Can India's economy really take off? That's the most important question to ask as the West wakes up to the power of Bangalore's human capital. Plenty of skeptics say no. Their position: India can crank out all the software it wants, but that won't relieve the misery of hundreds of millions of farmers, factory, hands and unemployed -- the vast disenfranchised class of the country. The skeptics sure can proffer plenty of stats. Here's one: India's service exports are expected to generate 24 million jobs by 2020. But 200 million young people will be entering the workforce during the same period. Looks like an unbridgeable gap. Huge, complex, and poor, far more dependent on the vagaries of the monsoon than on investment from Microsoft Corp. (MSFT ): That's India's destiny, they say.
But it isn't. To find out why, take a drive along the new Bombay-Pune highway. It shoots out of the city's crowded northern mouth and snakes around and through the steep hills of the Western Ghats. Flowering bougainvillea line the median. Once the road leaves Bombay it can take a car as little as 50 minutes to reach Pune -- compared with three hours three years ago. Because of the highway, Pune can ship its goods efficiently and link up with the outside world. As a result, it's one of India's new boom towns and is exporting globally both software and manufactured goods such as auto parts. Similar highways are creating smaller boomlets in forgotten pockets of the country, where the poor for the first time aspire to a better life.
NO HIGHWAY, NO WEALTH. A new road, a new chance. Three years ago, no one thought India, with its inefficiency, rigid bureaucracy, and corruption, could build such projects. But it did, pushed by Prime Minister Atal Bihari Vajpayee. And it's building more: roads, airports, schools, hospitals. Twelve years after an acute financial crisis forced India onto the path of reform, the country finally seems ready to build a robust economy, inspired by the example of Bangalore's global software success. "It may feel like the temperature has only risen a couple of degrees so far, but this heralds the end of India's economic Ice Age," says Vivek Paul, vice-chairman of Wipro Ltd. (WIT ), India's largest software-services company.
If India does take off, it will be because of its chaotic, robust democracy, not in spite of it. True, the system has at times condoned corruption in politics and business. But decades of democracy and affirmative action have also allowed participation of the poorest in the system and have brought them to national power after centuries of repression. For the poor, the most potent cure for poverty is education. That is resulting in a surge in school spending in the villages. Young Indians today get five more years of schooling, on average, than their parents, and there is nearly universal primary education.
Even some of India's past follies are turning into sources of strength. Socialism and import-substitution, for instance, held the economy back. But they also produced generations of entrepreneurs who had to develop indigenous products, from shampoos to satellites, with their own resources. That self-reliance is benefiting India now: In the past two years, six companies have won prestigious Deming quality awards, and their excellence has triggered a surge in export orders.
It's not just business that has learned a few lessons. New Delhi has abandoned its attempts to micromanage the economy. It has steadily lowered interest rates, eased up forex restrictions, and freed banks from their obligation to lend to agriculture and favored state companies. That has made the rupee virtually convertible, with Indian business largely free to invest where it chooses, while credit has become so affordable that it has resulted in a consumer boom.
India's transformation is still a work in progress. The problems of illiteracy, poor infrastructure, and bad government persist. But something else is there, too: self-confidence. By 2015, 55% of Indians will be under the age of 20, and this generation will have grown up in an economy where roads like the Pune highway are the rule, not the exception. Unlike the generation before them, young Indians are no longer obsessed with India's poverty, but with its future. They give India a fighting chance.
By Manjeet Kripalani