003, and $620 in 2004.

In 2004, $620 gave us a rank of 159 out of 208 countries ranked. There is thus no great contradiction between WDI data and what the FM said. However, there is a perception issue, related to time-lags. Most documents used for international comparisons and published in 2005 use data for 2003.

The Human Development Report for 2005 is an example. This gives an Atlas per capita GDP (not GNI) figure of $564. Most people remember this. But not that a 2005 document has data from 2003.

However, this is not an issue for cross-country comparisons, because incomes of other countries also increase. In all probability, India's nominal per capita income is around $740. Approximately $750, but not nearly $800.

One can also check this through the CSO, subject to problems across final, provisional, quick and advance estimates. After all, CSO figures eventually feed into the WDI. We have revised GDP estimates for 2004-05 and also national income (net national product).

In addition, we have estimates for January-March 2005 of GDP, though not per capita income. In 2004-05, per capita income in current prices was Rs 23,241. In Q4 of 2004-05, GDP at factor cost of Rs 7,64,696 crore (Rs 7,646.96 billion) translates into per capita income of around Rs 28,322.

What exchange rate do we now use, 43, 44, 45 or 46 rupees to a dollar? Given the perspective, Rs 43 is the best case scenario. Rs 23,241 gives us $540, while Rs 28,322 gives us $659. With $659 as a base, we could be at $738 in 2005-06, though not in 2004-05.

But because of rupee depreciation, eventually WDI will probably show a per capita Indian income closer to $700 rather than $750.

A New World Economy

The balance of power will shift to the East as China and India evolve

It may not top the must-see list of many tourists. But to appreciate Shanghai's ambitious view of its future, there is no better place than the Urban Planning Exhibition Hall, a glass-and-metal structure across from People's Square. The highlight is a scale model bigger than a basketball court of the entire metropolis -- every skyscraper, house, lane, factory, dock, and patch of green space -- in the year 2020.

There are white plastic showpiece towers designed by architects such as I.M. Pei and Sir Norman Foster. There are immense new industrial parks for autos and petrochemicals, along with new subway lines, airport runways, ribbons of expressway, and an elaborate riverfront development, site of the 2010 World Expo. Nine futuristic planned communities for 800,000 residents each, with generous parks, retail districts, man-made lakes, and nearby college campuses, rise in the suburbs. The message is clear. Shanghai already is looking well past its industrial age to its expected emergence as a global mecca of knowledge workers. "In an information economy, it is very important to have urban space with a better natural and social environment," explains Architectural Society of Shanghai President Zheng Shiling, a key city adviser.

It is easy to dismiss such dreams as bubble-economy hubris -- until you take into account the audacious goals Shanghai already has achieved. Since 1990, when the city still seemed caught in a socialist time warp, Shanghai has erected enough high-rises to fill Manhattan. The once-rundown Pudong district boasts a space-age skyline, some of the world's biggest industrial zones, dozens of research centers, and a bullet train. This is the story of China, where an extraordinary ability to mobilize workers and capital has tripled per capita income in a generation, and has eased 300 million out of poverty. Leaders now are frenetically laying the groundwork for decades of new growth.

INVALUABLE ROLE
Now hop a plane to India. It is hard to tell this is the world's other emerging superpower. Jolting sights of extreme poverty abound even in the business capitals. A lack of subways and a dearth of expressways result in nightmarish traffic.

But visit the office towers and research and development centers sprouting everywhere, and you see the miracle. Here, Indians are playing invaluable roles in the global innovation chain. Motorola, Hewlett-Packard , Cisco Systems , and other tech giants now rely on their Indian teams to devise software platforms and dazzling multimedia features for next-generation devices. Google principal scientist Krishna Bharat is setting up a Bangalore lab complete with colorful furniture, exercise balls, and a Yamaha organ -- like Google's Mountain View (Calif.) headquarters -- to work on core search-engine technology. Indian engineering houses use 3-D computer simulations to tweak designs of everything from car engines and forklifts to aircraft wings for such clients as General Motors Corp. and Boeing Co . Financial and market-research experts at outfits like B2K, OfficeTiger, and Iris crunch the latest disclosures of blue-chip companies for Wall Street. By 2010 such outsourcing work is expected to quadruple, to $56 billion a year.

Even more exhilarating is the pace of innovation, as tech hubs like Bangalore spawn companies producing their own chip designs, software, and pharmaceuticals. "I find Bangalore to be one of the most exciting places in the world," says Dan Scheinman, Cisco Systems Inc.'s senior vice-president for corporate development. "It is Silicon Valley in 1999." Beyond Bangalore, Indian companies are showing a flair for producing high-quality goods and services at ridiculously low prices, from $50 air flights and crystal-clear 2 cents-a-minute cell-phone service to $2,200 cars and cardiac operations by top surgeons at a fraction of U.S. costs. Some analysts see the beginnings of hypercompetitive multinationals. "Once they learn to sell at Indian prices with world quality, they can compete anywhere," predicts University of Michigan management guru C.K. Prahalad. Adds A. T. Kearney high-tech consultant John Ciacchella: "I don't think U.S. companies realize India is building next-generation service companies."

SIMULTANEOUS TAKEOFFS
China and India. Rarely has the economic ascent of two still relatively poor nations been watched with such a mixture of awe, opportunism, and trepidation. The postwar era witnessed economic miracles in Japan and South Korea. But neither was populous enough to power worldwide growth or change the game in a complete spectrum of industries. China and India, by contrast, possess the weight and dynamism to transform the 21st-century global economy. The closest parallel to their emergence is the saga of 19th-century America, a huge continental economy with a young, driven workforce that grabbed the lead in agriculture, apparel, and the high technologies of the era, such as steam engines, the telegraph, and electric lights.

But in a way, even America's rise falls short in comparison to what's happening now. Never has the world seen the simultaneous, sustained takeoffs of two nations that together account for one-third of the planet's population. For the past two decades, China has been growing at an astounding 9.5% a year, and India by 6%. Given their young populations, high savings, and the sheer amount of catching up they still have to do, most economists figure China and India possess the fundamentals to keep growing in the 7%-to-8% range for decades.

Barring cataclysm, within three decades India should have vaulted over Germany as the world's third-biggest economy. By mid-century, China should have overtaken the U.S. as No. 1. By then, China and India could account for half of global output. Indeed, the troika of China, India, and the U.S. -- the only industrialized nation with significant population growth -- by most projections will dwarf every other economy.

What makes the two giants especially powerful is that they complement each other's strengths. An accelerating trend is that technical and managerial skills in both China and India are becoming more important than cheap assembly labor. China will stay dominant in mass manufacturing, and is one of the few nations building multibillion-dollar electronics and heavy industrial plants. India is a rising power in software, design, services, and precision industry. This raises a provocative question: What if the two nations merge into one giant "Chindia?" Rival political and economic ambitions make that unlikely. But if their industries truly collaborate, "they would take over the world tech industry," predicts Forrester Research Inc . analyst Navi Radjou.

In a practical sense, the yin and yang of these immense workforces already are converging. True, annual trade between the two economies is just $14 billion. But thanks to the Internet and plunging telecom costs, multinationals are having their goods built in China with software and circuitry designed in India. As interactive design technology makes it easier to perfect virtual 3-D prototypes of everything from telecom routers to turbine generators on PCs, the distance between India's low-cost laboratories and China's low-cost factories shrinks by the month. Managers in the vanguard of globalization's new wave say the impact will be nothing less than explosive. "In a few years you'll see most companies unleashing this massive productivity surge," predicts Infosys Technologies CEO Nandan M. Nilekani.

To globalization's skeptics, however, what's good for Corporate America translates into layoffs and lower pay for workers. Little wonder the West is suffering from future shock. Each new Chinese corporate takeover bid or revelation of a major Indian outsourcing deal elicits howls of protest by U.S. politicians. Washington think tanks are publishing thick white papers charting China's rapid progress in microelectronics, nanotech, and aerospace -- and painting dark scenarios about what it means for America's global leadership.

Such alarmism is understandable. But the U.S. and other established powers will have to learn to make room for China and India. For in almost every dimension -- as consumer markets, investors, producers, and users of energy and commodities -- they will be 21st-century heavyweights. The growing economic might will carry into geopolitics as well. China and India are more assertively pressing their interests in the Middle East and Africa, and China's military will likely challenge U.S. dominance in the Pacific.

One implication is that the balance of power in many technologies will likely move from West to East. An obvious reason is that China and India graduate a combined half a million engineers and scientists a year, vs. 60,000 in the U.S. In life sciences, projects the McKinsey Global Institute, the total number of young researchers in both nations will rise by 35%, to 1.6 million by 2008. The U.S. supply will drop by 11%, to 760,000. As most Western scientists will tell you, China and India already are making important contributions in medicine and materials that will help everyone. Because these nations can throw more brains at technical problems at a fraction of the cost, their contributions to innovation will grow.

CONSUMERS RISING
American business isn't just shifting research work because Indian and Chinese brains are young, cheap, and plentiful. In many cases, these engineers combine skills -- mastery of the latest software tools, a knack for complex mathematical algorithms, and fluency in new multimedia technologies -- that often surpass those of their American counterparts. As Cisco's Scheinman puts it: "We came to India for the costs, we stayed for the quality, and we're now investing for the innovation."

A rising consumer class also will drive innovation. This year, China's passenger car market is expected to reach 3 million, No. 3 in the world. China already has the world's biggest base of cell-phone subscribers -- 350 million -- and that is expected to near 600 million by 2009. In two years, China should overtake the U.S. in homes connected to broadband. Less noticed is that India's consumer market is on the same explosive trajectory as China five years ago. Since 2000, the number of cellular subscribers has rocketed from 5.6 million to 55 million.

What's more, Chinese and Indian consumers and companies now demand the latest technologies and features. Studies show the attitudes and aspirations of today's young Chinese and Indians resemble those of Americans a few decades ago. Surveys of thousands of young adults in both nations by marketing firm Grey Global Group found they are overwhelmingly optimistic about the future, believe success is in their hands, and view products as status symbols. In China, it's fashionable for the upwardly mobile to switch high-end cell phones every three months, says Josh Li, managing director of Grey's Beijing office, because an old model suggests "you are not getting ahead and updated." That means these nations will be huge proving grounds for next-generation multimedia gizmos, networking equipment, and wireless Web services, and will play a greater role in setting global standards. In consumer electronics, "we will see China in a few years going from being a follower to a leader in defining consumer-electronics trends," predicts Philips Semiconductors Executive Vice-President Leon Husson.

For all the huge advantages they now enjoy, India and China cannot assume their role as new superpowers is assured. Today, China and India account for a mere 6% of global gross domestic product -- half that of Japan. They must keep growing rapidly just to provide jobs for tens of millions entering the workforce annually, and to keep many millions more from crashing back into poverty. Both nations must confront ecological degradation that's as obvious as the smog shrouding Shanghai and Bombay, and face real risks of social strife, war, and financial crisis.

Increasingly, such problems will be the world's problems. Also, with wages rising fast, especially in many skilled areas, the cheap labor edge won't last forever. Both nations will go through many boom and harrowing bust cycles. And neither country is yet producing companies like Samsung, Nokia , or Toyota that put it all together, developing, making, and marketing world-beating products.

Both countries, however, have survived earlier crises and possess immense untapped potential. In China, serious development only now is reaching the 800 million people in rural areas, where per capita annual income is just $354. In areas outside major cities, wages are as little as 45 cents an hour. "This is why China can have another 20 years of high-speed growth," contends Beijing University economist Hai Wen.

Very impressive. But India's long-term potential may be even higher. Due to its one-child policy, China's working-age population will peak at 1 billion in 2015 and then shrink steadily. China then will have to provide for a graying population that has limited retirement benefits. India has nearly 500 million people under age 19 and higher fertility rates. By mid-century, India is expected to have 1.6 billion people -- and 220 million more workers than China. That could be a source for instability, but a great advantage for growth if the government can provide education and opportunity for India's masses. New Delhi just now is pushing to open its power, telecom, commercial real estate and retail sectors to foreigners. These industries could lure big capital inflows. "The pace of institutional changes and industries being liberalized is phenomenal," says Chief Economist William T. Wilson of consultancy Keystone Business Intelligence India. "I believe India has a better model than China, and over time will surpass it in growth."

For its part, China has yet to prove it can go beyond forced-march industrialization. China directs massive investment into public works and factories, a wildly successful formula for rapid growth and job creation. But considering its massive manufacturing output, China is surprisingly weak in innovation. A full 57% of exports are from foreign-invested factories, and China underachieves in software, even with 35 software colleges and plans to graduate 200,000 software engineers a year. It's not for lack of genius. Microsoft Corp.'s 180-engineer R&D lab in Beijing, for example, is one of the world's most productive sources of innovation in computer graphics and language simulation.

While China's big state-run R&D institutes are close to the cutting edge at the theoretical level, they have yet to yield many commercial breakthroughs. "China has a lot of capability," says Microsoft Chief Technology Officer Craig Mundie. "But when you look under the covers, there is not a lot of collaboration with industry." The lack of intellectual property protection, and Beijing's heavy role in building up its own tech companies, make many other multinationals leery of doing serious R&D in China.

China also is hugely wasteful. Its 9.5% growth rate in 2004 is less impressive when you consider that $850 billion -- half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings. Its factories burn fuel five times less efficiently than in the West, and more than 20% of bank loans are bad. Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital, estimates Beijing National Accounting Institute President Chen Xiaoyue. "We build the roads and industrial parks, but we sacrifice a lot," Chen says.

India, by contrast, has had to develop with scarcity. It gets scant foreign investment, and has no room to waste fuel and materials like China. India also has Western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. A BusinessWeek analysis of Standard & Poor's Compustat data on 346 top listed companies in both nations shows Indian corporations have achieved higher returns on equity and invested capital in the past five years in industries from autos to food products. The average Indian company posted a 16.7% return on capital in 2004, vs. 12.8% in China.

SMALL-BATCH EXPERTISE
The burning question is whether India can replicate China's mass manufacturing achievement. India's info-tech services industry, successful as it is, employs fewer than 1 million people. But 200 million Indians subsist on $1 a day or less. Export manufacturing is one of India's best hopes of generating millions of new jobs.

India has sophisticated manufacturing knowhow. Tata Steel is among the world's most-efficient producers. The country boasts several top precision auto parts companies, such as Bharat Forge Ltd. The world's biggest supplier of chassis parts to major auto makers, it employs 1,200 engineers at its heavily automated Pune plant. India's forte is small-batch production of high-value goods requiring lots of engineering, such as power generators for Cummins Inc. and core components for General Electric Co. CAT scanners.

What holds India back are bureaucratic red tape, rigid labor laws, and its inability to build infrastructure fast enough. There are hopeful signs. Nokia Corp. is building a major campus to make cell phones in Madras, and South Korea's Pohang Iron & Steel Co. plans a $12 billion complex by 2016 in Orissa state. But it will take India many years to build the highways, power plants, and airports needed to rival China in mass manufacturing. With Beijing now pushing software and pledging intellectual property rights protection, some Indians fret design work will shift to China to be closer to factories. "The question is whether China can move from manufacturing to services faster than we can solve our infrastructure bottlenecks," says President Aravind Melligeri of Bangalore-based QuEST, whose 700 engineers design gas turbines, aircraft engines, and medical gear for GE and other clients.

However the race plays out, Corporate America has little choice but to be engaged -- heavily. Motorola illustrates the value of leveraging both nations to lower costs and speed up development. Most of its hardware is assembled and partly designed in China. Its R&D center in Bangalore devises about 40% of the software in its new phones. The Bangalore team developed the multimedia software and user interfaces in the hot Razr cell phone. Now, they are working on phones that display and send live video, stream movies from the Web, or route incoming calls to voicemail when you are shifting gears in a car. "This is a very, very critical, state-of-the-art resource for Motorola," says Motorola South Asia President Amit Sharma.

Companies like Motorola realize they must succeed in China and India at many levels simultaneously to stay competitive. That requires strategies for winning consumers, recruiting and managing R&D and professional talent, and skillfully sourcing from factories. "Over the next few years, you will see a dramatic gap opening between companies," predicts Jim Hemerling, who runs Boston Consulting Group's Shanghai practice. "It will be between those who get it and are fully mobilized in China and India, and those that are still pondering."

In the coming decades, China and India will disrupt workforces, industries, companies, and markets in ways that we can barely begin to imagine. The upheaval will test America's commitment to the global trade system, and shake its confidence. In the 19th century, Europe went through a similar trauma when it realized a new giant -- the U.S. -- had arrived. "It is up to America to manage its own expectation of China and India as either a threat or opportunity," says corporate strategist Kenichi Ohmae. "America should be as open-minded as Europe was 100 years ago." How these Asian giants integrate with the rest of the world will largely shape the 21st-century global economy.

China and India

The Challenge

The Shape of the Future

CHANGING VIEWS
China and India are racing ahead of the U.S. in numbers of young professionals


Who's Got Performance?
Investor alert: India's companies beat China's

When it comes to economic growth between these two up-and-coming powerhouses, China is outpacing India by a mile. But take a look at how Chinese companies perform relative to Indian businesses and the results look quite different.

A BusinessWeek analysis of financial data from Standard & Poor's Compustat shows Indian corporations are getting more bang for their rupee. A look at over 340 publicly listed companies from 1999 through 2003 (many Indian companies have yet to release their complete 2004 reports) reveals that Indian businesses have, with a few exceptions, outperformed their Chinese counterparts on return on equity (ROE) and return on invested capital (ROIC).

Indian companies perform better across various industry groups because they face greater market pressures. Despite plenty of government regulation, India is by and large a well-functioning market economy. This leads businesses to focus more on profits and performance. When it comes to free markets, China is a work in progress. China's government has big stakes in most publicly listed companies, so managers must be mindful of government agendas, such as employment, says Joydeep Mukherji, a director, in the Sovereign Ratings Group at Standard & Poor's.

The two countries also differ greatly when it comes to financing. "It's quite difficult to get capital in India," says Marcus Rosgen, regional head of equity research at Citigroup (C ) in Hong Kong. In India, firms raise a larger share of capital in equity markets, so private investors play a key role in allocating capital and place an emphasis on return on equity. In China, the financing situation is quite the opposite. A notoriously high savings rate and large sums of foreign direct investment are keeping the cost of financing low for businesses.

The glut of capital in China is fueling excess capacity. A low cost of capital reduces the financial hurdle to start a new business or open a factory. The problem is compounded by the fact that Chinese manufacturing is concentrated in low-end production. The resulting price competition reduces profitability. And since most of China's major banks are state-owned, there is little emphasis on maximizing returns.

Progress is being made in China. There is a noticeable difference in ROE and ROIC between companies listed in the more internationally exposed Hong Kong stock market -- the so-called Red Chips -- and those listed solely on mainland exchanges. In 2003, the 25 Red Chip stocks had a return on equity of 14.8%, vs. 12.9% for mainland listed companies. In terms of ROIC, Red Chips produced an 11.6% return, compared with 9.7% for mainland outfits.

What's more, China is moving faster than India to improve its infrastructure. Unless India quickens the pace to improve energy production and distribution, as well as its transportation systems, the country risks stunting the growth potential of the economy and its own companies.

Its Festival Time in India

An Indian priest gives the finishing touches to the Hindu Goddess Durga at a makeshift place of worship in New Delhi. Photos: AFP

It's that time of the year again when Indians, irrespective of their denomination or persuasion, are taken over by a festive mood and the entire country appears to be celebrating a religious or cultural occasion with prayers, food, songs and dance.

Vehicles move through illuminated streets decorated for the worship of the Hindu goddess Durga at a makeshift community worship place in Kolkata. Photos: AFP

Whether it is the Hindu festivals of Navratri, Durga Puja or Dusshera the religious element is an integral part. The month-long festival gala, that began earlier this month, ends with Diwali, the grand festival of lights.

Hindu holy men perform the ritualistic "Nabapatrika Snan" bathing a banana tree in the Ganges river, on the second day of the Durga worship in Kolkata. Photos: AFP

Apart from the fasting and prayers by Hindus during Navratri , the festivals are also major social and cultural events where people congregate in hundreds in community marquees, whether they be the Ram Lila and Navratri in the north and south, the Dandia Raas in the west and the Durga Puja in the east.

Women balance pots of water on their heads in a ritual procession during the Durga Puja festival in Kathmandu. Photos: AFP

Most south Indian homes are decorated with elaborate rangoli designs of rice paste on the floors and mango leaves on the doors.Idols of Hindu deities are arranged artistically for the Navratri 'golu'. Women visit one another's homes, sing before the golu and exchange gifts of coconut, vermilion and turmeric considered auspicious by Hindus.

A Nepalese Hindu priest offers a prayer to the Hindu Goddess Durga at a temple in Kathmandu . Photos: AFP

In West Bengal and in places where there is a considerable Bengali population, including in Delhi, the Durga Puja fever takes over. It is a time for creativity as well with the idols of goddess Durga sitting astride a lion and slaying the demon Mahishasura and also of the rest of her pantheon in the forms of Lakshmi, Saraswati, Ganesha and Kartik, crafted with great care and love by the artisans.

Devotees worship Hindu goddess Durga during evening prayers during the traditional religious festival 'Durga Puja' in Calcutta . Photos: Reuters

In Gujarat, Maharashtra and even in Rajasthan, it is dandia time. As evening falls, colourfully lit marquees come alive with men and women dancing with dandia sticks to traditional and Bollywood rhythms late into the night.

Devotees receive blessings from flames as they perform a ritual after 'Sandhi Puja' during the traditional religious festival of Durga Puja in Kolkata . Photos: Reuters

Durga Puja is being celebrated at over 200 marquees all over the city with the Bengali-majority Chittaranjan Park in south Delhi being the prime attraction.

Indian dancer Bhattacharya and her students rehearse a dance sequence of Hindu goddess Durga during a photo call in Kolkata. Photos: Reuters

"For me and my family, it's the best period of the year with lots of food, new clothes, meeting with friends and most importantly the worship of goddess Durga," said Swapna Roy, while purchasing sweets from a south Delhi market.

Microsoft, Yahoo deal on messaging

Yahoo and Microsoft said on Wednesday (12th October) they signed an interoperability agreement that would allow people who use their respective consumer instant messaging services to interact with each other. The companies expect to launch the free interconnectivity services in the second quarter of 2006.

Yahoo and Microsoft estimate a total of 275 million people use their IM services, although the two services trail the one offered by America Online. "Yahoo and Microsoft share a commitment to providing the highest-quality experience possible for consumers, and today's groundbreaking announcement underscores our desire to provide consumer interoperability between our thriving IM communities,'' said Terry Semel, chief executive officer at Yahoo.

Dharma of emerging woman

'Media for a billion people.'

That was the topic of President APJ Abdul Kalam's speech at the 11th anniversary celebrations of the Indian Women's Press Corps (IWPC) in New Delhi, October 9.

Here I reproduce the President's speech on the occasion:

In a billion people of our country, seven hundred million people living in six hundred thousand villages, the events and news have to be unique and large when compared to other countries. Hence our print media has got a great challenge. Our news reporting is mainly urban based in many of our States. This situation needs change. I consider the newspapers or media are indeed a partner in our national development. A partner means "somewhere an innovative use of organic cultivation is taking place and the productivity of wheat or rice is increased by two times", this indeed is a very important news.

This news must be studied, analyzed and propagated to many places in the country. Similarly, a water pond which for years remained unused and the farmers have collectively worked together and make it operational, this is indeed a big news and must be reported. Such reporting will enable desilting and rejuvenation of lakhs of water bodies which are non-operational today in many of the states. Similarly, a constructive criticism of how the panchayat is working, how the flow of funds from the government is reaching the required development project must also be reported so that necessary corrective measures can emanate. I would like to discuss the importance of media research.

Media Research

I have a suggestion particularly to the members of Indian Women's Press Corps consisting of editors, journalists, correspondents and reporters. In our country it is essential to have research wings in the academic institutions and media establishments in developing quality and proactive media personnel in reporting news, event analysis, and multi-media design. The owners of newspapers and electronic media should encourage research being carried out by experienced and young reporters for acquiring post-graduate qualifications which will improve the quality of content of the print and electronic media.

For example, before any issue is discussed in foreign newspapers and electronic media, they send it to an internal research group where data is studied; verified and factual news is generated and sent for publication and broadcasting. When there was a critical comment about outsourcing to India, a US journalist stayed in India and studied the issue and found out that the companies engaged in Business Process Outsourcing were carrying out business using imported equipments from the UK and USA. Thus, they found that the BPO industries provided an indirect market for the hardware industries of the US. Immediately this was reported in the Indian media in a big way. Similarly a Discovery Channel media-person wanted to study India's growth in Information Technology; Thomas Friedman came to India and stayed for a month and visited Bangalore and other places. Based on his news analysis he wrote a book titled The World is Flat. This book has become famous not only in India but throughout the world. Such is the power of research.

I would suggest our Indian newspaper agencies and electronic media should encourage research being carried out by our correspondents and journalists within India in an academic research institution or media establishments which will definitely improve the quality of our reporting and analysis.

Emerging women

While talking to you, I am reminded of Mahakavi Subramaniya Bharatiar, who in 1910 composed the poem envisioning women of India:

This beautiful poem means -

She walks with raised head, with her eyes looking straight,

She has her principles, unafraid of anybody!

She has a lofty and knowledge based pride,

Women of excellence, don't falter from the chosen path.

She drives ignorance away. She welcomes the bliss of life.

With learned mind, this is the Dharma of emerging woman.

The dream of the poet for emerging women aptly suits the women journalists in the country. The poem highlights the power of the knowledge of women. Now, I would like to discuss the role of women in nation building

Women in Nation Building

In our country, women constitute 48% of the total population. Recently, when I was in Himachal Pradesh, Vijaya Sharma of Rajkiya Kanya Mahavidyalya asked me what should be the girls' role in independent India. I told her that there is really no difference in the roles. They are equal partners in national development.

Now-a-days women are shining in every field. They are becoming doctors, engineers, advocates, teachers, political leaders, administrators, police officials, professionals, businesspersons, media-persons and they also have joined the Armed Forces. You have all got to get ready to take the responsibility of promoting a noble society.

I would like to share some of my experiences, where I have found women performing pioneering work in their area of specialization.

I was inaugurating the '2nd National Conference for Women in Police 2005' on July 27, 2005, at Uttaranchal. There I met Smt Kanchan Choudhry Bhattacharya, the first woman to become the director general of police of Uttaranchal. I have seen many of the captains of commercial aircraft who are women. In the healthcare and education sector women are leading. In the political field also many women are playing a leading role.

At Delhi, I met two very senior Air Force and Naval Officers, Air Marshal (Mrs) P Bandopadhyay, director general, Medical Services (Air) and Surg Vice Admiral (Mrs) Punita Arora, director general, Medical Services (Navy). They are doing pioneering work in the medical field. On June 27, 2005, the Chief of Army Staff brought the first women summiteers Capt (Ms) Sipra Majumdar and Capt (Ms) Ashwini AS Pawar, who climbed Mt Everest from the North side, that is from the Tibetan side.

I also talked to the women army officers in the freezing temperature at Kargil, when I met them at Kargil. I appreciate their courage and perseverance for succeeding in their missions. During 1980s to '90s there was colleague of mine in DRDO, Rohini Devi, scientist in the area of composites. She was responsible for developing the heat shield system for Agni missiles.

Dr Shanta who was recently conferred Raman Magsaysay award, I am familiar with her work in cancer research. She was responsible for setting up the Radiation Oncology Department in Cancer Institute and organized the first-ever hospital tumour registry in India. She also established the first pediatric oncology unit. Above all, Nobel Laureate Mother Teresa represents the embodiment of removing the pain of the suffering.

These women who have performed pioneering work in their own area of specialization should become role models for all of you. Similarly, in journalism, many of you are well-known for your pioneering work, reporting and columns.

Particularly, enlightened women are very important for nation building since their thoughts, way of working and value system will lead to faster development of a good family, good society and a good nation. Thus, women in all walks of life have a tremendous opportunity for participating in the development of the nation. One of the programmes in which they can make significant contribution is PURA.

Women Engineering College and Rural Development

I had visited the Periyar Maniammai College of Technology for Women, Vallam in Thanjavur district of Tamil Nadu and inaugurated a PURA Complex. I thought of sharing with you the developmental concept of a cluster of over 65 villages near Vallam, which involves a population of 3 lakhs.

This PURA complex has all three connectivities -- physical, electronic and knowledge -- leading to economic connectivity. The centre of activity emanates from the women engineering college that provides the electronic and knowledge connectivity. Periyar PURA has healthcare centres, primary to post-graduate level education and vocational training centres.

This has resulted in large-scale employment generation and the creation of a number of entrepreneurs with the active support of 850 self-help groups. Two hundred acres of wasteland has been developed into a cultivable land with innovative water management schemes such as contour ponds and water sheds for storing and irrigating the fields. All the villagers are busy in either cultivation, planting Jatropha, herbal and medicinal plants, power generation using bio-mass, food processing and above all running marketing centres.

This model has emanated independent of any government initiative. Committed leadership has been provided by the Periyar Maniammai College of Technology for Women. This gives me the confidence that PURA is a realizable proposition and this movement can be multiplied by thousands of entrepreneurs, educational administrators and philanthropic institutions with the support of the government agencies. I would recommend Indian Women's Press Corps to undertake development of a cluster of villages in the PURA mode. Now, let us discuss the role of women journalists, in our society.

4 Indians among Asia's most powerful bizmen

Tata Group Chairman Ratan Tata, Infosys Technologies CEO Nandan Nilekani, Wipro Chairman Azim Premji and Reliance Industries Chairman Mukesh Ambani are the four Indians in Asia's 25 most powerful business leaders list by the Fortune magazine.

Ratan Tata is ranked 12^th most powerful Asian business leader, just ahead of Nandan Nilekani, who has been ranked 13^th. Mukesh Ambani has been ranked 17th on the list by the magazine, followed by Azim Premji at 19th.

While Ratan Tata was not in the list in 2004, Nilekani has moved up to the 13^th spot from 23^rd. Mukesh Ambani has dropped to 17th from 13^th, while Premji slipped from 10^th to 19^th spot.

Fortune said Ratan Tata, 67 'shows no signs of slowing down.' 'In the past year, he has been busy buying companies in Korea, Singapore, and Africa.'

The magazine described Nilekani as 'one of the architects of India's IT revolution' who earned himself a starring role this year in American journalist Thomas Friedman's best-selling book The World is Flat as the man who first suggested that the world is being flattened by new technologies.

Samsung Electronics CEO Jong-Yong Yun heads the list having been ranked Asia's most powerful business leader.

The list also includes Saudi Aramco boss Abdallah Jum'ah, LG Electronics CEO Kim Ssang Su, Sony CEO Howard Stringer and Toyota boss Katsuaki Watanabe.

IITs rated as world's third best

The Indian Institutes of Technology (IITs) have been ranked the third best technology universities in the world for 2005, according to the prestigious Times Higher Education Supplement (THES).

The publication, which is highly respected and read in the world of academia, said: "Our peer review of the world's top technology universities shows that in 2004, the high praise for the Indian Institutes of Technology was no fluke.

"Up to third position in 2005 from fourth place last year, the IITs are a source of Indian national pride as well as innovation and wealth".

Among science universities, the IITs have been ranked 36th in the world. The THES table shows that the technologists among our peer review panel regard Imperial College London as the UK's hottest university, ahead of Cambridge University and fifth in the world.

The ranking is dominated by the US it appears 26 times in the top 101 institutions in the list.

"Our definition of technology covers the main engineering disciplines including information and communications technology.

"Viewed alongside the tables for science subjects, our rankings suggest it is possible for a university to be strong in science but not technology, and vice versa", THES said.

Indian roads still lack dragon’s finish

A comparison of road building in India and China over a decade long period reveals some interesting facts. Higher investment in the transportation sector and a greater emphasis on building arterial networks have made China pull far ahead of India in the 1992-02 decade, and the gap has been increasing since then.

The World Bank estimates that Indian expenditure on highways and railways averaged between $1bn and $3bn in 1992-02, or less than 1% of India’s GDP in the period. By contrast, China spent as much as $1,233bn on the transportation sector, or 3.1% of its GDP. The net result of all this is a sharp reduction in supply chain uncertainty in doing business in China — and that draws a lot more investment to China than to India.

The World Bank report notes that China has put a lot of emphasis on building arterial networks, while India has always concentrated on building up rural access roads, and in general neglecting arterial highways, which carry the bulk of trade. In fact, even as China’s road network only increased by 443,000 km, while India added 600,000 km, the ease of travel and connectivity is much better than in India. It’s only in this decade that the Golden Quadrilateral road network construction has gathered pace, and not a moment too late.

The other difference, the World Bank notes, is that the Chinese government has been savvy about financing this heavy expenditure on transportation. One-fourth of the expenditure on roads, equal to $308bn, was recovered through charging road users a fee. The different fees charged were road maintenance fee, vehicle purchase fee, and a highway transport management fee. China also charged $2.5bn by way of highway transport management fee in ’02. China has encouraged partnerships with the private sector. The World Bank says, nearly 10% of the total funds raised was from public-private road network partnerships with a further $11bn raised from the private sector. The net result is a strong buy-in by stake holders, industry, government and people into making the infrastructure work.

R&D firms, greatest boon for India

One of the greatest boons for India in recent years has been the growing number of R&D facilities of foreign firms, making it one of the most attractive locations for conducting research.

This development partially overlaps with India's emerging capabilities in software and the two are broadly part of the same trend. But there is a difference. India can and is becoming a key service provider to the world through its IT and BPO capabilities, just as China has become the leading manufacturing capability to the world.

But where do you go from there? It is in looking into the future that the critical role of R&D becomes clear. To keep doing well in software also, it is necessary to spend and concentrate more on R&D instead of simply writing codes and efficiently handling large workforces.

The R&D expenditure of leading Indian software firms is much lower than that of leading pharma companies. The business model of most software services firms is highly beneficial to their current bottom line, but for how long?

The innovative ability of an economy ultimately determines its future and one of the best ways to start if you are a laggard in both economic development and innovation is to have others do their research on your shores.

Something rubs off, and if you have also put in place an adequate legal structure for protection of intellectual property, then the ground is ready to grow the tree of future prowess in R&D. The active need is to so shape policy that the R&D and innovation tree keeps growing well.

The latest World Investment Report of Unctad extensively focuses on the role of global companies in globalising R&D and helps in doing a reality check on India. There is a good deal of loose talk about India having become an IT super power and Bangalore its Silicon Valley (the hallmark of the latter is its innovativeness), but the overall current reality is that India is only a "significant newcomer location for R&D." There is a long way to go.

The Unctad survey of current foreign locations of R&D puts India at sixth, accounting for 25 per cent, with China ahead at third hosting 35.3 per cent. The good news is that the status of both is likely to improve though their relative positions are likely to remain the same--India two rungs behind China.

Global companies' perception of the most attractive prospective (2005-09) R&D locations puts China right on top with a score of 61.8 per cent, followed by the US with 41.2 per cent, and India at third place with 29.4 per cent.

Russia comes sixth, after Britain and Japan (in that order). Malaysia, Korea, Thailand Australia, Brazil, and the Czech Republic take up the 15th to the 20th positions (in that order). So it will take some time to catch up with China, if ever.

The need to run fast is imperative because a 2002 survey shows the pay of Indian chip design engineers ($30,000 per year) to be ahead of Chinese ($24,000-28,000). Things have probably got worse in the meantime and the need to innovate faster to pay for rising costs is imperative.

A few global companies from a few countries dominate business R&D activity and this is mostly in areas like ICT (information and communication technology), automotives and pharma.

The internationalisation of R&D began late (manufacturing, for example, began earlier) but is catching up. India's share of global R&D spend of US companies was low till 2002 but has gone up more recently.

Also, the majority of overseas investment in greenfield R&D projects and jobs created in them during 2002-04 have gone to developing countries and most of them to India and China.

R&D expenditure in India continues to be dominated by public institutions (68 per cent). No Indian company figures among the top 20 developing country R&D spenders, the top three are from Korea, fourth from Taiwan and fifth from China.

Foreign companies play a key role in the patentable outputs of developing countries and a large share of patents granted to their residents is assigned to foreign countries, 63 per cent for China and 40 per cent for India.

This figure for Korea is only 4 per cent! If you match this with the fact that Korean companies are the top R&D spenders among developing economies, then a clear role model emerges.

A comparison of what took labs to China and India is instructive. For China it was talent, the readiness of universities to seek private funding, the IPR deals foreign labs struck with top research institutions, state-sponsored high-tech parks, government incentives and the prospects of cost reduction.

In the case of India, it was also talent and cost but where the two models diverge is that for India local knowledge of English was a plus and government incentives were low and unimportant. In Korea, public research institutions have played a key part in promoting R&D.

In another column we will look at some of the most recent developments in India not captured in the Unctad report and address the crucial issue: Does the government have a role in fostering innovation and R&D, and if so, what?

When it comes to pay hikes, Indian pros outdo all

Here’s a bit of good news for salaried professionals in India. A new survey said that employees in India are expected to get the biggest pay hikes in 2006 — outpacing even countries like China, Japan, UK and US — with a 11.3% increase year-on-year.

According to the survey by Mercer Human Resource Consulting, a leading employee benefits consultancy services provider, the sustained growth in the country’s economy and low inflation rates will be the biggest contributors to this wage hike.

The survey said average wages in India will increase 11.3%, outpacing inflation by 7.3%. In comparison, the average global salaries are forecast to rise by 2.4 percentage points above inflation in 2006 as against 1.9% this year.

While this is surely good news for employees in India, development industry experts warned that this could hurt the country’s competitiveness. Analysts pointed out that the sharp hikes could hurt the interests of hi-tech firms as Western clients may be encouraged to shift jobs to smaller Indian cities, and even other countries.

Average pay in 7 in 10 (69%) of the countries covered, including UK and US, is predicted to increase by between 1 and 3.5 percentage points above inflation. The study also found a minority of countries will experience rises which are over double the global average.

The greatest increases are expected in India, Egypt and Lithuania where employees are forecast to receive pay rises of 7.3%, 7.1% and 5.5% above inflation respectively.

“We’ve seen strong global economic growth in the past couple of years and all the signs indicate this is set to continue in 2006. With this growth and more stable inflation, we anticipate next year’s pay rises to be higher, in real terms, than this year’s,” said Greg Cornish, global head of human capital advisory services at Mercer.

Salary increases in Asia Pacific countries are expected to vary greatly. For example, employees in India and China — where economic growth is being driven by investment from the US — are expected to receive pay rises of around 11.3% and 7.8% respectively. Inflation in these countries is predicted to be relatively low, at 4% and 3%.

A similar survey by Hewitt Associates had last month stated that Indian workers, particularly with high-tech and clerical jobs, are projected to take home some of the highest pay raises in Asia next year.
The pay of Indian workers across 24 industries, it had said, will rise an average of 14% in 2006.