India's bureaucracy is a bummer for the boom

Economic growth is yet to improve the ground-level conditions for business in India, writes Eric Ellis

THAT India is booming is beyond dispute — 10 per cent growth last year to rival China, $200 billion in foreign reserves. Next stop, with The Bomb and a huge consumer market in hand, will be permanent membership of the UN Security Council.

You'll see its emergence as a global economic power; its start-up companies described in rapturous terms by the media. World leaders will exhort their businesses to harness its energy.

But what type of boom is it? After three weeks travelling and reporting around a country I know reasonably well and enjoy very much, I've concluded it's an uneven one, and even a dangerous one.

Let's start with flying, or using an Indian airport, as business travellers do. I write this column sitting on the floor of Indira Gandhi International Airport in Delhi, delayed four hours for a flight. The filthy airport, regarded as one of India's better ones, may be a disgrace to her legacy but I think it's a fair reflection of it.

The Indian boom is a product of overdue deregulation, kick-started in 1991 by the current Prime Minister Manmohan Singh when he was finance minister.

It was a wonderful thing after 40 years of the so-called "licence raj", the muddle-headed socialism the first prime minister, Jawaharlal Nehru, instigated and his daughter Indira did little to reform.

Governments administering the licence raj provided permits to a few companies to produce a single product or service. It held India back for years, created monopolies, bad products, rampant corruption and woeful infrastructure.

The so-called Bombay Club of tycoons got fat, lazy and protected. The system also discouraged entrepreneurship — one reason why Indians are among the world's most numerous expatriates, seeking to make their fortunes.

To foreign tourists, Hindustan Motors' Ambassador car, one of the motor world's heaviest vehicles, is a picturesque throwback to a colonialesque 1950s Morris Oxford. But to forward-looking Indians, it's an indictment on 50 years of the Indian car industry. Yes, there have been new cars in recent years, many of them sub-standard cast-offs from exhausted Western moulds as the industry deregulated.

But would you buy a Tata Indica? Ratan Tata, lionised by India's media as the father of its modern car industry, drives a Mercedes, or rather, has one driven for him.

Now Indira and Nehru's licence raj is history, the situation has completely reversed. New car models appear weekly, and the Indian airline industry is now a private free-for-all. But the creaking Indian bureaucracy can't keep up — it's too slow and cumbersome to improve the hopelessly undermanned and overcrowded airports and roads. The Indian military is also an obstacle, refusing to release its paranoiac grip over airspace, forcing civilian flights to follow tight and increasingly crowded routes lest someone steal a glance at a base.

Some $100 billion has been slated for infrastructure improvement, but there's not much evidence of it, as start-ups arrive daily. Delhi is supposed to be getting a new airport and a massive infrastuctural boost in time for the 2010 Commonwealth Games. It is now 2007, and this is India. Don't count on it.

The reason why I'm on the floor of the airport is that after an airport-wide search, I've finally found a "live" electricity socket to plug in my laptop. The other 15 sockets tested didn't have any current.

I got here from Kathmandu last night on a state-owned Indian Airlines flight that was delayed two hours, because of security checks, Nepal being in the grip of a Maoist insurgency that's no friend of Delhi. Few travellers quibble with the post-9/11 security burdens of air travel, but if the plane is scheduled to leave at 1700, why not do the security two hours earlier? That two-hour flight was one of the most dangerous I've ever taken, but most passengers didn't know that. About halfway through the flight, over Indian airspace, I saw a blue-liveried plane streak past the right wingtip, no more than 300 metres away. The internationally accepted distance standard is about 500 metres vertically and about five kilometres horizontally. This near-miss was more horizontal than vertical. Approaching Delhi, there were two alarming, aborted attempts at landing.

The pilot explained that the airport was busy, and I'm not surprised. More than a dozen new airlines have been launched in recent years, overburdening an airport infrastructure that was already mayhem when there were just Indian Airlines, its big sister Air India and the relatively new Jet Airways in the market. Now there are carriers owned by a brewer (Kingfisher), two by textile companies (Go Air and Paramount) and one by a public relations agency (Magic Air).

The one new flyer that sprang from aviation roots, Air Deccan, is regarded by Indians as the worst of the lot. But what does a brewer bring to the aviation sector? Can you imagine flying VB Airlines? Or Antz Pantz Air?

Technology also has issues. "Incredible" India's image today is one of cutting-edge innovation. One of the best products I've seen is a nifty Reliance Industries broadband laptop card from India that connects to mobile cell towers. But try logging on to the net conventionally in Bangalore, India's Silicon Valley, which advertises itself as having the world's fastest broadband — "warp speed" — or being trapped in darkness in the elevator of an average but overbooked hotel you've paid $US200 a night for. Yes, Indian engineers are performing programming miracles in the back offices of Bangalore's myriad companies at a tenth the cost — and with twice the education — of their Western counterparts, but their skills aren't being evenly spread, or perhaps they are just reserved for penny-pinching Western clients, and dollar-hungry India Inc.

This flowering of entrepreneurship has made Indians richer than they've ever been. I'm fascinated by it, I love India and I think it will muddle through. But as I fly and drive around it, I just hope its long-overdue boom doesn't kill me.

Eric Ellis is South-East Asia correspondent for Fortune