Initial observations from a week in New Delhi, Bangalore, and Darjeeling.
A couple of months ago, my good friends Arjun Ramani, Sparsh Agarwal, and Arjun Soin organized a wonderful trip across India. Over the course of a week, we spent time in New Delhi, Bangalore, and Darjeeling meeting with MPs, investors, policymakers, academics, and entrepreneurs. It was a whirlwind tour of a country already brimming with frenetic diversity, and the only regret I have was that the time we spent was ultimately too short.
I compiled here my observations on the culture, politics, and economy of India, the nation I came to see as perhaps the most striking experiment in democratic history. These remarks are certainly superficial and crude, but in my defense, one of the mantras about India is that anything you can say about India, the opposite is also true.
These notes are long overdue, but as a believer in the pedagogical benefits of spaced repetition, here we go!
Cultural Observations
- Creative defection is the dominant cultural strategy in India. Within 24 hours of my landing in Delhi, I was able to finally answer a lingering curiosity: Why do Indian Americans have so much more business success in the US than Chinese and other East Asian Americans? Because succeeding in day-to-day life in India requires creative defection. There are two ways to get anything in India: the proper way, which is painful and slow, and the creative way, which is illegible but fast. One needs only to take a short Uber ride to realize that any driver that stays in their lane, defers to other drivers, and generally shies away from “creative defection” from the rules of the road will not only be endlessly taken advantage of but also arrive way later than their more unruly counterpart. This general principle applies to airport custom lines, getting past security (despite already having authorization), and many other basic facets of everyday life in India. It seems that most Indians operate in a fundamentally open-ended and uncertain environment. Compare this to China, Singapore, Korea, and Japan, where the stereotype is that the cultural environment is rigid and certain; public transit always arrives on time, every sidewalk crossing is monitored, and the nail that sticks out is immediately hammered down. The dominant strategy in India vs East Asia is completely different. In India, cooperating with the rules almost always lands you in the sucker’s quadrant of the prisoner’s dilemma, whereas creative defection is generally net positive (perhaps in a macro sense, society operates less efficiently because of it, but in a personal sense, defecting wisely pays off). In East Asia, cooperating is almost always the best personal strategy. Translating these cultural habits from Asia to the US, it’s clear why Indian Americans, despite sharing similar educational and income bands as East Asians, dominate at the very top end of the business world, with Microsoft, Google, and PepsiCo at various points all run by Indian Americans. Outside of Jensen Huang at NVIDIA, there are few East Asian entrepreneurs or executives in the tech world, despite an abundance of East Asians in middle management. This is probably an additional factor on top of the conventional hypothesis that Indian American outperformance is linked to an earlier adoption of the English language as well as a culture of oral debate and argumentation.
- India integrates rather than rejects its colonialist history. It was amusing to see many pictures of British royalty and colonial governors scattered across upscale hotels and top-notch universities like IISc. In China and many African countries, the era of colonial rule is a humiliation to rally against. Even in the West, the era of empire is seen as an indelible stain on national character that is to be either forgotten or atoned for. It seems like India takes a unique stance towards the Raj that integrates rather than rejects British rule, accommodating the unifying and uplifting elements of the British civil service and the industrial infrastructure it built out. India’s own stance towards its colonial history is at worst something to be acknowledged rather than forgotten, and at best it is a defining chapter of the story India wants to tell about itself. Perhaps this is because unlike China with its incredibly deadly rebellions against European domination, India’s transition in 1947 was relatively nonviolent with respect to the British. A qualification is that the current Modi/BJP government is actively criticizing this sympathetic view right now, eg by changing city names.
British portraits at a hotel in Darjeeling. - I was bemused by a “differently abled” bathroom stall in as remote a place as the Bagdogra airport. American cultural exports go hard.
- I was ecstatic at the sight of queso, a Tex-Mex staple, served alongside Indian dishes in the hotel buffet. Texan cultural exports go hard.
Texan exceptionalism. - “India is India and it muddles on.” This quote goes hard.
India’s Economy
- There are two Indias: formal and informal. I found it shocking that of 80-90% of Indians do not participate in the formal economy, and that of the 1.5B people in India, only 200m are formally employed at best. It’s impossible to think of India economically as one unified labor pool, or even one single economy. This means that statements of the form “X has room to grow because only ~20% of India does/has X” should be by default suspect. UPI, though properly lauded, has only a slightly higher level of penetration at 30-35% of the population despite it feeling like “everyone” in India already uses it. The remaining population is not a difference in degree but a dramatic difference in kind with respect to adoption.
- India’s low labor utilization is a result of both culture and policy. One of the most striking things that a notable political leader said was that in his discussion with Thomas Piketty, renowned Western scholar of inequality, Piketty failed to account whatsoever for caste. India’s economy is defined by caste and cannot be understood without this distinctive element. In particular, caste explains one major reason why India’s labor efficiency is much lower than its GDP peers: upper caste people are less likely to hire lower caste people. Further, because gender discrimination is prevalent, female workforce participation is from a relative perspective extremely low in India. In seeking employment, both lower caste Indians and women in India face hurdles from the historical system. Further, due to the informality of the Indian economy and the stringent requirements for formal employment, many jobs in India are contract jobs that do not offer structured worker’s protection and benefits, which disincentivizes the development and retention of skilled labor.
- The Indian governing elite is extremely concentrated. India has a really small intellectual, political, and business elite, in which our hosts were thankfully very well embedded! Despite being the most populist country in the world, the governing elite in India is far smaller and more concentrated than in the US.
- India is an increasingly(!) agricultural nation that is not particularly good at agriculture. A remarkable ~45% of India’s population is agricultural, composing around 20% of India’s GDP. Despite its primarily agricultural economy, India’s farms are not very productive, producing ~25 tons per hectare vs the global top efficiency of ~400 tons per hectare in a critical crop. One reason for this inefficiency is India’s agricultural subsidies for staple crops, which have become such an entrenched part of the economy that they have evolved from top-up mechanisms into insurance policies. Because subsidies are not the last resort but the first, they have become a hinderance to India’s agricultural productivity. Strikingly, non-core agricultural outputs have done well, growing at high single digits every year, but staple crops are growing at below 5% *because* of the subsidies — on net, subsidies are actually harming growth. They also make it harder for India’s to negotiate on US tariffs, because the US can point to India’s agricultural protectionism as justification for reciprocal US trade protection measures. While economically and politically harmful, the subsidies exist because they seem politically necessary. Two young MPs who joined us at a jazz bar in New Delhi stated that their constituents are mostly farmers and justified subsidies as necessary because “India is an agricultural nation” and people need to be able to make a living. Finally, and most remarkably, in the last 4 years India has generated more jobs in agriculture than outside of agriculture. India is the only country in the world with reverse agricultural migration!
- India lacks an R&D oriented business culture. Indian R&D as a percentage of GDP is around 0.66% whereas the OECD average and US range around 2.7-2.9%, and Israel and South Korea hover around 5%. Indian firms do not commit to R&D, which greatly damages their ability to compete on the global level. One explanation floated is that there is a culture of copying between firms that makes R&D a less viable business strategy, which is related to a lack of enforcement around IP protections.
- Deregulation is largely the elite consensus but is politically difficult to implement. The prime example is probably agricultural subsidies. Further, an overemphasis on compliance hurts India, which should prefer false negatives (not enforcing against a violating firm) rather than false positives (enforcing against firms that are not violating). It was interesting that the a leading economic advisor stated reducing the amount of laws classified as criminal offenses by 60% as one of his top three wishlist items for his tenure!
India’s Political Structure
- The US and India exhibit two types of federalism and two types of constitutions.
- The US exhibits “coming together” federalism in which the existence of states predates the founding of the nation, and federalism is largely about integrating these states into a new union. This roughly means more devolved power held within states. India exhibits “holding together” federalism in which the nation predates the political borders of the states, and thus the federal government operates with a broader mandate.
- The American constitution is primarily a political innovation that defined civil rights and demarcated the role of the state. It is more “conservative” with regards to its aims. The Indian constitution is both a political and a social innovation that not only defines civil rights but also aims to bring different religious and ethnic communities together. It is more “progressive” with regards to its aims.
- The integration of 500+ princely states is one of the most remarkable and most underreported diplomatic achievements in world history. There is much fanfare about the theoretical impossibility of India’s existence as a democracy that manages to integrate multiple religions and castes with a low literacy rate and poor population. However, the political maneuvering needed to nonviolently convince 500 distinct, prideful, and historically autonomous states to join India, which is itself a fragmented, internally inconsistent jumble, is a profound achievement and an essential prerequisite to India’s existence. There needs to be a show about this because it would dwarf House of Cards!
- Congress lacks verve and a concrete positive vision; the BJP is polarizing but possesses a legible, substantive agenda. The general sentiment of people we talked to is that Congress lacks a fresh positive vision for India. In contrast, the BJP is embarking on an nationalistic rewrite of Indian history to create a myth of national unity that can encompass minority coalitions. Related and also interesting is that it seems the BJP has a much better grassroots machine that is ruthlessly aimed at winning elections. This focused pragmatism has pushed the BJP to create nationalistic rhetoric that accommodates Muslims.
Indian Grand Strategy / Foreign Policy
- If geography is destiny then India’s fate is troubling. India is neighbored by three nuclear powers in Pakistan, China, and Russia. The reality is that all of India’s neighbors can be made or are already closer to China than to India. Even Russia, a historical ally, could not possibly choose India over China in an extended conflict. To make matters worse, India relies economically on China. The US is a potential ally, but an unreliable one. Nonalignment is rhetorically inspiring but pragmatically fraught. Indian Grand Strategy seems like one of the most challenging but also interesting questions of contemporary international relations!