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VAST POTENTIAL BUT ALSO DIFFICULT CHALLENGES
India's booming knowledge-based sectors demonstrate the power of globalization to transform developing economies. For India, however, these industries are just part of its contribution to the global economy. For a more nuanced picture of India's international economic position, this paper places India in international and historical context, examines its links to the world through trade, labor, and capital, and outlines some critical challenges facing the country. What emerges is a more complex picture of India -- a nation with far more to offer than skilled programmers but which must address problems of poverty, infrastructure, and governance to achieve its potential.
Media attention surrounding India has focused on the country's high-tech and outsourcing sectors, often leaving the impression that these sectors dominate the Indian economy and may soon dominate the world market. As of yet, however, this is not the case. While the growth of India's outsourcing-related industries has been remarkable and the country is an increasingly important provider of services to the world, to focus solely on programmers in Bangalore is to mischaracterize India's current position in the world economy and its future prospects.
To provide a broader perspective, we begin by looking at the economy of India compared with other countries and relative to its history. We next examine India's connections to the global economy through trade, capital, and labor supply. Finally, we highlight some key challenges for the country, in particular, those of poverty, infrastructure, and governance. What emerges is a more comprehensive and complex picture of India-a country with tremendous potential in far more than in high-tech services but with much to be overcome before reaching that potential.
India In Context
International
Table 1 shows how India compares in a number of important variables with three benchmark countriesChina, South Korea, and the United States. A great-if not the greatest advantage-of India is its people. With a population of over one billion, India is second only to China. Moreover, because India's population is fast growing and relatively young, it is projected to overtake that of China by 2030 (U.S. Census Bureau, 2005). While China has been garnering the lion's share of attention for its size, after the first third of this century it will be India-not...