Was Culture a Major Factor in India’s Most Recent Economic Growth?



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Was Culture a Major Factor in India’s Most Recent Economic Growth?

Economics, the study of the economy, focuses on the interactions of economic agents when confronted with the problems associated with scarce resources. However, the field is now flooded with calculations and mathematical models. This gives the impression that an economy is a machine restrained by rules and is very predictable: a decrease in interest rates will lead to increased spending, leading to higher profits, employment, tax revenue etc… However, the reality is very different. The economy is made up of incredibly small decisions made by everyday people and just like people, the economy is dangerously unpredictable, the smallest variable can make a huge difference; confidence, expectations and even culture can have a huge influence on the bigger picture. In this essay I will be examining how one of these variables, culture, affects an economy. India, being the tenth largest economy in the world, is a very suitable case study. In addition to its economic prowess the country has a diverse and vibrant culture. However the nature of this culture varies vastly over the huge expanse of the Indian Territory. Due to this I have decided to divide the larger term of culture into four subsections: Family Values, Business Culture, Governmental Practices and Religion.

The land now claimed by the state of India is one of the oldest cradles of humanity, with one of the oldest and most advanced nations, the Indus valley civilisation being established on the banks of the Indus and the Saraswati rivers. However, subsequent invasions and migrations have meant that little of the civilisation remains. These aforementioned migrations of peoples from both the north i.e.; Iran and the south i.e.; Australia brought new aspects to the culture and religion of the country. This has meant that India has become a very varied culture throughout the large expanse of the country. However, this has often meant that there is quite a lot of religious and ethnic tension between the various demographic groups that currently inhabit the state.

Religion


Religion in India is as varied as the country itself, the majority of Indians share the Hindu faith, however even this religion varies from region to region, even certain villages have specific customs or deities that are found nowhere else. Hinduism’s roots can be traced back to before 2000 BC; this puts it into place to join the argument for the oldest religion in the world. The religion was first brought to the sub-continent by a war-like tribe named the Aryans. Dutt (1906) suggests that the original homeland of these people is unclear with claims varying from Iran to the coasts of the Baltic Sea. Due to an unknown reason this people came to the borders of India and came to settle temporarily among the five rivers of the Punjab, from here they spread southward soon conquering and subduing the native peoples, spreading their religion as they went. India is also home to sizeable minorities of Muslims, Sikhs, Jains and Buddhists.

One of the major aspects of the Hindu religion is the theory of Dharma (duty). This is often seen as the primary focus of a Hindu, to carry out his/her duty. A commitment to performing his/her duty obviously translates into the workplace, Jhunjhunwala (2012) mentions that Indians often work “10-12” hours per day. This increased production can no doubt help a business in achieving targets and making a push for increased output. This obviously makes India an attractive location for foreign business to set up factories/ production plants meaning higher incomes for many an Indian worker, which, in turn allows them to spend more money in Indian businesses, this “multiplier effect” means that this small increase in factory worker’s income can have reverberating effects on the overall economy.

Another major feature of the Hindu religion is the Caste system. This is a system where in which society is divided into separate castes which carry out different functions for example the Brahmin priests, the Kshatriya warriors etc… Lower castes must often be subservient to the higher in the order, although this system is undoubtedly unfair it still provides larger corporations with low cost labour. Again, this provides an incentive for multi-national companies to relocate to India. Moreover, the lower caste workers are not often unionised and can therefore not collectively negotiate with plant owners, this, therefore puts the owners of these factories in an advantageous situation. However, the caste system is notorious for suppressing the ability of the lower castes to emerge from poverty. Higher caste residents are usually accused of burning down lower caste businesses and housing. This lack of social and economic mobility creates a very unfair income distribution. This lack of meritocracy may be disastrous for India in the future as people who may not be suited to the particular job are continually promoted while one who may have the particular skills to efficiently carry out the task is not allowed or not educated enough to fulfil the role. Although the government has introduced several measures such as harsher punishment for caste-related violence and affirmative action to guarantee several college places and jobs for “tribes and other backward castes” these seem to have made no difference as the University Grants Commission (2008) has found that among low caste Hindus and Muslims college graduation rates are still below 5%. This suggests that either the programme is very ineffective or prejudices still exist.

Alongside conflict between the lower and higher caste Hindus there are often large- scale conflicts between Hindu and Muslim populations in certain areas, the most recent of these being 2002 Gujarat riots in which 790 Muslims and 254 Hindus were killed. Such violence is often accompanied by the destruction of property and resources. A. Mitra and D. Ray (2012) present two reasons for this violence in their report. The first of these is that these riots are a way of redistributing “economic surplus” through looting and exclusion from jobs or land. The second of these reasons is that already existing inter-community hatred is “re-ignited” by the increased economic prosperity of one of the groups. The second of these reasons is particularly concerning as it creates a “crab bucket” effect where, when one group is at the cusp of reaching economic stability, it is pulled down by the other. Riots on the scale of those that took place in 2002 can often erase years of economic development and can, therefore mean that poor populations remain as such, worsening the problem of economic mobility discussed in the previous paragraph.

The large diversity in religion in India has proven a disadvantage for it in the long run. Religion has created violence in India since the original partition of India and Pakistan. This violence has set many communities back many years, it is very hard for the government to stop or stem this violence as hatred for other religions and castes is very deep- set in certain communities this is enhanced by many extremist/ nationalist groups that exist within India, this has even permeated to the top levels of Indian politics, with the current president of India Nahendra Modi, being involved with one of these nationalist Hindu groups. Moreover, the large diversity in religion all over India means that no religions values can be seen as “Indian Values”, every region of India will have different ideals that they strive for according to their own religion/ version of a religion that they follow. This greatly lessens the impact religion will have on the economy as a whole as each area will have different effects.

Governmental Practices

Government in India has a similar structure to that in the UK. Parliament consists of an elected and appointed chamber. India even uses the same electoral system, however, the system usually results in a coalition being formed. Unlike the government of the UK there have been many claims that the politicians in charge of making policy in India are incredibly corrupt. According R. Hanna of the Harvard political review roughly 50% of all government money intended to go to welfare schemes and subsidies being pocketed by politicians and bureaucrats.

This incredibly high level of corruption has meant that 600 million people in India still live in poverty and 300 million people live without any use of electricity. This problem could easily be solved by a heavy investment in infrastructure and education. However, if this money is just going into the private bank accounts of politicians it serves no use. This corruption has meant that “clean politicians” have had to use unorthodox methods to further their aims, often with resoundingly successful results such as MP Alphons literacy programme he has described the programme as “free from any government funding and thus, corruption” using this he has raised his constituency’s literacy rates to 100% the first city to do so in India. He later went on to conduct a similar programme to immunise all children living in the city from diseases that were once rampant in India such as polio and influenza. Similar initiatives have been carried out by politicians such as N. Kumar who, having to resort to raise funding from other channels, increased the size of his police force and has successfully prosecuted roughly 79,000 criminals. From these examples we can see that lazy or ineffective, but may actually be more effective due to their devolved power. However, the lack of funding and widespread corruption has stifled many of these MPs so that they cannot carry out such programmes, which would improve the standard of living for their constituents, easily, often having to raise funds themselves or rely on volunteers.

Although the government is introducing some policies to combat corruption, including an interesting policy utilising cell phones to reduce corruption in the grain distribution system of Chhattisgarh, there has been no significant push to eliminate corruption from the country. This may be due to the precarious nature of the government’s coalition; it is very hard for either side of the coalition to combat corruption without endangering the future of the agreement.

Alongside the government’s corruption, the Indian government is well- known for its tendency to place red-tape on many of the markets it has control over. The excessive regulation stifles many businesses and does not allow businesses to make levels of profit that they could potentially achieve. The heavy regulations also encourage many businesses to cheat and try to avoid following some of the regulation. This, paired with the possibility that many of the officials can be bought off means that, for the right price a company with enough funds and the right connections can avoid the regulations. This gives a very large advantage to larger, well-connected companies, meaning that many markets in India have very high barriers of entry. A market dominated by a few very large companies can be very uncompetitive and lack innovation. This is usually not very good for the consumer who has a lack of choice and has to pay a higher price. Moreover, a lack of innovation means that Indian goods are unlikely to fare well in an international market that consists of often hundreds of competitors. Although India has a strong export market, this is mainly due to foreign companies rather than Indian companies selling their products abroad. However, the Economist, in its article Indian Business: Untouchable and Unthinkable, present the idea that this very red tape has meant that many “world- class Indian companies” have emerged as they have become hardened by their initial experience coping with bad governance. Although it is undoubtedly true that India can boast some very large and prosperous businesses (TATA, Reliance, Chennai Petro etc…) it cannot be proven that these companies are where they are today due to the complete ineffectiveness of government.

Alongside red tape, the government in India is notoriously laid- back (Jhunjhunwala 2012). This can often create delays for businesses looking to acquire licences, filing tax reports etc… This can mean, as there is so much red tape in Indian markets, considerable amounts of time can be wasted by the government. This may be an important factor for businesses attempting to deal with international companies or trying to gain a contract as meeting targets is incredibly important in these situations. If these targets are not met the businesses can incur large fines that can eat into their profits. These delays can also restrict businesses from reacting quickly to changing market conditions and can therefore stop them from taking advantage of opportunities that present themselves. More than half of CEOs in India believe that the root of most of the corruption in India is the reluctance to wait for government to approve actions, the sluggishness of the authorised channels mean that businesses must often have to use unorthodox methods.

However, this is not set in stone, under Modi India has begun to modernise it markets through a consistent policy of deregulations and has even begun to stave off the shroud of corruption that currently surrounds many of India’s largest institutions. There have even been rumours that a bill finally establishing an anti- corruption agency is being planned to be discussed in parliament and on the 2nd of February 2012 the supreme court cancelled all licences gained in the notorious telecoms scandal in which the top officials, even the former prime minister and president, were all embroiled. The people of India have backed these crack-downs on corruption with many campaigns of their own such as India against Corruption, Against Corruption Today and the Say No to Corruption initiative. If these reforms continue, the Indian economy will be able to function to a much higher and more efficient level.

Family Values

In India, the family is focused around an extended form unlike in most of the western world where the nuclear family is the most predominant. It is not uncommon in India for three generations to be living under the same roof. This means that often parents and siblings are more involved in each other’s lives. This often extends to marriage; it is a common practice in India for parents to arrange their child’s marriage. The tradition of arranged marriage has given rise to several practices such as dowry and the exchange of bullion. Dowry in particular has had a large effect on the role of women in India. The practice has enforced the view that a women’s place is to look after the domestic affairs, traditional marriage vows in Bengal still involve the husband telling his mother “I will bring you a servant”, however, the impact of dowry is much larger than just the subordination of women, in 2012 8,300 women were murdered over dowry in India. It can be said that the role of women as domestic guardian was first established in the Ramayana, an Indian epic poem written thousands of years ago. In this poem Sita, is seen as a portrayal of the values all Indian women should adhere to “a pattern of female virtue and female self-abnegation” (Dutt 1906, pg 125). This may be quite harmful for the Indian economy as only 29% of women over the age of 15 (A. Rathi 2014) have currently taken up employment. This wasted capacity may mean that there is a large gap between India’s potential output and its real output. If more women took up work, the average income for a family will increase largely, giving the average Indian more excess income to spend on products and services. This increased wealth may increase living standards for many Indians while also securing more rights for Indian women. However, the lack of working women cannot be wholly attributed to social pressures. The government can also be blamed for this trend, the government has done nothing to make streets safe for women, attacks on women are often ignored and 24,000 cases of rape are currently pending in courts all over the country (Economist 2013). If the government introduced legislation to protect women, there may be greater uptake in employment by women.

In complete contrast to the role of women is the role of men in the average Indian family. Men are expected to be the main breadwinners in the family. There is a lot of emphasis on education for the middle-class Indian, this often means that sons of the family will emigrate to developed countries to carry out higher skill-level work. Emigration to developed countries such as the US and the UK has become the ideal for many an Indian family. This is potentially harmful for the economy as a whole due to the fact that many professionals are leaving the country to contribute to other economies, this “brain- drain” may leave many Indian services understaffed, this may be the reason for India’s underdeveloped education and health sectors, more skilled workers in these areas could improve the living standards for people all over the country. However, the emigration of Indians to more developed countries cannot be seen as a completely negative factor for the economy. Indian diaspora is much more likely to send wages back home for relatives; many people claim that the flow of this money back to relatives all over the world from immigrants is more than the total sum of all international development aid. This extra income would undoubtedly increase the standard of living for those receiving the wages, however, emigration is almost exclusively a middle-class activity in India and therefore the poorest citizens will not benefit, while they would have benefitted from the services emigrants could have provided if they stayed in the country.

Another effect of gender roles in the Indian family is the presence of bullion, as mentioned before; in general, Indians love gold. It is customary that newlywed brides are given large amounts of jewellery made almost exclusively of gold. These pieces of jewellery are seen as assets rather than actual accessories it is common for certain pieces to be passed on through the generations. However, this has had a surprising large effect on the economy, the total value of gold imported by Indians in 2013 was $54 billion, and this has led to imports outweighing exports by 4.8%. This is incredibly surprising seeing as the Indian export market is very strong. In the long run this is not very good for the Indian economy as more money is leaving it than entering, this is especially disastrous for India, which prides itself on a more export- led growth. This paired with the endless red tape around the official financial system has meant that more and more Indians have been turning to gold as a way of securing wealth. India’s overall savings rate is currently on par with the other tiger economies, however half of this is in the form of physical assets, this essentially means that the money has been removed from the economy, unlike a bank account, where capital can be used to lend and therefore invest in business ventures. If the red tape was removed from the financial system and people were encouraged to save via banks their savings could be used to fund Indian business and therefore increase profits, revenue, wages etc…

However, there is one distinct advantage of the Indian extended family: mutual support. The close links with extended family members can mean that the average Indian is in a more advantageous position in certain situations. This is most evident in financial spheres, if the average Indian was to start a business or need funds for education he can rely on many extended family members to provide loans. This has meant that Indians are 34% less likely to go into a state of bankruptcy than the average westerner (Jhunjhunwala 2012). This higher success rate for small Indian business means that many owners have a more stable source of income which provides a basis for a better standard of life: luxury goods, education etc… Moreover, it provides a much larger incentive for Indians to start their own for businesses, the old Indian ideal of getting a “cosy job” (P. Gwalani 2014) is staring to become replaced by the “independence, contentment and excitement” of starting your own business. This atmosphere of innovation and competition is good for the Indian consumers, who now have more choice than ever. This is significant for India, which is only just now shrugging off some of its archaic socialist values. Government monopolies are now slowly being replaced by private sector competition and consumers are being offered ever cheaper goods.

Business Culture

As mentioned before many more Indians are beginning to open their own businesses rather than work for the many multi-nationals that have factories based in the country. However, business culture in India is still distinctly different from business practices in other countries. As mentioned before, Indians are much more likely to be committed to their work and will therefore put more work in during out of office hours or at home. This means that managers can rely on their workers to meet targets in a much smaller timescale than managers in other countries. This will undoubtedly give Indian business an advantage over international competition. However, although Indian workers do, on average, work longer hours than their counterparts in the west, it is doubtful whether these hours are more productive. Working 10-12 hours a day can be detrimental to productivity and can increase the number of mistakes workers make and can therefore reduce the positive effects of the increased output.

Indian business is generally very hierarchical, this means that businesses based in India often have many layers of management and leadership style is often very authoritarian. This means that decisions can be made very quickly as the views of workers need not be consulted. This allows Indian business to be much more decisive in reacting to the market or other external factors. However, this style of management may mean that useful ideas from lower level workers may be completely ignored by managers; this could mean potential opportunities may not be taken or threats may not be avoided. Moreover, the many layers of management often present in Indian businesses may actually be much more inefficient than a more spread out organisational structure. This inefficiency may inflict unnecessary costs on businesses and therefore reduce the levels of their profit. Finally, the authoritarian leadership style may cause workers to feel demotivated and therefore feel less included in the process; this in turn will reduce productivity and therefore will inflict more costs on the businesses.

The hierarchical structure many Indian businesses employ may be more predominant due to the fact that in India the view is held that businesses are owned entirely by their founder rather than their stakeholders. This has meant that dealings in India are often viewed as person-to-person affairs rather than business-to-business, this has led to many of these dealing being very corrupt. Corporate corruption in India is as nearly as big a problem as government corruption. In Ernst & Young’s bribery and corruption survey of 2013 many of the 200 senior executives who answered the survey appeared to be “comfortable with unethical business conduct” this “unethical conduct” includes bribes, using third parties to avoid red tape and using gifts to “soften up” deals. This is not only bad for small businesses that may not be able to afford the bribes to get lucrative contracts, but also for the economy as a whole. The levels of corporate corruption present stem the flow of foreign direct investment to the country (A. Singh 2013). This investment could be used to fund Indian ventures which could bring a lot of capital and employment to the economy as a whole. The total loss to th economy of India just from corporate corruption has been calculated at 364 billion Indian Rupees, this incredible sum conveys the extent of the problem as nearly 50% of respondents to the survey say they have lost business due to corruption. This is especially problematic for government contracts, for which India has a terrible reputation, as the most efficient companies are not used but the companies who have the closest links to the corresponding minister. This has meant that India’s services such as education and health are severely lacking compared to the other “Tiger” economies in the area.

Moreover “The notion of time, time management, punctuality, is still an anathema in India”, this relaxed approach to time keeping may prove detrimental to relationships with people and businesses from other countries, where, if a meeting is set it will be at that time no matter what. This may mean that it is harder for Indian businesses to conduct business with international companies; foreign companies may get frustrated at the lack of organisation. However, the lack of strict organisation may give the average Indian worker a greater sense of freedom; this may mean that they have more room for innovation without their supervisors breathing down their neck or unnecessary deadlines.

Conclusion

India’s culture has had a large impact on its economic development; however, it is still questionable whether this impact was entirely positive. The large levels of corruption both in corporate and governmental spheres are certainly harmful to the economy, creating uncertainty for foreigners looking to invest in the country. However, the other two aspects: Religion and Family values have both positive and negative aspects. India’s main advantage compared to other countries is its large supply of cheap labour willing to work longer and more productive hours than workers in more developed countries, this has been achieved mainly due to the “Indian Values” of performing ones duty and putting career above other objectives, as discussed above and although India does have some other distinct advantages such as its weak currency, which, in turn, means Indian goods are cheaper and its large pool of skilled workers, the cheap labour factor is undoubtedly the largest when it comes to India’s popularity with foreign business.

However, this looks like it is going to change. India is going through a tumultuous change as it comes more and more into contact with western culture. Old conservative “Indian values” are clashing with the promiscuity and tolerance usually associated with the west, even the classic extended family is becoming replaced with a more nuclear- oriented lifestyle. The thousand year old caste- system has become eroded, encouraged by new legislation which bans dowry and reserves educational and vocational places for lower castes. Although, this new legislation is, for the most part, a positive factor, new regulation in the labour market has been, due to large public demand, introduced. This new bill introduces western- style workers’ rights to the Indian constitution; this may remove the comparative advantage mentioned above that India has in the Labour market. On the other hand some of these values are deeply ingrained in the Indian way of life that they are unlikely to disappear any time soon

Overall, I believe that the culture of India has had a large impact on the economy as a whole, however, some factors, such as corruption, should be limited to achieve the potential levels of economic development that India could achieve. This looks like it is starting to happen under the more decisive leadership of the countries new prime- minister.



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