US-India Global Review

63 US-INDIA GLOBAL REVIEW JANUARY-MARCH 2018 among the lowest in the world — is down from 16.6 percent to 14.7 percent. Given that India has roughly 600 million females, the data suggest that over 40 million women pulled out of the workforce between 2004 and 2012. That number is more than the entire female population of all but a handful of countries in the world. That factor makes India’s rapid GDP growth in the 2000s even more remarkable: all other miracle economies in Asia had rapid increases in workforce participa- tion in their fast-growing phase.21 A sudden scarcity of rural labor has helped raise rural wages quickly, a phenomenon buttressed by rapid GDP growth and a National Rural Employment Guarantee Act ensuring 100 days of work per family on government projects after 2008. During the 11th five-year plan (2007-12), nominal farm wages in India increased by 17.5 percent per year, and real farm wages by 6.8 percent per year, the fastest growth ever. Those wage increas- es were an important cause of the record drop in poverty.22 The Indian word jugaad has crept into management literature. It originated when Indian farmers wanted an inexpensive vehicle and got the idea of strapping an irrigation pump on a steel frame with four wheels to create a func- tioning vehicle called a jugaad. Many variations of that vehicle are assembled by small local compa- nies in many rural towns using spare parts of existing vehicles. It represents grassroots homegrown ingenuity. The vehicle can ferry goods or carry up to 50 passen- gers. Jugaad no longer means just the original vehicle. It has now come to mean, simply, innovation around obstacles of all sorts — in designing, selling, managing, and even surmounting government controls. Thus, jugaad includes forms of corruption and tax eva- sion no less than frugal engineer- ing. By solving problems by hook or by crook, it raises moral issues but gets things done under the most difficult conditions.23 India has become a world leader in frugal engineering, a concept that did not exist in 1991. Frugal engineering is the capacity to design and produce goods that are not just 10-15 percent cheap- er than in Western countries but 50-90 percent cheaper. Tata Motors has produced the cheap- est car in the world, the Nano, which costs $2,000. It was a com- mercial flop and did not meet Indian consumer aspirations. But it was nevertheless an engineering feat. Bajaj Auto has developed a low-cost quadricycle that could put three-wheelers and small cars out of business. India’s telecom industry is the cheapest in the world, with calls costing just two cents per minute. The Jaipur Foot is an Indian artificial limb that is sold at 100th the price of compet- ing artificial limbs in the United States. Narayana Hrudayalaya and Aravind Netralaya are hospi- tals that provide heart and eye surgery, respectively, at one twen- tieth or less of the cost of surgery in the West — one reason for the emergence of what is now called medical tourism.24 The Bombay Stock Exchange, set up in 1875, is one of Asia’s oldest. Yet before the economic reforms of the 1990s, it was viewed as a snake pit. A handful of brokers could rig prices at will, fake share certificates abounded, and settlement periods were extended for months on end if that suited the brokers controlling the exchange. A major scandal in 1992 — when broker Harshad Mehta shamelessly rigged the market using illegal borrowings from government banks — led to a stock market overhaul. Various financial agencies created a com- pletely new National Stock Exchange with high technical and ethical standards. It was fully elec- tronic, with no trading floor at all, and bids and offers were matched automatically by computer, pre- venting a lot of old-style rigging. The National Stock Exchange went fully electronic before London and New York did: it was a state-of-the-art exchange, a rare case when India leapfrogged global bourses. That change both slashed costs and ended most forms of rigging. The Securities and Exchange Board of India was created, along the lines of the Securities and Exchange Commission of the United States, and gradually brought order and trustworthy practices that were earlier absent. It decreed that paper share certifi- cates must be dematerialized and held in electronic form by deposi- tories, to end the menace of fake certificates. Settlement periods were compressed dramatically to T+2 (payment two days after a transaction), among the fastest rates of settlement in the world (the United States still has a T+3 period). To survive, the Bombay Stock Exchange had to clean up its act and also go electronic. So since the 1990s, India has devel- oped one of the most efficient stock markets in Asia. The daily turnover has gone from a few mil- lion dollars to over $100 billion, which explains why portfolio flows into India have been among the highest in Asia.25 Before 1991 very high tax rates (up to a 58 percent corporate tax) plus a high wealth tax meant that

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