Wags used to say 'India is the country of the future...and always will be.' Repeated predictions of an economic takeoff following independence from Britain were dashed by a combination of crushing bureaucracy, official monopolies, and entrepreneurial timidity. Despite low wages and a talented population, India's economy stagnated, largely closed off from international competition, and for a period, hitched to a diplomatic preference for doing business with the disastrous Soviet economy.

The Wall street Journal editorial page today (not yet available without subscription on Opinionjournal.com) contains an essay by Emily Parker, of the Asian Wall Street Journal, covering a crucial change in the mass psychology of India's managerial and entrepreneurial classes. Simply put, this time is different: India really has become the happening place. Look out, China! India has reformed its governmental policies, eliminating red tape and selling off state—owned companies (though there is still more to be done). More importantly, this time India is confident it can assume its place in the sun. The 'animal spirits' of which John Maynard Keynes wrote have been unleashed.

For example, Mahindra and Mahindra, a manufacturer of utility vehicles, has taken on Toyota, designing and manufacturing an indigenous SUV which has achieved great success in the marketplace and high consumer quality ratings, even competing against Japanese imports. Management was willing to take the risk of an enormous risky investment because it knew that tariffs and import restrictions no longer provided an alternative, but also because it saw other Indian companies in fields such as pharmaceuticals and software leveraging their low cost engineering and scientific labor force into world—beating products.

This kind of self—confidence is contagious. Japan in the later 1950s and 1960s benefited from a similar situation: low cost high quality labor, and numerous visible examples of others prospering by entering markets for progressively more sophisticated goods. In such an atmosphere, entrepreneurs and managers are willing to commit funds and effort to risky ventures, and feel considerable pressure to do so. If they don't, their peers begin questioning their wisdom and even their masculinity.

Similarly, China, over the past two decades, has created the atmosphere of daring to swoop down on commercial opportunities as they appear. China and India also share one other critical asset: an overseas diaspora of talented and successful émigrés, now willing and eager to prosper by connecting their overseas experience with opportunities arising in the homeland. Parker explains that India's attitude towards its diaspora has changed almost completely. Formerly, they were seen almost as traitorous, having abandoned the (sinking) ship of Mother India, to save themselves at the expense of their homeland. Now, they are seen as pioneers, available to help others explore the beckoning opportunities of the world's markets.

To be sure, macro—economic policies, infrastructure, and other technical factors are still important, and challenges in these areas still face India. But fundamentally, human beings make decisions based on their attitudes and beliefs. These change slowly. But India's mass psychology has turned an important corner. Barring catastrophic change, India appears to be navigating a course of continued growth and prosperity, one which has been followed by Japan, South Korea, and China. This is good news not only for India, but for the United States, with whom India is forging a closer strategic relationship, and for Israel, which is rapidly building a key alliance with India.

Posted by Thomas  01 14 04