India’s Three E’s: Entrepreneurs, Economics, & Education

Stephen DeAngelis

May 13, 2009

In a recent post about Indian entrepreneurs [Entrepreneurs in India], I focused on a number of entrepreneurial enterprises that are receiving international attention. Almost daily, Indian entrepreneurs continue to draw attention. An article in The Economist declares that “the rich world’s bloated health-care systems can learn from India’s entrepreneurs” [“Lessons from a frugal innovator,” 18 April 2009 print issue]. The article begins in the operating room of an Indian hospital where a patient lies wide awake and chatting while his doctors open his chest and operate on his heart. This “beating heart — awake surgery” is the brainchild of Dr. Vivek Jawali. Dr. Jawali informs readers that his innovative surgery was rejected (even ridiculed) by his Western colleagues; but the technique has proven cost and health effective. Because the “surgery causes little pain and does not require general anaesthesia or blood thinners, patients are back on their feet much faster than usual.” In fact, it “has proved so safe and successful that medical tourists come to Bangalore from all over the world.” Dr. Jawali believes that health care innovations are likely to continue to flow from developing countries because the needs are great, the resources are limited, and the culture is open.

“Poverty, geography and poor infrastructure mean that India faces perhaps the world’s heaviest disease burden, ranging from infectious diseases, the traditional scourge of the poor, to diseases of affluence such as diabetes and hypertension. The public sector has been overwhelmed, which is not surprising considering how little India’s government spends on health as a share of national income. Accordingly, nearly four-fifths of all health services are supplied by private firms and charities—a higher share than in any other big country. … This has attracted a wave of investment from some of India’s biggest corporate groups, including Ranbaxy (the generic-drugs pioneer behind Fortis) and Reliance (one of India’s biggest conglomerates). The happy collision of need and greed has produced a cauldron of innovation, as Indian entrepreneurs have devised new business models. Some just set out to do things cheaply, but others are more radical, and have helped India leapfrog the rich world.”

While entrepreneurs continue to do well in India, its general economy is being racked by the current recession. One of the biggest challenges is a lack of investment money. Unlike the health care sector that has continued to attract funding, most sectors are starving for capital [“India, Suddenly Starved for Investment,” by Vikas Bajaj and Somini Sengupta, New York Times, 4 May 2009].

“Not long ago, Indian leaders confidently predicted this country would emerge largely unscathed from the global economic crisis. It is now becoming clear that that view was too optimistic. … India’s phenomenal growth of the last five years was powered in large part by huge injections of cash and investment. Investment accounted for about 39 percent of the country’s gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment fell by nearly a third, to their lowest level in more than two years.”

The sectors affected most by the decline in foreign investment, report Bajaj and Sengupta, are real estate, manufacturing, and infrastructure. Although the economy is still growing, thanks to domestic consumerism (particularly in the countryside), India’s economic growth rate has slipped to around 5.3 percent, the lowest in five years. Without continued flows of foreign direct investment, India’s economy will have a difficult time heating up and that “will make it harder for the country to grow fast enough to pull hundreds of millions of people out of stifling poverty.” The export sector in India has been hit particularly hard, “diamond polishing units and knitwear factories, for instance, are running at a fraction of their capacity.” And unemployment, always a problem for the poor, has now started affecting the affluent. “Not so long ago, as a lot of money chased a small pool of skilled professionals, salaries skyrocketed. Now, it’s the other way around.”

Part of the problem is that India’s education system is not churning out students with the right skills [“In India, Educated but Unemployable Youths,” by Rama Lakshmi, Washington Post, 4 May 2009]. Every year Indian colleges graduate 3.2 million students. However, only “25 percent of technical graduates and 15 percent of other graduates can be readily employed in the jobs that the recent boom has generated in the telecommunications, banking, retail, health care and information technology sectors.” The article indicates that about 69 percent of India’s unemployed workers are educated but lack the necessary skills to land a job. As bad as things are, they can get worse.

“The problem is compounded by demographic changes that experts say will greatly expand the country’s working-age population in coming years. Today, about 54 percent of Indians are younger than 30. Census projections suggest that the proportion of Indians in the 15-to-64 age group will increase steadily, from 62.9 percent in 2006 to 68.4 percent in 2026. By 2020, the average age in India is expected to be 31, compared with 37 in China and 48 in Japan. Census reports say that India is entering the advantageous ‘demographic dividend’ phase just as China leaves it. In a report last year, however, the Finance Ministry said that if that growing workforce does not develop skills soon, the country could face ‘a demographic nightmare’: a surplus of educated people and a shortage of qualified workers as labor requirements continue to shift from agriculture to industry.”

Even today some jobs are available but qualified candidates are not.

“Every year, India produces about 650,000 engineers. But Pratik Kumar, executive vice president for human resources at the information-technology and outsourcing giant Wipro, says his company considers fewer than a quarter of them employable. ‘The biggest problem is the poor quality of teachers,’ he said. ‘The teaching profession is unable to attract good talent. It is often the last resort for people who could not make it elsewhere.’ In the past three years, Wipro has created several funds to finance grants, research scholarships and sabbaticals for teachers in engineering schools. ‘This is not philanthropy,’ Kumar said. ‘If we don’t do this now, it will hinder the future growth of our industry.'”

In my discussions about Development-in-a-Box™, I always raise the issue of education and training. As Bajaj and Sengupta note in their article, companies are looking for workers that are both educated and skilled. Education and training programs must be tailored to jobs. If educated youth can’t find jobs, they become a very disenchanted group with enough energy to cause tremendous social unrest. Such instability is a sure way to undermine sustainable development. India faces a unique cultural challenge because its upper, educated classes eschew the notion that they must acquire skills, not just an education. Skills, they believe, are something needed by the lower classes. The government, however, is embarking on a campaign to convince all young people that “skills” are the currency of globalization. They are the key to steady employment and a better life. There’s a lesson here for every country in the world — skilled workers continue to have value.