The Boom From The Bottom

Despite the financial crisis, the nation's IT sector managed to grow some 20 percent in 2008, according to India's National Association of Software and Services Companies, and IT companies have already extended 100,000 new job offers for 2009. "For whatever reason, China has been highly focused on the export market, while Indian business has been highly focused on the domestic market, and their exports have been incidental," says Chaudhuri. Which makes India, more than China, a master of its own destiny.

The conventional wisdom has always held that India failed to become an export-driven dynamo on the Chinese model because its democratic system couldn't deliver the hard infrastructure and soft labor laws needed to manufacture competitively. While there is some truth to that, what is often overlooked is how much India's current growth multipliers—all of them linked to infrastructure—resemble China's in the 1980s.

One example: India's ambitious program to expand the national highway system, launched in 2003, which is now adding about 100 kilometers of highway per day to the grid. Each new strip of pavement links additional villagers to urban markets, allowing them to fetch more for what they grow or make and to travel farther afield for wage-paying jobs. Capitalized at a whopping 5 percent of GDP in 2000, India's rural roads program will ultimately connect all Indian villages of more than 500 people to one another with all-weather roads. Fewer than half of these villages had roads of any sort when the project started. Similarly, in a six-phase national project, the National Highway Authority plans to add or upgrade nearly 30,000 kilometers of highway, which would expand the existing system by a third.

Telecommunications has made faster inroads. In 2008 the subscriber base for India's national telecom network topped 350 million people, and India's telecom market is now growing faster than even China's. Charges have dropped to less than 50 U.S. cents per call. That connectedness has a huge potential impact on incomes in a job market "extremely sensitive to how quickly one can get information," says Gokarn. There's also the IT sector itself to consider. It has created 1.8 million jobs directly over the past decade, and as many as 6.5 million more support jobs for drivers, security guards and gofers with primary or high school educations. That has put rupees into the hands of people "more likely to spend it rather than save it," says Gokarn, and though job creation will slow as the IT sector cools off, the huge workforce creates a good deal of momentum.

India's bottom-up boom can't drive the economy at full speed, to be sure. But it is largely immune to the downturn that's evident higher up the consumer chain. The stock bust hasn't affected the aspiring underclass because its members are not invested in the markets, and they're not to blame for the drop in auto sales because they're too poor to afford cars. Even the housing bust is far removed from them; despite the glut of top-end condos in places like Mumbai and New Delhi, India as a whole is suffering an acute housing shortage. The problem: construction companies all aimed for the top of the market, leaving the lower tiers underserved. According to the National Planning Commission, urban India needs an additional 24.7 million ordinary homes to satisfy current demand. As evidence of this unquenchable thirst, when the Delhi Development Authority held a lottery last year to find buyers for 5,000 affordable flats it built in the city, some 500,000 applications flooded in.

The mismatch illuminates India's way forward. Like many other governments, New Delhi recently announced a major new spending package aimed at bolstering growth. And it, too, seeks to spur domestic demand. Yet the main target isn't the urban middle, as in China or the United States, but the poor. In October, Parliament approved additional spending of about $50 billion (or 4.5 percent of GDP) to boost salaries of government workers, waive farm loans, further fund the rural-employment-guarantee program and finance petroleum bonds so that oil and fertilizer companies can keep prices low. "While there are legitimate concerns about the long-term impact of some of these measures," says Gokarn, "they will undoubtedly help boost consumption spending, particularly by lower income households, which in turn will help shore up growth in the immediate future."