This is just a short piece to follow-up on Gaurav’s very to the point post last week on this topic (and the interesting debate in comments). Now Prashant sent round this link to a WSJ article by Salil Tripathi which I think bears reading and thinking about.
We are presently having something of an ongoing debate here about how high trend growth might be in India at this point. Now quite simply one part of this argument depends on demographics, and another on productivity. Productivity in India obviously needs to rise, and there are basically two ways that this can happen, have better human capital and accelerate technology transfer.
It is this latter point that really starts to get me interested about the Wal-Mart agreement, since as is relatively well-known, Wal-Mart shot to prominence due to the extremely effective way it leveraged IT to organize logistics. So the deal with Wal-Mart is obviously going to lead to an inflow of management and technical know how, which will be extremely beneficial across the Indian economy as and when the practices to be introduced spread. Ditto really the nuclear deal that Nanubhai just posted about. Now I realize that this deal was largely about access to uranium, but any project which facilitates a technology flow has to be interesting from India’s point of view, whatever the ‘steering’ difficulties of handling the issue of those who may be displaced by the arrival of the new, and more efficient version, of any given technology.
At the present time the big debate about growth in India is one of just how rapidly the investment rate can rise. Now as the rate rises only one part of the new investment will be funded by foreign direct investment. The lions share will be raised and spent in India (or on importing machinery and equipment). But let no-one lose sight of the strategic importance of the FDI share in development investment, since it is FDI which normally facilitates the technology flow, and this is really the big lesson which comes from the Chinese development experience. It is this nettle that India must now grasp, and without too many ifs or buts.