India imports billions of dollars of goods and services despite having the resources and manpower to manufacture the goods/services at lower costs on its shores. India’s malfunctioning and corrupt governance is the chief cause of India’s current state, where the currency is in a free fall as imports far exceed exports. India has one of the largest workforces in the world and an adequate supply of natural resources. However, despite its cheap labor costs, the country imports large amounts of low value added items such as furniture, shoes etc. India already imports more than $50 billion of oil/gas annually and this bill is rising annually as demand for fuel grows. India has also started to import millions of tons of coal, despite having billions of tons of coal reserves. However stupid and short sighted policies have resulted in a state where despite an abundance of domestic resource, expensive stuff is being imported.

Here we first examine why India has reached such a sad state of affairs and then detail out how it is affecting India’s vast army of poor.

 Why India is an Importer Nation

1) Bad Government Policies – India has failed to learn from its Asian neighbors which have created vast wealth and become middle income nation in just 2 short decades. India used to be roughly equal to China in economic performance till 1980, now it is one fourth the size of China. India has dumb outdated policies which it refuses to change due to the power of small corrupt lobbies. Labor laws are archaic and prevent hiring, but the Indian government does not want to change it. The corrupt leaders do not have the moral authority to pass tough legislation and are happy with the status quo. Capital in India is locked up in gold as investors fear to invest in equities because of corporate malfeasance. India’s regulators refuse to crack down and foster transparency. Crony capitalism flourishes as politicians have themselves becoming big industrialists, thanks to the massive proceeds from corruption.

2) Self serving Politicians and Bureaucrats – India’s leaders do not care two hoots about the country and are mostly busy enriching themselves. Despite a huge amount of resource, the government departments do not spend money. Most of the money spent goes into private pockets and does not create the desperately needed infrastructure.

3) Lack of Infrastructure – India desperately needs roads, power, ports and other vital infrastructure. But public investments are mired in costly delays as Indians do not have the sense of urgency. The governments are happy with the stotful nature of work as it gives them additional sources of bribes. Despite the massive power deficits, most power plants lie idle. Governments do not want to provide market based pricing as they want to pander through free and subsidized power. Roads are mostly full of potholes and creation of road infrastructure has slowed to a snail’s pace. Most road making companies are debt distressed and lack of land acquisitions/environmental problems have stopped road and port construction. Most of the India’s large industrial conglomerates are hugely corrupt as they have been fostered in an environment where nothing gets done without a bribe. Their expertise lies in managing the government officials and bribing rather than managing company.

Read about Infrastructure Companies in India.

4) Lack of Industrial Base and Ecosystem – Most of the industries where India has done well is where there is not a lot of capital or government clearances required. Low cost labor has fueled the growth of IT and pharma industries. India has tons of very low cost skilled graduates passing out each year. Though most lack adequate skills due to the pathetic educational system, enough good candidates also pass each year. India has more MBA and engineering grads than any other country in the world. This has given a competitive advantage to knowledge companies and India exports huge amounts of software and low end services each year. On the other hand, the less said about the industry the better. India’s industrial contribution is extremely low by its development standard. There is lack of big industrial bases which can foster the growth of ancillary industries and supply chains. Even in regions where costs are low, India is hampered by lack of an ecosystem and skill sets.

5) Inability to utilize Savings – India generates a huge amount of savings each year but has failed to adequately utilize it. Most of the money gets locked in unproductive gold and the rest in real estate. This has made India even more noncompetitive as real estate costs are disproportionately high for companies and businesses. It has given rise to a large, lazy rental class. India also has a large black economy which exports a huge amount of capital every year to tax havens.

How Lives are being destroyed

India has the largest poor population in the world with hundreds of millions being unable to afford even two meals a day. Most of the India’s social schemes have huge leakages and most benefits don’t reach the poor. Employment opportunities are extremely low, as there is no requirement for the huge population of unskilled and low skilled labor. This has forced most of the citizens to become self employed in low value added work which barely sustains them.

Even the requirement of educated, skilled workers are declining as companies do not want to hire because of low growth and adverse labor laws. The huge army coming out of educational institutions is being forced to work in professions which do not pay them enough. The educational system is a mess with most graduates being unemployable. Large educational institutions are run by corrupt politicians who do not have the capability or motivation to provide a good education. Despite having the world’s biggest workforce, most of the Indian companies cannot find the required workers. The Indian government as usual passes useless laws such as RTE which burdens private institutions with its own responsibilities.

Read about Education Companies in India.

India’s greatest indictment probably is that for a person to rise in India, corruption is a much better path to take than being intelligent and hard working.