In the 14th century, Christopher
Columbus commenced his voyages for India and discovered America. Perhaps is the
time for Spain to rediscover a new spice trade route and learn from India.
I
was recently in Valencia on a big day of street protests against spending cuts
and changes to labor rights. News agencies claimed that over half a million
people demonstrated across the country during the weekend. The government says
that austerity measures are helping to meet deficit target as directed by the EU.
On the ground zero, the realities are quite different.
In
last two decades, a “Spanish fairytale” had been inspired by the American
growth fueled by the vibrant housing market. From 1995 to 2011, Spanish economy
on average grew by 0.65 percent per annum, reaching a historical high of 1.53
percent in 1997 and low of minus 1.60 percent in 2009. The Spanish housing
market grew steadily from 1995 till 2007 before crashing down in 2008 in the midst
of American crisis. The housing market shutdown created rippling effects on
other Spanish industries, resulting in an unprecedentedly deep economic crunch
Dr
Kiron Ravindran, Assistant Professor at the IE Business School in Madrid shared
with me his experience of witnessing Spanish crisis in the past year. According
to him, current unemployment rate is around 23%; shockingly, among the youth,
it is over 48%. Practically every second Spanish youth is jobless with the little
hope in a short term. He shared how one of his friends is filing for bankruptcy
and another one has already closed his business and looking for a job.
In
contrast, India’s growth story started in 1991 when then government relaxed its
policies for foreign investment in support of businesses and industry. Subsequently,
in 2000–2011, Indian economy grew on average by 7.45 percent annually, reaching
an historical high of 11.8 percent in 2003 (with 1.6 percent low in 2002).
Though India was somewhat affected by the global financial crisis of 2008, it
was far from being critical. The growth slowed down to 4.98 percent in 2008, and
picked up again to 9.1% in 2009.
India’s
growth story is linked to several factors:
- Rise in the industrial and agricultural productivity
- Growth of the middle class – from 8% the total population in 1980 to 22% of in 2010
- Investments to education are paying big dividends. From a meager 17% literacy levels in 1950, India has achieved 75% literacy in 2012!
- Investments to high-tech and capital intensive industries
- Market led economic model where entrepreneur is in the center
- Vibrant market space for private and public companies. India boasts over 100 private companies with the market capitalization of at least USD 100 billion
- One of the largest R & D hub for multinationals in Asia
- Largest English speaking workforce in the world
1.
Capacity
building and skill development: Continuing education and skill building is
one of the key drivers for economic growth. Indian education system is the world’s
second largest after the United States. India produces annually almost a
million engineering graduates. The government announced a 24% hike for
education in its 2011budget. According to some reports, there are significant challenges
about the employability potential of the graduates due to the lack of new-age
business and technical skills. To overcome these challenges, private education
providers are helping to prepare graduates to be ‘industry ready’. Indian
national government has had ‘let-go’ the education from the individual states,
allowing private education providers to compete in the free market. In
contrast, although Spain spends a decent amount on education (approximately 4.5%
of GDP), over 80% of the Spanish education system is under the government
control, providing little scope for the innovation. Spanish education system could
involve more private initiative, thus creating new opportunities that ensure
competitive advantage for their graduates when it comes to the industry‑ready
skills and employability.
2.
Development
of the near-shore capabilities: Cost of operations and wages in Spain are somewhat
lower than for its EU counterparts. Spain can take advantage of such cost
arbitrage by developing near-shore service capabilities, for example by
collaborating with the Indian outsourcing companies. Indian ITC companies are
always on the look up for suitable partners, especially as it relates to the
hosting of their near shore centers. Indian companies that tried to setup their
operations in Hungary, Ireland and Poland have had little success due to the lack
of local support and, especially, well trained and dedicated labor. Spain’s economy
can leap forward by providing skilled resources to setup near shore centers of industrial
and service excellence.
A road
to the economic prosperity is tough, long and sometimes bumpy. The Indians have
learnt the hard way what the Europeans might have forgotten, that the
prosperity mainly comes from encouraging the private initiative, rather than by
raising regulatory barriers. Perhaps now it is the time for Spain to re‑discover
the “spice trade route” to the intellectual riches of the South Asia.
About the Author:
Nikhil
Agarwal is President and senior partner of Cambridge Global Partners (CGP), an
international consulting firm.
Their
profile is available at: http://www.cgpworldwide.com/team/nikhil-agarwal
Great Nikhil.... M sure this two step will not create new India but will definately help Spain to be more powerful country not only in terms of Education but also to have self equipped man power.
ReplyDeleteI very much agree that Spain could benefit directly by facilitating a near-shore infrastructure for Europe which, in turn, would add value to it’s investment in education. This is already happening on a smaller scale. I fail however, to appreciate how privatising the education system would improve the macro economic trend in the longer term. The Spanish ministry of education publishes quarterly and yearly indicators related to performance in education and albeit that local performance is not impressive (in fact, the stats point to a dismal decline on a number of levels), this is mainly due to a lack of renewed investment etc. and a lethargic view of modernisation and not cathartic embrace of privatisation.
ReplyDeleteGreat article.....throws a deep insight into where India is poised in terms of education and R&D. Many good points other countries can learn from.
ReplyDeleteVery true regarding the phenomenal Indian ethic. Yet as we speak, India is suffering it's first trade deficit in 4 years and is cutting rates more aggressively than priced due to earlier over zealous hiking and a more probonouncec slowdown. Similar to Europe!!!
ReplyDeleteIndian trade deficit is more related to policy snooze by the government. Had government followed the developmental agenda it has followed in past, we could be well back to 9% growth path. It is a shame the chief economic advisor to the government is saying, don't expect any substantial reforms before 2014 elections. Is the government role is just to stick-to-power-no-matter-how? or government is answerable to the citizen.
ReplyDeleteIndia will definitely follow Europe (read slow Europe - the other Europe like Germany is creating different example) if the policy makers don't come out of their sleeping bags ..... asap.
I very much agree that Spain could benefit directly by facilitating a near-shore infrastructure for Europe which, in turn, would add value to it’s investment in education. This is already happening on a smaller scale. I fail however, to appreciate how privatising the education system would improve the macro economic trend in the longer term. The Spanish ministry of education publishes quarterly and yearly indicators related to performance in education and albeit that local performance is not impressive (in fact, the stats point to a dismal decline on a number of levels), this is mainly due to a lack of renewed investment etc. and a lethargic view of modernisation both fuelled up by a cathartic embrace of privatisation and supporting policies, not the failure of policies supporting government sponsored public infrastructure.
ReplyDeleteP.S. Apologies for renewed post. Wouldn't it be advantageous to the discussion to make comments public?
Spain is like dead because it's culture. People aren't at disposable way of acting. A country with people like this: low taxes and whose hope for excellent WellCare services is a paradox. As Mr. Greenspan said in an TV interview there are too much cultural differences between Mediterranean countries and northern countries. I admit Spain applied Keynesian theories. I mean, lack of private demand a Country replaces those demand and tries to help private demand with fiscal stimulus . After that private sector gets strong and Countries can stop actions. But all this imiea debt emission.
ReplyDeleteI think euro has no solution. With the actual economic solutions from old theories no. Someone knows what think people from the street about helps to Spain... Best don't know about. German with getting down costs on salaries to make competitive against countries with low cost production. And getting down salaries is a way to low productions costs and compete.
ReplyDeleteMr. Agarwal I strongly agree. There is not a bailout of 1.4 trillion dollars which get sure Germany to Bankruptcy. And less or more all banking system all arround euro zone or invent a miracle or euro will faill. Don't forget Europeean Central Bank hasn't own funds needs funding from Strong Euro countries primary France, and lastly from Bundesbank who tries not admit-no coment funding hardly ECB to buy Spanish and Italian debt. Future remains on Germany and some kind or Treasury department over power of sovereign states. Euro zone is a trying to making a big market with intention about facing other countries on the world. Target: compete with US and China much more making Euro a real alternative toward US Dollar.
ReplyDeleteI wish I could be so upbeat on India. Though Nikhil has rightly touched upon policy paralysis as the key roadblock in India's path to development, the drag also emanates from emphasis on (a) quantity in higher education rather than on quality, (b) lamentable state of primary and secondary education, (c) disincentives to investment, (d) need for defense expenditure, and (e) lack of oversight in whatever any government functionary does. To me, the chimera of a failing India is real.It probably sounds like an old-school rant, but lack of long-term vision, lack of probity in public affairs, and proportional representation by which we elect our representatives to the legislature are the root causes of our problems.
ReplyDelete