Riding the Indian Tiger

The book opens with a warp-speed history of India, an eight-page sprint taking us from the rise of the East India Company in colonial Britain to the emergence of Infosys, the modern-day information technology superstar. For the authors, the most important point here is that when India threw off British colonialism in the mid-20th century, the new nation embraced democracy.

But India's post-independence experience hasn't been easy, the authors stress. The country's democratically elected leaders pushed it into a long flirtation with socialism, which stymied economic growth for decades. On the plus side, though, the socialist governments also built up a strong educational system for the nation's elite. And when pro-market economic reforms began in the 1990s, the nation had a ready-made class of engineers and innovators itching to excel. Today, India's free-market experiment remains in an early phase – but the authors reckon that what's next is one of the greatest economic expansions in world history.

In the next chapter, the authors establish why they regard India as a massive market, trending toward explosive growth. The chapter opens with a list of facts establishing India's economic might. For example, it's the globe's leading producer of trucks and motorcycles, and a powerhouse of pharmaceutical research. In agriculture, India is big in sugarcane – a key crop for biofuel production. It also produces titanic amounts of cotton and milk.

Yet for all of its strength, the nation's economy is far from mature. Vestiges of the old socialist "command" economy remain here and there. Fifteen years of market reforms have not been enough to wipe out decades of socialism and centuries of colonial rule. The country's physical infrastructure is decaying. Western visitors arriving in New Delhi expecting to find a world-class airport will be shocked. The facility is crumbling and dingy, and the cab ride into the city winds through pothole-riddled roads.

But the authors see opportunity in the discrepancy between India's rising economic might and its sorry infrastructure. Chiefly, they argue that, as the economy matures over the next two decades, government spending on building better roads, train stations, and airports will have a huge impact by contributing to the growing economy from within.

After establishing India's vast potential, the authors turn to a brief and quite useful survey of the nation's many and varied states. Westerners visiting India in search of business opportunities will find this handy guide invaluable.

The chapters following this whirlwind introduction explore each of the main themes in more detail.

The first of these focuses on India's burgeoning stock market. The authors provide a quick history of its turbulent transformation. It went from an opaque gentleman's club that even used its own language to keep its activities secret, to a modern, properly regulated stock exchange on par with those in New York and London.

The chapter ends with two more quick guides – one listing the main Western and Indian investment banks operating in India, and the other describing a dozen or so Indian blue chip companies that the authors feel merit investors' attention. While these guides appear useful, in such a fast-moving economy, there's clearly a risk that they rapidly become out of date. So readers considering investing in Indian stocks and shares would clearly be well advised not to rely on the authors' choices and assessments here.

Next, the authors turn to what's really the heart of their book: the idea that India will outperform China in coming decades. For them, Western investors have become entranced by China's remarkable export-led boom over the past decade. In China's highly industrialized areas, Westerners encounter gleaming skyscrapers, high-speed trains, and futuristic airports, and compare them favorably to India's rough-hewn infrastructure.

But they believe that China owes much of its economic miracle to the work of Communist Party bureaucrats, who kept political control while opening the economy to market forces. To maintain the export boom, they've kept a lid on domestic consumption, hoarding foreign currency. India's economic rally, by contrast, has been driven as much by domestic consumption as by exports, reflecting the power that citizens have in society. And this greater consumptive power makes India a more attractive market for Western corporations, even though its population is slightly smaller.

In a lengthy analysis that would have benefited from some subheadings, the authors painstakingly document why they believe that India's democracy, demographics and determination will help it to outperform China economically in the longer term.

Starting with democracy, they set out why they believe India's commitment to democracy and its respect for the rule of law gives it the long-term edge. Some of this can be a little hard to grasp fully, for readers who are more used to thinking about business than about politics. However, they do set out several facts that speak clearly for themselves. For example, nearly a third of Fortune 500 companies run an R&D center in India because it's a trustworthy and stable place to do business. This level of confidence creates a base of high-skill, high-paying jobs, in turn making India a more attractive consumer market for foreign companies than China. On the flip side, many governments are uncomfortable about a whole range of Chinese policies, from human rights to trade practices. So Western organizations investing in China run the added risk of their own governments taking actions that could pull the rug out from under deals and relationships set up with Chinese companies.

Then there's the demographic angle. China's one-child policy, decreed from above in 1979, has made it a rapidly-aging society. By 2025, nearly a quarter of the nation's population, some 250 million people, will be over 65 years of age. That will put a severe strain on the working population – made even worse by the gross underfunding of China's pension system.

While China moves toward a demographic abyss, India anticipates what economists call a demographic dividend. India boasts the world's largest population of under-25s, and within 10 years there'll be more than half-a-billion teenagers living there. As these youngsters move into a vibrant, fast-moving jobs market, the Indian middle class is set to explode. By 2025, when China is sorting out how to care for its vast elderly population, India will likely be in the midst of a consumption boom.

The authors' third factor in India's favor is determination. When discussing this, they're at pains to emphasize that they believe the Chinese people possess just as much determination as the Indians. Their problem is, though, that most Chinese enterprises tend to be state-owned, and this constrains the entrepreneurial spirit. India, on the other hand, offers a fertile environment for entrepreneurs that rivals that of the Silicon Valley. It's not through luck that many of the blue chip organizations the authors described earlier don't trace their origins to India's colonial past but, instead, have grown from tiny startups in fewer than twenty or thirty years

Next, the authors turn in detail to India's crumbling infrastructure – and the vast opportunities it offers that you heard about earlier. Recently, India embarked upon an ambitious infrastructure modernization program – one on a scale not seen in a free-market economy since the United States built up its interstate highways and airports in the nineteen-fifties.

Already, India is on the verge of finishing its Golden Quadrangle highway system, which connects the nation's four corners with a state-of-the-art, six-lane road. This will greatly free up the flow of goods and people within the country.

India is investing heavily in its rail system, and is massively expanding its sea ports too. India also expects the number of people traveling by air to increase by 25% per year, leading to a massive overhaul of airport infrastructure, and plans for no fewer than twelve new major airports.

By now, you get the idea: India is serious about upgrading its infrastructure, and is creating millions of jobs while ensuring the free flow of goods and people within the country and across borders.

This chapter is substantial, and even by half way through its breathless recounting of ambitious infrastructure projects being successfully achieved, readers can easily find themselves thinking, "This is all very interesting, but so what?" So it's a relief when the authors finally ask, "What does all of this mean for you?". They go on to give several examples of how infrastructure investment by the government presents investment opportunities for private investors from outside the country. One of the clearest of these is that, with good road and rail links in place, it's now possible for food to be transported out of the regions where it's grown. But this means there's a new need for food processing plants, which require external capital.

To those in the West, much of India's growth in the last 20 years has been on the back of information technology and business process outsourcing. And while these fields will no doubt continue to grow, the authors turn their attention to other industries – industries that will help India's growth to accelerate over the coming years.

The "next wave" of growth will be highly diversified, they say. For one, India will give China a run for its money in the field of high-tech manufacturing. One particular area of interest is solar power – a possible growth field, given the specter of climate change and heightened energy prices.

Then there's pharmaceuticals. Already, the industry's annual turnover has quintupled over the past fifteen years. Yet even more-explosive growth appears on the horizon. With populations in the Western nations – as well as China – aging, demand for pharmaceuticals is set to rise rapidly over the next decades. India is well-placed to benefit from that trend.

As you heard earlier, India's internal markets for high-value goods and services are growing fast. But there's a warning for potential investors too. India itself is rapidly building capacity to satisfy these demands, so Western firms that don't join the party now risk being caught on the outside looking in, as a massive economy moves toward maturity over the next decades.

Up to this point, the book has laid out in dizzying detail the vast promise of doing business in India, the final two chapters look at possible pitfalls. It's hard to find fault with the authors' overriding advice: look before you leap.

The first of these chapters presents case studies of Western firms that stumbled into India hoping to cash in on the nation's growth, and then tripped over their lack of research or preparation. One describes how – most unbelievably – a US food and drink giant made the classic twin errors of not adjusting their recipe to local tastes, and not understanding the retail infrastructure properly.

The book ends with a discussion of Indian business mores – a key section for anyone looking to leap into the market. As with any culture, India has many quirks that can cause trouble if not understood. The authors claim that Indians are often unassertive to a fault – that is, that they have trouble saying "no." This can lead to what the authors call "over-promise and under-deliver syndrome." The key here is simply to probe. "Can you have it by Friday? Are you sure? If you need more time, please let us know."

However, as more Indians spend time in the West and return home to launch business ventures, Indian corporate culture is converging with that of the West. Increasingly, with its strong democratic institutions and ambitious populace, India is becoming a force in its own right. Western businesses that don't learn to "ride the Indian tiger" risk getting trampled underfoot. For those ready to have a go at succeeding in India, this book is an excellent guide.

Riding the Indian Tiger: Understanding India – the World's Fastest-Growing Market by William Nobrega and Ashish Sinha is published in hardback by Wiley.

That's the end of this episode of Book Insights.