India – The Economy

3) The Economy

This section isn’t supposed to be a technical, but an anecdotal understanding of the economy as I experienced it through NPR podcasts, news articles, books and interacting with locals – both Clemente’s folks and anyone we encountered.

The first thing that struck me about the development in the country was absolutely unavoidable, and that was the lack of anything outside the airport. In big cities around the world, I’ve kinda come to expect something upon leaving the airport, really anything to signal that the government has given thought to urban development and the usage of space to impress visitors. But you drive outside the limits of the airport (clearly demarcated by the ubiquitous Indian 3-yard-wide metal barriers), and the roads are packed, the smog thick and there are street vendors in spades. There’s not a huge highway or crisscrossing flyovers. There’s no modern train zooming away (above ground anyways). There’s no abstract art for passersby to question what on earth that twisted metal represents. But maybe this is a good thing, as India has a blank slate to develop later as more money flows in. (I guess the slate isn’t so much “blank” as it is “heavily requiring DW-40 and Mr. Clean.”)

And hopefully soon the money does start flowing in, but just not from foreign investment but actual tax dollars. Within the past year or so, there have been two massive structural changes to the economy by the extremely popular Prime Minister Modi. The first was rendering all the old 500- and 1000-rupee bills useless and replacing them with new 500- and 2000-notes. The people had 8 weeks to exchange them at the banks with a limit of how much they could exchange each day, forcing waits in line for hours and hours. The second occurred within the last week I was there, which was to end all regional state taxes and replace it with a four-tier tax system that is theoretically simple but realistically complex.

The goals were primarily threefold: end corruption, force people to pay taxes, and encourage people to open bank accounts. So how have they done? I can try to answer this using some anecdotes.

The first (ending corruption) I can’t really attest to, but did read recently that 99% of the “black money” held in old 500- and a 1000-rupee notes was replaced with new notes, leading to many thinking this was all a ruse. However, some of that money did come to the forefront, and can be traced which is good.

I have a story that overlaps with both that and the second ostensible aim (paying taxes). On our final day in Goa we had to pay the hotel 5000 rupees in total. Two days prior they implemented the maligned GST (Goods and Service Tax) which for hotels is apparently a flat 12% tax, or an extra 600 rupees. So the receptionist tells us we have two options. We can either use card to pay the extra $10 in tax, or we can find an ATM (supposedly 10 minutes down the road) to pay in cash and not pay tax.

The implications are crystal clear. He’s not paying taxes. The only way he pays tax is if we pay with card, meaning the transaction is traceable. So fine, if the local people don’t even want to pay tax, then should I really feel bad? So he informs us there’s an ATM around the corner, just 10 minutes away and we head out. 15 minutes later, we look at the map, and realized we’re still 15 minutes away from the ATM. Okay fine, it’s still only an hour’s walk in total. That can’t be too bad, right? We arrive at the ATM, and…it’s broken. We walk into the convenience store, and they let us know there’s a bank 15 minutes down the road. Fine, we’ve come this far. We walk in, and they tell us their ATM is broken and there’s no possible way for us to draw out cash there. Across the street is The State Bank of India. Surely, if any bank were to have an ATM it’d be this one. Nope. Nothing, but she does let us know there’s one down the road, and so 15 minutes later (and a total of about 75-80 minutes of walking and stopping and asking for directions) we finally find a dusty, dirty entrance to an ancient ATM and withdraw our 5000 to pay a hotel that literally has a credit card reader!!

After we found a cab/hitchhiked back. After paying the receptionist and realizing how sweaty we were and revealing how much trouble we went through, he barely batted an eye. Just another day I guess. He literally tells us it was worth the hassle so we didn’t have to pay the tax.

This is highly problematic. If people aren’t paying taxes, the government can’t redistribute money to those who desperately need it, those in the lowest rungs of society. 400 million people, a population larger than the US, without basic necessities. Without tax, the government can’t provide water, roads, education, healthcare. If this hotel owner is shirking his tax duty, in a relatively rich area of India, and he’s doing it in the face of his customers, then the problem runs deep.

Why don’t they want to pay tax? Surely 12% tax isn’t that prohibitive, especially in the tourism industry, where foreigners ostensibly have the money. The answer for us lied in Jaipur, where a group of 100+ protestors gathered around a visibly angry woman with a megaphone, crowding the already jam-packed sidewalks. As she belted out succinct and punchy lines, the people shouted back the refrain. Clearly we don’t speak Rajasthani or Hindi, so we had to ask what was being discussed. Essentially they aren’t opposed to the tax hike in and of itself, but rather there’s a serious distrust toward the government that the little money that is raised through taxes will be either wasted or pilfered, not prudently spent on things like plumbing and hospitals.

The government has largely focused on the expanding middle class so far, in large part because those in abject poverty rarely participate in the democracy even though they are fully, legally allowed to do so. For political expediency, these cheaper yet less sexy and meaningful allocations of tax dollars are never realized. But I never had this perspective, and I always thought that expanding the middle class first is definitely the obvious primary concern. That was until I had dinner with Clemente’s cousin, who works for IBM. And as I usually shy away from heavy conversations about the weather and shoot and more for the lighthearted matters of geopolitics, I asked him straight: “What do you think is the most pressing issue for India going forward?” I expected something about cleaning up government, or more trains or improving the business climate or something to that effect. But it was simply: “help the rural communities.”

Obviously I didn’t go to rural India so I can’t give personal anecdotes, but I can extrapolate from my experience in the cities as far as economics go. Cellphone usage is incredibly low, especially smart phones. Taxi drivers possessed lovely brick phones and relied on shoddy memory to get us to our destination. There’s a company called Paytm (pronounced “Pay-T-M”) that is India’s answer to AliPay, the system where you can pay on your phone at every store in China. However there’s at least two problems to this in India. One, people don’t use smart phones. Two, more importantly, people don’t have bank accounts. Part of the reason the government voided 86% of paper money in the country was to encourage people to ditch paper in favor of plastic/digital (ie to collect tax).


There is just such low education, low adoption rates to technology and low willingness to adapt. It has led to today’s problems and continues to stunt growth. One poignant example of these enduring frictions to change I first read about is in Thomas Friedman’s The World is Flat, written over a decade ago. He recounted that in India, labor is so cheap that it makes more sense to hire a bunch of dudes with garden scissors and scythes than to invest in lawnmowers. And I’m here to confirm that in 2017, it’s still the same (not everywhere, admittedly).

The gap in wealth is quite stunning to be honest, where only a few years ago, a wealthy Indian couple dropped 56 million dollars on a wedding, while others cut grass for a living. The wealthy live extravagantly as Google images will reveal, while others live in utter squalor. Further, the country definitely benefits from tourism, and as such, the prices aren’t that cheap all things considered. Many of the places we went were 8 bucks to enter, which sure as hell isn’t that much. But multiply it by the dozens of entrance fees and compare it to other places in Asia, and India isn’t exactly a budget destination, especially compared to nearby Vietnam, Thailand, Cambodia, et al. It’s also not as cheap since you pay premiums on meals so you don’t contract food borne illnesses. For foreigners, a meal costs maybe 10 bucks at a pretty decent restaurant with great quality. For locals, it’s vastly cheaper, but I wouldn’t eat there (yet). Sure, it’s not even close to NY expensive, but just compare prices of Indian tourism to its neighbors.

So I took all this into consideration, and tried to mesh it with the commonly believed truism that India is just 30 years behind China. And I truly don’t think this is correct, said by someone born in 1992, and never having visited either country til recently. But it seems that the platform China has built over the last three decades has given it a springboard to launch well ahead of its Asian peers very soon. India lacks widespread infrastructure, economic reform, technological advance, education, etc. All the things which allow for a solid economy, all things the US, European nations, many Asian countries (and others) all have already. India lacks, which is why its economy stutters. It’s hard to have a thriving economy with 400 million opportunity-less people with no education and who don’t want phones and bank accounts. China has this, and it’s noticeable.

Someday, with foresight and planning, level-headedness and leadership, relationships and shrewdness, India will be a economic force on par with China. There’s just a lot of variables til then.

well-organized market


Like what you’re reading on India? Check out some other related articles in: The India Chronicles!

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