India: Current Events in the Context of a Growing Economy

India is a complex multi-ethnic society and one of the fastest growing populations in the world at a current 1.2 billion citizens. Now under the leadership of Prime Minister Narendra Modi, the nation is in a period of great growth combined with substantial challenges.

by Gregory Asnis, Katherine Leonetti and Mehrdad Moghaddam

Overview of Events

India is a complex multi-ethnic society and one of thefastest growing populations in the world at a current 1.2 billion citizens. Asof 2016, India is the 7th largest economy worldwide, with projected 7% yearlygrowth through 2020. Now under the leadership of Prime Minister Narendra Modi,the nation is in a period of great growth combined with substantial challenges.This analysis is broken down into key areas where Indian current events bestencapsulate both the benefits and challenges of this growth: economicdevelopment, labor issues, international trade, and military activity.

Economic development

India’s economic development has been driven by agricultureover the long term, but most recently has seen significant growth in thetechnology sector. Our section on economic development first focuses ontechnological advances. We then develop an analysis of trends in India’sgrowing role in international trade, with a focus on the U.S. and Vietnam.

Technological Advances

The Mobile Industry

Of the more current technological advances in India, arecent announcement by tech giant Reliance has made a stir. The CEO MukeshAmbani recently announced a promise to provide free 4 G data access to over abillion people. This offer will last throughout 2016, with low monthly rates tofollow. Competing data companies like Vodaphone are rushing to counter with similarlycompetitive offers, indicating a future price war. [1]

On 11/14, Reliance made a further announcement that it wouldmerge its wireless unit with competing company Aircel. This represents a moveto compete against larger wireless companies in the Indian mobile ecosystem.The move has been well-received in the market as the merger has foisted thecompany to the top 4 of India’s mobile characters in terms of customer base andrevenues. The company reports that it will take advantage of substantial cost synergiesand drive increasing internet and wireless data speeds for its customers.

Multinationals like Facebook and Google have embracedsimilar endeavors to better tap Indian markets through access to data, with newinstallations of free wifi hubs across the nation. This growing emphasis on themobile age and access to data represents a vested business interest indeveloping the technology sector as an engine for economic growth.

However, despite the optimistic domestic growth of thetechnology industry, market reports for international technology export growthhave declined into the single digits, compared to reports that projected 10-12%growth.[2]Potential impacts include a greater trend towards automation and hiringfreezes, but industry experts are optimistic that growth will bounce back inthe medium to long term.

TataNano

In line with the increase in urbanmigration in India, Tata Motors set out to revolutionize urban transportationby making “the People’s Car.”[3] Cities in India are packed with entirefamilies on just one scooter. On top of this, they must transport goods whilecombatting horrific traffic. Adverse weather conditions also present scooterriders with further difficulty and safety issues. As a result, Tata saw anopportunity to provide the everyday Indian family with an automobile. Theproblem: cars are much more expensive than scooters and thus unaffordable to alarge part of the Indian population. In order to provide a solution, Tata cameup with supply chain innovations involving fewer parts and a greater amount ofparts outsourced in order to reach their target price of $2,500.[4] The projectinvolved staffing many less-senior employees in order to put an emphasis onthinking outside the wheelhouse of Tata’s current design and manufacturingprocesses.[5]

The Nano originally did not receive thesuccess that was anticipated due to marketing it as “the world’s cheapest car.”[6]However, in recent years they have made some improvements and remarketed theproduct towards India’s youth, which will represent the largest youthpopulation in the world.[7] Nonetheless, Tata’s innovative car represents aninteresting case for adapting existing technology to trends in emerging marketeconomies.

IndianLabor Unrest

Sandiip Bhammer’s lecture Business in India: Challenges aheadstressed the importance of labor law reform as a strategic imperative for Indiain order to improve its economic reform. His discussion of labor laws in Indiais timely as India experienced the single largest worker strike this September.[8]The strike included an estimated 150-180 million workers and spanned a widerange of industries from mining to education.[9] This strike is unique in thatit was mainly concerned with a growing resentment towards government labor lawsrather than any particular industry or corporation. Many of the largest laborstrikes in U.S. history have been concerned with gaining better wages andworking conditions within union contracts in specific industries andcorporations – not how we govern labor relations.[10]

The recent labor strike highlights ashift in India’s economic policy to neoliberalism which has been intensifiedsince Narendra Modi took leadership. Known as the “NaMo effect” this shift ineconomic policy is characterized by deregulation, privatization, and littlewelfare spending to generate large economic growth. The result, however, hasleft India worse off than before in terms of many indicators such as literacyrates in regions where Modi has had greatest influence.[11]

Makein India

Closely connected with current laborunrest in India is Make in India, an economic development project “aimed atraising the contribution of the manufacturing sector [of India] to 25% of theGDP by 2020.”[12] As Bhammer made clear in his lecture, this is an importantinitiative for India to transition to a service economy. By growing itsmanufacturing sector, India will be able to train the large population ofunskilled workers. In support of this movement, however, many labor law reformshave already taken shape in order to limit the extent to which workers canunionize.[13] The hope is that businesses will be incentivized to increaseemployment (and thus manufacturing) in an industry that has been historicallyunionized.[14]

India’s struggle between workers andmanagement relates to their view of labor relations as a zero-sum game. It isonly until India’s business owners and politicians understand fundamental humanresource concepts that they will be able to uplift their economy and end laborstrife. Henry Ford is famous for implementing the Five-Dollar Day, in which hedecreased workers’ hours and roughly doubled their pay.[15] This was a radicalidea at the time but the results were astounding: productivity greatlyincreased, turnover decreased, and workers had enough money to become bona fidemiddle-class consumers. What did they do? They started buying Ford products.This is the basis for many human resource compensation strategies today such asprofit-sharing which aim to treat employees well in order to make them moreproductive.

Using the U.S. as a case study, it isclear that treating workers well and strengthening the economy are not mutuallyexclusive. Just as the U.S. once had similar labor unrest in the manufacturingsector, India will soon recognize the benefit of working with (rather thanagainst) its workers.

InternationalTrade

Commercial Overtures with UK, Vietnam

According to statistics published recently by the UK, Indiaremains the third largest source of foreign direct investment for the Britisheconomy.[16] India and Britain areworking actively to broaden the scope of their commercial ties. However, theseefforts are currently inhibited while Britain remains a member of the EU. Thus,Britain’s departure from the EU creates the possibility of deeper trade tieswith India. At the end of August, Indian Commerce and Industry Minister NirmalaSitharaman and Liam Fox, the UK’s international trade minister, deliberated thepossibility of creating a free trade agreement between the two countries.[17] India is meanwhile in negotiations for asimilar free trade agreement with the EU. Fox’s visit comes on the heels ofvisits made by three other British ministers since Theresa May became primeminister of the UK in August. Simultaneously, India’s commercial ties withBritain are to become slightly more complicated following Brexit due to visalimitations imposed by the latter as part of a broader tightening of immigrationcontrols for Indians seeking work in the UK.[18]

In tandem with its efforts to grow trade with the UK, Indiais working diligently to improve commercial ties with Vietnam. It hasnegotiated oil and gas exploration rights in waters off Vietnam’s coastline.More broadly, India aims to triple trade with Vietnam to $15B by 2020.[19]

Military Tensions

Watching China with a Wary Eye

India continues to shift away from its traditionaldiplomatic mantra of military neutrality as it finds itself increasingly atloggerheads with China. This is one reason why India’s military and strategicrelationship with the US is advancing rapidly. The two nations signed a defenseagreement known as the Logistics Exchange Memorandum of Agreement in August,which permits the allies to make use of each other’s military bases. Earlierthis week, India also announced that it will hold a two week military exercise jointlywith the US just 100 km from India’s border with China. The exercise is meantto enhance the two militaries’ cooperation and interoperability capabilities.[20]

As India’s strategic proximity with the US grows, it willlikely become more assertive in challenging China in the region. For example,three months ago, the Indian navy brazenly sailed through the South China Sea, territorialwaters that China generally considers its own. Under Prime Minister Narendra Modi’sleadership, India has reached an information sharing agreement with the US withregard to warship design. As a part of this agreement, the Indian navy is ableto consult with American firms in designing large-deck carrier vessels.[21]It’s important to note, though, that while India and the US have madeimpressive inroads within the military domain, significant space exists forimprovement in the two countries’ bilateral trade relations. For example, Indiarecently fielded protests against the US over rising visa costs for Indianprofessionals.

As with his country’s attempts to bolster military ties withthe US, Prime Minister Modi has made similar attempts to intensifyrelationships with Vietnam. In late August, Modi visited Vietnam to meet withVietnamese officials and extend a $500M line of credit for the purchase ofIndian defense equipment.[22] The latest deal builds off of an earlier defenseagreement that India made to lend Vietnam $100M. In early September, Indiasigned a series of cooperation agreements with Vietnam to, among other things,design and build vessels for the Vietnamese Coast Guard, exchange shipbuildingtechnologies and collaborate on cybersecurity. India is also helping Vietnamaugment its naval defense capabilities with plans to sell cruise missilessuited to take out naval targets. These moves are intended to strengthenIndia’s position in Southeast Asia and bolster ties with a strategic, regional partnerthat might be similarly suspicious of China’s ambitions.[23]

Current Tensions with Kashmir

Another relevant conflict in India is the ongoing disputeover Kashmir the neighboring state of Pakistan. Though this territorialconflict involving several complex factors including nuclear arms and religioustensions has spanned several decades, there has been a recent escalation betweenIndia and Pakistan since last December. The conflict was re-sparked when IndianPrime Minister Narendra Modi visited Pakistani Prime Minister Nawaz Sharif inan unexpected trip to Pakistan. This visit preceded important peace talks andwas widely received as a way to smooth tensions between the two nations priorto diplomatic discussions.

These talks were suspended when a Pakistani-based terroristgroup called Jaish-e-Mohammad attacked an Indian air base, which delayed thetalks and increased tensions. In April, the bilateral peace talks weresuspended after an investigation of the attack on the Indian air base. Thetension between the two nations grew when a Pakistani Joint Investigation Teamarrived in India in order to conduct its own investigation on the attacksbecause India had already conducted its own probe into the attack, andPakistan’s envoy was taken as a sign of distrust. When Pakistan prevented asimilar convoy from India entering Pakistan, the talks eventually broke downand were suspended.

In addition to the political overtures discussed above,there has been escalating violence around the Kashmiri border. Civil unrest hasgrown between the Muslim and Hindi populations. The Indian military forces havebeen deployed in the area and controversy has emerged out of their handling ofthe unrest. In response to the growing tensions, the United Nations requestedto visit the region to monitor the conflict and gather information. Pakistangranted access to the U.N. amidst accusations of human rights violationsperpetrated by Indian forces in the Himalayan territory. Since July 9thauthorities report that at least 81 civilians have died in the conflict. Inaddition, over 800 civilians are being treated in local hospitals. Counter toPakistan’s accusations of human’s rights violations, India claims that Pakistanis supporting terrorist separatist groups. It is unclear when peace talks willbe re-initiated in the region, representing a climate of relative politicalinstability and reversal of the amicable tone of Modi’s trip to Pakistan thiswinter.

[1] http://money.cnn.com/2016/09/06/technology/india-reliance-jio-4g-internet/
[2] http://timesofindia.indiatimes.com/tech/tech-news/Indian-IT-industry-to-grow-in-single-digit-in-FY17-Infosys-co-founder-Kris-Gopalakrishnan/articleshow/54292021.cms
[3] Palepu, Krishna G., Bharat N. Anand, and Rachna Tahilyani. “Tata Nano: The People’s Car.” Harvard Business School Case 710-420, April 2010. (Revised March 2011.)
[4] Christensen, Clayton M. and Mark Johnson. Reinventing Your Business Model. Case Study. Boston. Harvard Business Publishing, 2008. Web. 14 September 2016.
[5] Christensen, Clayton M. and Mark Johnson. Reinventing Your Business Model. Case Study. Boston. Harvard Business Publishing, 2008. Web. 14 September 2016.
[6] http://www.forbes.com/sites/saritharai/2013/12/05/its-worlds-cheapest-car-tag-made-the-nano-undesirable-in-india/#6fd76de97628
[7] http://indianexpress.com/article/india/india-news-india/india-working-population-united-nations-report-2772203/
[8] http://www.latimes.com/world/la-fg-india-strike-snap-story.html
[9] http://www.truth-out.org/news/item/37596-more-than-150-million-workers-in-india-just-staged-the-largest-strike-in-history-to-resist-neoliberalism
[10] http://www.investopedia.com/slide-show/10-biggest-strikes-us-history/
[11] http://www.truth-out.org/news/item/37596-more-than-150-million-workers-in-india-just-staged-the-largest-strike-in-history-to-resist-neoliberalism
[12] http://www.makeinindia.com/about
[[1]3] http://www.aljazeera.com/indepth/opinion/2016/09/manufacturing-discontent-india-workers-crisis-160912085350959.html
[14] http://www.aljazeera.com/indepth/opinion/2016/09/manufacturing-discontent-india-workers-crisis-160912085350959.html
[15] http://www.henryford150.com/5-a-day/
[16] http://www.firstpost.com/business/india-retains-position-as-3rd-largest-investor-in-britain-2985658.html
[17] http://www.zeebiz.com/india/news-there-is-possibility-of-india-uk-free-trade-pact-nirmala-sitharaman-5531
[18] http://www.telegraphindia.com/1160909/jsp/opinion/story_107045.jsp#.V9YLpfkrLX4
[19] http://www.wsj.com/articles/india-and-vietnam-boost-military-commercial-ties-1472887239
[20] http://www.sundayguardianlive.com/news/6435-india-us-will-hold-military-exercises-near-china-border
[21] http://www.livemint.com/Politics/KC6YS5uQ7ukAHkXuS43rvI/Trade-is-the-biggest-weakness-in-IndiaUS-ties-Ashley-J-Te.html
[22] http://indianexpress.com/article/opinion/columns/india-defence-military-narendra-modi-lemoa-3015405/
[23] http://www.wsj.com/articles/india-and-vietnam-boost-military-commercial-ties-1472887239