Global economic growth in the post-war era has largely been driven by international trade. In particular, the U.S. and East Asia have constituted the twin engines of the global economy.  Going forward, international trade will continue to be the key driver of international trade. 

2. Global Services Era

However, the composition of trade will likely change from goods to services.  By 2050 international trade in services (i.e. global services) will exceed international trade in manufacturing.  This shift will be driven by the following sub-trends:

a. Demographic Changes in Industrialized Countries

The industrialized countries will likely experience tight labor markets as a result of the aging of the baby boomer generation.

b. Technology

Technological advances, particularly in wireless broadband communications, semiconductors and web 3.0 applications. These advances will further improve the value proposition of global services.

3. Resurgent India

India will continue to be the preferred global services destination as a result of its skilled low- cost English speaking workforce.

• Indian global services vendors will continue to capture market share from legacy services companies by through value addition. 
• By 2020, India’ three largest global services companies will be featured in the Fortune 500 ranking of global companies
• By 2025, India’s exports will surpass the US$ 1 Trillion mark.
• By 2050 India will be the world’s largest exporting country and world’s largest economy, driven by services.

In addition, structural changes within the Indian economy will boost India’s long-term growth trajectory.  These structural changes include:

• An increase in savings rate from 20% to 34%
• Greater public investment in infrastructure and education.
• Utilization of PPP model to further boost infrastructure investment
• Productivity gains from leveraging technology
• Rapid growth in low-cost education in remote areas through distance education
• Rapid growth in financial services and insurance aimed at the Base of the Pyramid.

In short, the macro trends that are likely to shape the global economy over the next half-century are well aligned with India’s strengths.  India is therefore likely to sustain a growth rate of between 7-10% until at least 2020.

Raju Agarwal

By contrast, the U.S. economic downturn beginning in 2008 initially appeared to be relatively benign.  Most observers believed that a moderation in U.S. economic growth was essential to prevent an over-heating of the global economy.  It was further believed that the problems confronting the U.S. economy were of its own making and would have little effect on global economic growth.  

To be sure, some economists did forecast a U.S. recession in 2008 as a result of mounting home foreclosures. Such forecasts were however widely dismissed as being unduly alarmist during the first quarter of 2008.

It is essential for policy makers to understand the key differences between the 1997 Asian Financial Crisis and the 2008 Global Recession. 

First, during the Asian Crisis, the prices of commodities, particularly oil, declined as a result of falling demand. In fact, the price of oil plummeted to nearly US$10.00.

Second, global policy makers preemptively stimulated their economies, through monetary easing, in order to mitigate the downside risks stemming from the Asian Crisis.

By contrast, in 2008 the prices of commodities skyrocketed during the midst of the U.S. economic downturn.  That is, prices increased as global demand weakened, which can only be described as irrational market behavior. The resulting commodity bubble fueled worldwide inflation concerns.   

Further, global policy makers in 2008 were compelled to restrict the growth of their economies, through monetary tightening, in order to mitigate the downside risks of inflation.

To be sure, were it not for the irrational behavior of commodity prices, global policy makers would likely have stimulated their economies in 2008 to mitigate the downside risks stemming from the weakness in the U.S. economy. Moreover, lower commodity prices would have further boosted global economic growth. 

Indeed, the U.S. consumer would have demonstrated far greater resilience to the numerous headwinds confronting the U.S. economy were it not for irrational behavior of commodity prices, particularly, oil which touched $150 during the middle of 2008.

What explains the divergence in the direction of commodity price movements in 2008 relative to 1997?  In short, hedge funds.  In 1997, the prices of commodities were largely set by supply and demand forces between producers and suppliers of commodities.  However, in 2008, commodities had become asset classes which were widely available to investors through online exchange traded funds.  During the first half of 2008, market participants attempted to reduce their exposure to assets denominated in U.S. dollars by selling U.S. equities and re-investing in commodities. 

In short, the downward spiral of the U.S. economy and subsequent global recession was largely attributable to the (irrational) investment allocation decisions of market participants, particularly hedge fund managers.  Millions of jobs have been lost because market participants did not understand the wider impact of their investment decisions. 

Going forward policy makers will be well served in placing restrictions on the amount of speculative interest in commodity markets.  Perhaps hedge funds should be restricted altogether from speculation in commodity markets?  Or perhaps policy makers should set upper and lower limits for commodity prices?  To be sure, the global recession of 2008 clearly demonstrates that the unbridled self-interest of market participants can no longer go unchecked.

Raju Agarwal

In another age, Arjuna asked Krishna why men are compelled to commit evil acts, as if by force?  Krishna answered that it was become of kama, the desire for material sense enjoyment. Other exponents of Vedanta philosophy have added that evil arises from ego. That is, some people crave superiority.  And if they can successfully convince others of their superiority they not only gain an ego boost but also power and economic benefits.      

This enlightened insight into human nature (Vedanta) is very relevant today.  It provides a philosophical context for understanding all evil actions including the Mumbai terrorist attacks.  Like all religions, Islam is open to interpretation.  While many Muslims consider Islam to be a religion of peace, the jihadi terrorists subscribe to a more expansionist view.  Proponents of this view consider Islam to be the only true religion.  They further believe that Islam will eventually encompass the world and that it is the religious duty of every true Muslim to expand the geographic scope of Islam, even if that requires killing unbelievers.  To be sure, this interpretation of Islam is not new.  Many well known figures in Islamic history from the first Caliphs in Baghdad to the Central Asian war lords that brought Islam to the Indian subcontinent also subscribed to the expansionist view of Islam.

The jihadi terrorists apparently look upon themselves as God’s warriors acting in like manner to previous Ghazis (i.e. slayer of infidels).  In fact, Hafiz Saeed, the leader of the Laskhar e Taiba, (Army of the Pure) which perpetrated the terrorist attacks in Mumbai, makes no secret of his intention to hoist the flag of Islam atop the Red Fort in Delhi.   Similarly, jihadi leaders in London have publicly espoused their intention to bring Europe and America into the Islamic fold.  Abu Hamza, a London-based Islamic cleric, was even captured on camera telling his followers that “Allah is happy when unbelievers are killed”.  

To be sure, Pakistan is not the only country that harbours extremist elements.  Other nations also have their KKKs and neo-nazi extremists.  But in most nations these extremist elements constitute a small fringe of the overall population while in Pakistan the mainstream appears to have bought into the world view propounded by the jihadis. Indeed, many Pakistanis liken Osama bin Laden to Saladin, the Arab Sultan that successfully engaged the Crusaders.

But this analogy is flawed in one key respect. Saladin went to great lengths to protect non-combatants from injury.  By contrast, today’s terrorists specifically target non-combatants. How can the specific targeting of unarmed civilians be justified, even by the jihadi extremists?  This question was put to a jihadi leader in London during a BBC interview.  He coldly stated that they do not consider unbelievers to be innocent because they have committed a crime against God. This appears to be the ideological rationale behind all jihadi terrorist attacks that target civilians.

The jihadi terrorists are no doubt further emboldened by the exploits of Babar, the founder of the Mughal dynasty in India. To be sure, Babar is widely lionized in Pakistan for his bravery and military prowess in defeating his enemies on the battlefield.  However there is another perspective which has gone unnoticed in Pakistan. That is, Babar along with several other Muslim invaders from Central Asia, were responsible for perpetrating one of the greatest genocides in human history. Consider the following passage from the Babarnama, “lakhs and lakhs of infidels were sent to hell”.   This statement implies that several hundred thousand non-combatants were murdered with impunity in the name of God.

The state of Pakistan has thus far enjoyed a symbiotic relationship with the jihadi terrorist organizations.  They were first used by Pakistan’s ISI to wage a proxy war with India and then to add “strategic depth” through the installation of a pro-Pakistan government in Afghanistan (i.e. the Taliban).  Subsequently, Pakistan used the jihadi terrorists to target U.S forces in Afghanistan.  Hamid Gul, the former chief of Pakistan’s ISI went on to declare that “the Muslim world must stand united to confront the U.S. in its so-called War on Terrorism which is in reality a war against Muslims. Let’s destroy America wherever its troops are trapped.”

Given its long history of patronage towards the jihadi terrorist organizations, why should the state of Pakistan now change course?  There are three reasons which are likely to compel Pakistan to do so.  First, the jihadis pose a grave danger to the state of Pakistan itself. Their ideology is in sharp contrast to that of the founders of Pakistan (i.e. Iqbal, Jinnah) and would be inimical to the interests of most Pakistanis, particularly women and minorities.  

The following excerpt from an interview with LeT chief Hafiz Saeed provides some insight into the jihadi ideology which awaits Pakistan if it does not dismantle its terrorist networks.  When asked to explain the reason for the earthquake which struck Pakistan in 2004, Saeed gave the following response:

“They wanted the women to abandon hijab; run with men nude in bikinis; and learn dance and music. They were not afraid of Allah but (US President George) Bush. At his (Bush‘s) behest, they wanted to purge our schoolbooks from verses on jihad; befriend India and recognise Israel.”

Second, the state of Pakistan is bankrupt and largely dependent upon international assistance for its survival.  It is highly unlikely that the international community would continue to render such assistance without any substantive action by Pakistan to root out terrorism.  

Third, the state of Pakistan risks endangering the safety of its people through its refusal to take action against terrorism. The international community, led by the United States and India, will inevitably have to respond with force against Pakistan in the event of further terrorist attacks.  Former U.S. Deputy of Secretary of State, Richard Armitage, reportedly told Pakistan’s President Musharraf that his country would be “bombed into the stone age”, if it continued to support the Taliban.  That scenario may reoccur if Pakistan does not dismantle the terrorist networks that operating from its soil.   

Essentially, if the government of Pakistan does not act against the terrorists then at best it will become an extremist Islamic state (i.e. Taliban controlled Afghanistan) and at worst it may be bombed back into the stone age.  

Assuming that the government of Pakistan chooses to act in its enlightened self interest the more critical question is whether the government has the power to put the genie back in the bottle. To be sure the government can take some important steps towards dismantling the terrorist networks.  It can close their training camps and arrest their leaders. These actions, while important, will not be sufficient, however, to deal a permanent blow to the jihadi terrorists.  

To that end, the government of Pakistan will have to erode the popular support base which the jihadi terrorists depend upon for sustenance.  Specifically, it will have to reform the madrasas (Islamic schools) which brainwash students into becoming jihadis.  In addition, the government of Pakistan will also have to illicit a declaration from the Ulema (body of Islamic scholars) against the killing of non-muslims.

But more importantly, Pakistan will have to come to terms with its own history.  The glorification of historical figures which slaughtered non-muslims with impunity in the name of religion must be discontinued.  Pakistan must reform its history textbooks to provide a more balanced perspective.  Greater emphasis needs to be placed on the atrocities perpetrated by Ghazni, Babar and other historical figures that brought Islam to the Indian subcontinent. In fact, there is no reason why Pakistani students should not see Babar through the same lens that German students look upon Hitler. 

Hopefully, Pakistani policy makers will act with sagacity. But, if they do not, the international community must be prepared to use all options, both hard and soft, to elicit substantive actions from the government of Pakistan in addressing the root cause of Pakistan.    

Raju Agarwal

Policy makers have largely structured their economies on two very different socio-economic models (Marxism, Capitalism) during the past century.  Significantly, both of these models evolved out of a profound inquiry into the nature of Man.  Capitalism, of course, has its origins in the Libertarian philosophy of The Enlightenment which considers Man to be rational.  By contrast, Karl Marx believed man to be exploitive.

CAPITALISM

To be sure, the philosophical foundations of both Capitalism and Marxism must be put to closer scrutiny.  Is Man rational? On the surface, it appears so.  The prosperity of Western Europe and America is self-evident.  America’s per capita income has increased from $4,000 to $40,000 during the past century.  Further, it has led the world for over a century in innovation and productivity thanks to its free market economy.

However, if Man is rational then why does he engage in frequent instances of irrational behavior? Why, for example, have rational American consumers over leveraged themselves?  Why did rational lenders engage in irresponsible lending practices?  Why did rational market participants invest heavily in derivative instruments without understanding their downside risks? Particularly after Warren Buffet referred to such investments as “financial weapons of mass destruction” in 2002?  Perhaps more importantly, why did rational ratings agencies continue to assign AAA ratings to these securities even as the implosion of the U.S. housing bubble became evident?

If Man is rational then why do we observe frequent instances of irrational exuberance by rational market participants?  Consider, for example, the technology bubble, housing bubble, credit bubble and commodities bubble?  Indeed, how do we explain the rapid rise in the price of petroleum during a period of global economic weakness and falling demand?

If Man is rational then why does Harvard University continue to receive significant endowments even though its existing endowments totaled $37 Billion as of September 13, 2008? 

If Man is rational then why is it easier for a Silicon Valley startup (with a low probability of commercial success) to raise capital than a microfinance organization from a developing economy which has a 99% loan repayment rate?

If Man is rational then why did the Bush Administration effect a regime change in Iraq when it was incapable of replacing that regime with a viable alternative?

Finally, if Man is rational then why has America refused to join other advanced economies in pledging 0.7% of GDP in aid to poor countries when it can apparently afford to spend $2 Trillion on a war based on spurious evidence of WMD?  

MARXISM

Not surprisingly, proponents of Marxism contend that their perspective with regard to the nature of Man is supported by empirical evidence. Indeed, no student of world history, particularly the British subjugation of India, would be able to conclude that Man is anything other than exploitive.  Moreover, the deplorable condition of the peasant class in feudal societies, the Slave Trade and slaughter of the indigenous peoples of the Americas (i.e. “pagans”, “heathans”) by European colonizers further substantiates this view.

However, if Man is exploitive then why does he engage in philanthropy? Consider for example, such eminent philanthropists as Jamsetji Tata, Andrew Carnegie, Bill Gates, George Soros, Warren Buffet and Bill Clinton?  Moreover, why did several world leaders at the Monterrey Conference in 2002 agree to give 0.7% of national income in aid to poor countries?  To what do we attribute the rapid growth of social entrepreneurship (i.e. Kiva.com, Red products, Ashoka Foundation and Skoll Foundation, Google.org and the Omidyar Network) and micro-finance organizations in developing economies?

In short, neither view with regard to the nature of Man appears to hold up to closer scrutiny.  Not surprisingly, both Capitalism and Marxism have largely failed to improve social equity because they rest on flawed philosophical foundations.   To be sure, an effective solution to the problem of extreme poverty is attainable.  To that end, policy makers will have to craft a new socio-economic model that is based on a more enlightened insight into the nature of Man. That is, Vedanta.

VEDANTA

In a previous age, ancient seers looked towards the heavens and pondered one of the great mysteries of life, “Who Am I”?   “Am I merely flesh and blood or am I something more”?  The system of philosophy that arose out of that inquiry is known as Vedanta, i.e.  ”the end of knowledge”.

The essence of Vedanta is captured in three words “Tat Tvam Asi”, which translates into English as “That Thou Are” or “God You Are”.   The implication is that Man himself is That very divinity which he seeks.

Significantly, Vedanta reconciles both Libertarian and Marxist perspectives with regard to the nature of Man.  Vedanta agrees with the philosophers of The Enlightenment in believing Man to be rational.  But Vedanta goes further still. According to Vedanta, Man is not only good, he is God. Yet, he is unaware of his own divinity because each jiva atma (individual soul) is covered by a sheath. In some, this sheath is thin, like dust on a mirror.  Such people are more likely to demonstrate positive attributes such as rational logic, creative insight, honesty and compassion. In others, this sheath is believed to be considerably more dense.

But if Man is good then “why is he often compelled to commit evil acts, as if by force” Krishna was asked by Arjuna?  Krishna answered that Man commits acts of evil out of kama (desire for material sense gratification).  Thus, Vedanta also agrees with the Marxist view of the nature of Man.  The Vedanta not only acknowledges that Man engages in exploitive actions against his fellow Man but more importantly explains the root cause of this behavior and the solution. 

The following is an excerpt from the great exponent of Vedanta philosophy, Swami Vivekananda:

Men and women are taught from childhood that they are weak and sinners. Teach them that they are all glorious children of immortality, even those who are the weakest in manifestation. Let positive, strong, helpful thoughts enter into their brains from very childhood. Lay yourselves open to these thoughts, and not to weakening and paralyzing ones. Say to your own minds, “I am the Atman. I am the Infinite.” Let it ring day and night in your minds like a song, and at the point of death declare, “I am the Atman.” That is the Truth; the infinite strength of the world is yours. Drive out the superstition that has covered your minds. Let us be brave. Know the truth and practice the truth. The goal may be distant, but awake, arise, and stop not till the goal is reached.

Vedanta provides a more enlightened perspective with regard to the nature of Man which reconciles both the Libertarian and Marxist perspectives.  Thus, the first step in creating a more equitable world order is for policy makers to adopt a universal religion based on Vedanta. At this time, however, there appears to be little consensus with regard to the role of religion in society.

UNIVERSAL RELIGION

People of faith believe religion to be of great importance to society while Karl Marx opined it to be the opium of the masses.  Which view is correct?  From, the Vedantic perspective, both explanations have equal merit but perceive the truth from different vantage points.  Indeed, while love and compassion form the core of Jesus’ teachings, Man has manipulated His Word to serve his own selfish ends.

Constantine, for example, used the symbol of the cross to conquer his enemies. Christian preachers have all too often focused on “Hellfire and Brimstone” in their sermons in order to control their flock.  Witches have been burned, crusades have been waged, scientists have been persecuted and non-Christians have been killed with impunity all in the name of Christ.   Today, Christmas is synonymous with materialism.  

Thus, if by religion we mean all the superficial rites and rituals borne out of blind faith, the pomp and show of the Church or the materialism that is currently associated with Christianity then in that regard Karl Marx is indeed correct.  These elements, which were never sanctioned by Christ, have overshadowed his original teachings.

That is, of course a valid perspective. And yet, one can look at religion from a different perspective which is equally valid.  From the dawn of civilization, Man has attempted to understand the meaning of life.   That yearning for truth is as relevant today as it was in previous ages.  Thus, if by religion, we mean the universal truths propounded by various teachers throughout the ages then it would be impossible to understate the importance of religion to society.

That is, religion can be viewed as both the opium of the masses and of central importance to society, depending upon one’s perspective.  In Vedanta, the focus is solely on the universal truths which pertain to the meaning of life, i.e.

1. There is One God which people call by many names
2. God is loving and compassionate towards all; irrespective of race, religion, gender, class, etc.
3. All spiritual paths ultimately lead to that One God
4. All men are created equal by their Creator
5. All men have a divine soul which is their true essence
6. Man must strive to conquer his desires for material sense gratification
7. In serving humanity one serves God

The adoption of a universal religion that is based on the above shared beliefs will foster a global consciousness with a greater focus on humanity’s similarities rather than its differences.

GLOBAL INTEGRATION

Global political integration is the second step in creating a more equitable world order. It is conceivable that individual nation-states would gradually coalesce into a super-union, similar to the European or American Unions. To be sure, the recent formation of the Group of 20 Nations is a good beginning. The individual nations comprising the Group of 20 should further work towards rationalizing their taxation policies and tariffs to facilitate trade and commerce. In addition, member states would be well served in adopting a single currency and central reserve bank. With regard to defense, all member states should pledge to reduce defense spending to 1% of GDP within a specified time period in order to allocate greater capital towards development.  International disputes would be resolved by a world tribunal.  In addition, a joint military alliance will be constituted to intervene in world affairs by consensus among member nations.  

GLOBAL SAFETY NET

As noted previously, the adoption of a universal religion with an emphasis on Non-Materialism and service to humanity is the key to creating a more equitable world order.

When this realization gains widespread acceptance then extreme poverty will vanish.  Individuals with surplus resources will voluntarily reallocate those resources towards helping others that are unable to meet their basic needs for survival. 

However, until that awareness takes hold, policy makers will have to employ alternative tools for creating a more equitable world order. To that end, policy makers within the Group of 20 nation states, discussed above, would be well served in establishing an individual income floor and ceiling.  An income floor would ensure that all individuals receive sufficient financial resources to meet their basic needs.  Today, the global median per capita income is $10,000.  Therefore, an income floor of $1,000 per capita would be adequate to ensure that each individual will have access to basic food, shelter and clothing.  An income ceiling in combination with redistributive tax policies would help to fund this economic safety net.  

CONCLUSION

Both Capitalism and Marxism have failed to produce an equitable world order because they rest on an imperfect understanding with regard to the nature of Man.  Vedanta offers a more enlightened insight with regard to the nature of man and the meaning of life. 

To create a more equitable world order, policy makers should adopt a universal religion based on Vedanta.  In addition, they should commit themselves to working towards greater political integration.  Until such enlightened consciousness takes hold, policy makers will have to create a global safety net to ensure that all individuals have access to their basic needs for physical survival.

Raju Agarwal

Every once in a while, the world produces a leader that embodies this philosophy.  Mohandas Gandhi could have chosen a lucrative career as a barrister.  Instead, he chose to serve his people in whatever manner he could without care for monetary reward.  He expressed his philosophy in plain terms “Simple Living. High Thinking”. 

Obama shares many similarities with Gandhi.  Like Gandhi, Obama appears to be a deeply spiritual person and often quotes scripture in his speeches.  Moreover, he too passed up a lucrative career as a lawyer and elected to render assistance to displaced workers in Chicago.  In philosophical terms, Obama is treading the path of seva and nishkama, which will undoubtedly lead to higher consciousness.

I believe that Obama’s message has resonated with millions of Americans because America is witnessing an unprecedented flowering of consciousness.  American conservatism, which is based solely on the belief in self-interest, will perhaps recede into obscurity in the coming years.   

Today, people like Obama constitute less than one percent of the general population.  But in the coming years their numbers will grow.  And they will change the world.

Meanwhile, let us take inspiration from the great exponent of Vedanta, Swami Vivekananda   ”Those alone live who live for others.  The rest are more dead than alive!”

Raju Agarwal

These ideas, which were a radical departure from the Augustinian view of the original sin of man, were the foundation for the modern political and economic models within Western Civilization.  Significantly, the term ‘happiness’ was used by Locke in reference to property.  Thus, in essence, Locke considered the accumulation of wealth to be Man’s chief aim of existence.

Capitalism

Capitalism and Western Democracy are both rooted in these beliefs.  In particular, the founding fathers of the United States of America were significantly influenced by Locke’s ideas as illustrated by the following famous phrase from the U.S. Declaration of Independence.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

This phrase of the U.S. Declaration of Independence was similar to Locke’s concept of the right to “life, liberty and property(estate)”. 

Since, its founding in 1776, the United States of America has led the world in terms of innovation and productivity.  Its per capita GDP has increased from $4,000 in 1900 to $44,000 in 2008.  Clearly, Locke and Rousseau deserve credit for America’s remarkable achievements. 

But, these achievements mask a glaring weakness.  Economic inequality between classes has increased at an alarming rate, as noted by Harvard researcher Robert Putnam:

“Work we’re doing now shows that, among white high school seniors, there’s a growing class gap…. White working-class kids go to church a lot less than working-class kids used to; they are less involved in community activities; and their parents spend less time with them, partly because, unlike middle-class kids, they are likely to have only one parent in the home. They have lower self-esteem than working-class kids used to, less social trust, and lower academic aspirations.

In short, the chief failing of the American capitalist model is that while it espouses the equality of man it does little to foster equality of opportunity for all.    

Marxism

Karl Marx, the German philosopher, in his seminal work, the Communist Manifesto, presented a stinging critique of the capitalist system. He argued that capitalism was inherently exploitive because the capitalist class controlled the means of production.  Marx proposed an alternative economic model based on state ownership of property which, he believed, would result in the dissolution of class structure.

In its search for a more equitable economic model, the political leadership of Modern India borrowed many ideas from Marx.  In particular, India adopted a mixed economic model in which economic development was to be led by the state.  Moreover, private industry was heavily regulated and taxed to restrict its ability to exploit the working class.

Despite these laudable objectives, India has achieved little success in reducing economic inequality.  While Marxism was expected to dissolve India’s class structure, it has in fact, become further stratified by the addition of even more privileged classes (i.e. politicians and government officers).  Moreover, government restrictions on private industry and high levels of taxation have made little impact in terms of improving the economic condition of India’s large working class population.  Rather, such polices have steered the private sector towards corruption and tax avoidance.

The inability of the Marxist model in narrowing economic disparity may be viewed by some observers as a validation of Locke’s hypotheses with regard to the selfish nature of man.  In essence, each newly empowered class (i.e. political, government, judiciary, law enforcement) elected to further its own self interest (i.e. wealth) as predicted by Locke.   Moreover, largely as a result of India’s fragmented democratic polity, Indian political parties compete against one another to buy the vote of the electorate through fiscally irrational policies. 

To be sure, politicians merely provide the electorate with subsidies aimed at temporarily lessening the pain of poverty rather than a sustainable solution for removing poverty.  Moreover, corruption in government, the judiciary and law enforcement agencies further exacerbates economic inequality within Indian society.   Sadly, after a half-century of neo-Marxist policies, more than eighty percent of India’s population today subsists on less than $2 per day.  

In short, neither capitalism nor Marxism offer developing countries including India with a viable path towards inclusive growth.

India - Lessons from its Past

In my view, India must look to its own past to find the best solution for surmounting this daunting challenge.

Indeed, from perhaps 1000 BC to approximately 1500 AD, India was the world’s most innovative and prosperous civilization.  After 1500 AD, her capacity for innovation diminished as a result of political upheavals but her prosperity endured until the Battle of Plassey in 1757.

During this period, Greek, Arab, Chinese and European travelers attested to India’s magnificent wealth and propensity for knowledge.  Indeed, India’s achievements in the field of mathematics and science were truly remarkable.  Indian mathematicians such as Aryabhata, Bhaskar and Madhava solved complex mathematical theorems centuries before their European counterparts.  In fact, Madhava is considered by many to be the pioneer of modern mathematical analysis. India’s prowess in metallurgy can also be evidenced from the Ashoka pillar, now in Delhi.  Made of almost pure iron, the pillar has stood for 1600 years without corrosion. 

Another indelible aspect of ancient India pertains to its cosmology.  Remarkably, the cosmology of the seers of ancient India agrees with that of modern science.  The seers of ancient India described the universe as comprising of many inhabited worlds (loka).  They also correctly described gravitational force, the atomic theory of matter and the essential dualism of the universe thousands of years before Newton, Dalton and Einstein.

More interestingly, India is the only ancient civilization whose theory with regard to the creation of the universe agrees with that of modern astronomy.  Indeed, while European theologians believed the age of the universe to be several thousands of years, the seers of ancient India gave an estimation of the age of the universe that agrees with the calculations of modern astronomers. 

In terms of prosperity, India’s wealth was legendary.  Her wealth was so immense that European nations competed amongst themselves to find a sea passage to India.  The discovery of America was but an accident of that endeavor. 

Angus Maddison, the economic historian, has noted that, in addition to having the world’s largest economy in1700, that the annual revenue reported by Emperor Aurangzeb’s exchequer exceeded £100 million (twice that of Europe).

Sir John Malcom gave the following account of India in 1803:

It has not happened to me ever to see countries better cultivated, and more  abounding in all produce of the soil, as well as in commercial wealth, than the  Southern Maharashtra distircts…. Poona, the capital of the Peshwah, was very  wealthy and a thriving commercial town, and there was as much cultivation in  the Deccan as it was possible an arid and unfruitful country would admit.

Of course, India derived much of her wealth from the prowess of her industry and her massive trade surplus with Europe.  Consider, for example, the following account of India’s trade with Europe by Dr. V.V. Bedekar:

In the early days of the Christian era (lst century A.D. - say about 2000 years before) Roman women’s passion for Indian cloth was so intense that they decorated themselves in seven folds of Indian muslin (called ‘Nubula’ by the Romans) and paraded in the streets, which brought an embarrassing situation to the city fathers and the Roman Senate had to intervene and put an embargo on the import of that fine stuff from India. Pliny, a Roman writer, complained in the early 2nd century A.D. that “… in no year does India drain our empire of less than 550 millions of sesterces”, which was approximately equivalent to about pounds 1,400,000 in the 19th century. Another author has noted that in the year of Aurelian, i.e., around the latter half of the third century A.D., this cloth was worth its weight in gold. The Indian exports to Europe of all commercial and agricultural products were much higher at the time of tbe arrival of the British than in the post-British period. Peter the Great of Russia (1682-1725 A.D.) considered the commerce of India as the commmerce of the world, and ….. be who can exclusively control this is the dictator of Europe. While Indian exports were so high, Europe almost had nothing to sell to India except bullion. The East India Co., which was chartered in 1600 A.D. used to send to India pounds 400,000 to pounds 500, 000 a year to buy Indian goods for exports before 1757 A.D. It was in 1757 A.D. that the Battle of Plassey was fought and the victorious British started extending their tentacles in India. I quote Sir George Bidwood, who observes-

The whole world has been ceaselessly pouring its bullion for 3000 years into India to buy products of her industries.

It is said, history repeats itself. The drain of British bullion was so painful and again the Indian textiles, which had become very popular in England became the victims of enactments for their prevention from entry into England.William III of England in 1700 A.D. prohibited the entry of Indian textiles by imposing a fine of pounds 200 to the wearer or the seller of Indian silk and calico.

As in textile and in many other basic industrial products India supplied the best quality of steel then known to Europe. In 1794 A.D. Dr. Scott, M.D., sent to the President of the Royal Society a specimen of wootz steel from India. The sample was put to thorough examination and was analysed by several experts. One such was Mr. Stodart, wbo qualified the variety of steel from India for fine cutlery and particularly for all edged instruments used for surgical purposes. After this that variety of steel was much in demand in Europe and even after 18 years later, Stodart was of the opinion that

If a better steel if offered to me, I will gladly attend to it; but the steel of India is decidedly the best I have yet met with.

But there is one other important feature of India’s pre-British economy, which is often overlooked: inclusiveness.  That is, Indians were described as being hospitable, having high moral virtues which resulted in significantly less theft and other crimes in relation to Europe.

This aspect of Indian society was not lost on Lord Macaulay who gave the following account of India to the British Parliament in 1835:

“I have traveled across the length and breadth of India and I have not seen one person who is a beggar, who is a thief. Such wealth I have seen in this country, such high moral values, people of such calibre, that I do not think we would ever conquer this country, unless we break the very backbone of this nation, which is her spiritual and cultural heritage, and, therefore, I propose that we replace her old and ancient education system, her culture, for if the Indians think that all that is foreign and English is good and greater than their own, they will lose their self-esteem, their native self-culture and they will become what we want them, a truly dominated nation.”

The Way Forward

The chief endeavor for Modern India and indeed the world is to identify the critical elements which produced such a remarkable civilization.   

What was the root cause of India’s extraordinary insight into cosmology, mathematics and science?   How was India able to drive innovation, trade and inclusive growth for over 2,000 years until her subjugation by Britain?  The answer to this question lies in the bold philosophical foundation of Indian civilization.

Three thousand years before Locke, Indian philosophers similarly contemplated the nature of man.  While Locke considered man to be selfish and believed that the aim of man’s existence was to accumulate wealth, the Indian philosophers arrived at a very different conclusion. 

They stated that Man was inherently divine but for some reason was unaware of his own divinity.   They further stated that the realization of that divinity constituted the real aim of man’s existence.  This was possible, they stated, through a system of introspection known as yoga.  But there was one important qualifier.  The aspiring yogi was required to give up all material desires before embarking on the path of yoga.

Subsequently, the system of yoga was expanded to make it more accessible.  In particular, Karma Yoga provided a means for everyone to seek self-realization through selfless action.  The aim of the Karma Yogi, therefore, is to attain self-realization through the performance of Seva (service to the Lord).  However, the same qualifier as with Yoga, applied.  The aspiring Karma Yogi must first subdue his material desires and remain detached from the fruits of his actions.

Importantly, the Indian philosophers believed Man’s essence to be that which is without beginning and without end. Moreover, they stated that man’s greatest happiness lies in the realization of this truth. 

While Western philosophers believed that man’s happiness would be maximized through the pursuit of wealth, the Indian philosophers believed that the pursuit of wealth would at best provide man with only temporary happiness.   They reasoned that even men of wealth are not immune from suffering as a result of old age, sickness and death.

Moreover, they argued that as long as man pursued wealth, he would remain in state of unconscious existence in which he would continue to experience suffering. 

They further argued that if a man pursued the path of Karma Yoga in which he remained detached to wealth (i.e. nishkama) then he would eventually become liberated from his unconscious state of existence (moksha).  This transcendence was man’s sole aim of existence.

In short, according to Indian philosophy, attachment to wealth results in perpetual misery while non-attachment to wealth results in everlasting happiness.

In practical terms, this does not mean that a person should refrain from action or even from those actions that produce wealth.  Rather, Indian philosophy assigns critical importance to the motive behind the action than the action itself.  That is, the traditional motive of monetary benefit (Kama) is to be replaced with the more virtuous motive of (Dharma).   

In this way, for example, the warrior performs his duty (dharma) for his spiritual advancement without attachment to the results of that action (victory or defeat).  Similarly, a teacher or a doctor provides his services to society without regard for monetary gain because that constitutes his Dharma. 

Swami Vivekananda, India’s most well-known exponent of Vedanta Philosophy succinctly stated the practical application of Indian philosophy:

“Those alone live who live for others!  The rest are more dead than alive”

In the historical context, the practical application of this philosophy is illustrated by the socio-economic model employed by Maharaj Agrasen in ancient India.  Every new comer to his capital city of Agroha, received one brick and one Rupee each from its existing 100,000 inhabitants.  Significantly, it was not the state that rendered assistance to the newcomer as the Marxist model profers but rather the collective actions of each individual as a result of their intrinsic sense of Dharma.

In my view, India’s remarkable insights in cosmology, innovation, prosperity and inclusiveness stemmed from its unique philosophical paradigm known as Vedanta.

And if India is to regain her past magnificence, it will only be possible through this philosophy.  These bold, man-making ideas must be diffused throughout Indian society.  To that end, India will have to grab hold of its education system.  Indian educators must endeavor to do more than merely ape their peers in the West.  They must reacquaint their students with the philosophical underpinnings which drove India’s remarkable achievements in earlier times.

That alone is the way forward for India. 

Raju Agarwal

There is, however, much speculation among economists as to precisely how sharp the pullback in consumer spending will be and when it will recover.  Stepehen Roach, Managing Director and Chief Economist, Morgan Stanley Asia believes that a global economic slump has just begun and that the U.S. is on a “recession trajectory”.  Mr. Roach further suggests that people are still in denial with regard to the severity of the problems confronting the U.S economy. Given this grim outlook, Morgan Stanley has lowered its S&P 500 2008 year-end target to 1300 from 1400.

By contrast, Dick Green, Chief Economist of Briefing.com believes that the U.S. economy will continue to defy the skeptics.  In his view, the headwinds stemming from the bursting of the housing bubble will recede without any significant impact on consumer spending. He notes that consumer spending has not declined in any month since the peak of the housing bubble and therefore expects it to continue to hold up going forward.  In fact, he predicts that the economic data in the next two months “will be good, if not great”, which could set the stage for a solid year-end rally.

Which assessment is more likely?  Will falling home prices plunge the U.S. economy into recession or are the headwinds already receding?

In my view, the correlation between the housing market and consumer spending is widely overstated.  I would argue that consumer spending is driven more by consumers’ expectations regarding the labor market (i.e. employment and wage growth) than by the housing market.

Many observers believe that the current weakness in the labor market will further contribute to the expected pullback in consumer spending.  Admittedly, the labor market has weakened relative to the year-ago period.  But this weakness reflects a cyclical trend, not a secular one.  In my view, consumers are more likely to base their spending decisions on their long-term income expectations.  That is, I believe that the secular, rather than cyclical, labor market trend is more important in terms of understanding consumer spending behavior. 

Significantly, the secular trend points to a strengthening labor market. For example, the average unemployment rate has declined from 7% during the 1975-1998 period to 5% during the 1999-2008 period.  If this trend were to continue then perhaps the U.S. unemployment rate will touch 3% by 2020.

To be sure, the secular decline in the U.S. unemployment rate is likely attributable to the ageing of the U.S. workforce, which will accelerate over the next two decades as the baby boomers retire.  Surely, existing workers are well aware of the unprecedented opportunities that will likely be derived as a result of the continued ageing of the U.S. workforce.

In my view, consumer spending will be well supported as a result of workers’ expectations surrounding the continued strengthening of the labor market over the long-term.  And, as previously noted, because consumer spending constitutes 70% of GDP, I believe that the U.S economy will manage to avert a recession despite the turbulence stemming from the collapse of the housing bubble.

Moreover, I believe that the housing market is beginning to stabilize.  For example, the latest data from the S&P Case Shiller Index indicates that home prices in 20 metropolitan cities declined by a mere 0.5 percent.  More significantly, home prices in 9 of the 20 cities surveyed increased for the third consecutive month.  Karl Case the co-creator of the index believes that the housing market is returning to normalcy and will likely begin to recover by the end of 2008.  I share his optimism, given the continued U.S. population growth of 1% and increasing home affordability.  In addition, the recently enacted housing bill, sharp decline in new construction and accommodative monetary policy will further bolster the housing market.

If accurate then the most ominous headwind confronting the U.S. consumer will likely recede in the near future.  As home prices stabilize, the housing market will exert less of a drag on consumer spending.  In addition, declining gas prices at the pump will also boost consumer confidence.

In short, I believe that the fears surrounding the U.S. economy are overstated.  While I do not see a quick return to long-term trend growth, much less the 3.2% growth rate of the previous 13 years, I do expect the U.S. economy to remain resilient. 

Specifically, here is my forecast for U.S. economic growth:

• 2008 1.5%
• 2009 2.0%
• 2010 2.5%

At this time, the S&P 500 is priced at 12 times forward earnings, which is well below historical valuations.  In my view, the underlying resilience of the U.S. economy has been clouded by the headwinds stemming from the collapse of the housing market.  I expect these headwinds to recede by the end of 2008, setting the stage for a sustainable rally in U.S. equity markets. To that end, my mid-2008 S&P 500 Price Target is 1500.

Raju Agarwal

I believe that the ancient proverb “Give a man a fish; you have fed him for a day.  Teach a man to fish; and you have fed him for a lifetime” provides many key insights for solving this vexing problem.

First, education (i.e. “Teach a man to fish”) constitutes the primary means for escaping poverty.  Indeed, literacy is the first prerequisite for sustainable economic development as evidenced by China and other successful developing economies.   Thus, it will be imperative for India it raise its literacy level from 65% to that of China (98%) to make significant progress towards ending poverty.  To increase literacy, India will have to increase spending on education from the current level of 3% of GDP to at least 5% of GDP. 

However, India’s ability to increase funding for education is significantly constrained by its precarious fiscal situation.  To be sure, India’s combined fiscal deficit has ballooned to approximately 8% of GDP (Moody’s Investor Services) as a result of the rising cost of subsidies for petroleum and other commodities.  Moreover, if India’s precarious fiscal situation were to undergo further stress it could well lead to a debt spiral resulting in higher inflation.  Clearly, such a policy would be ill advised. 

The key challenge facing India therefore, in its efforts to reduce poverty is to increase spending on education within the limits of fiscal prudence. To that end, India will have to reallocate existing budget expenditure by rationalizing subsidies and other non-productive expenditure. 

The second key insight that can be gleaned from the above proverb pertains to the availability of credit for private sector development.  For example, the proverb assumes that a man will immediately be able to earn a living through fishing after he has learned how to fish.  But what if he does not have a fishing pole?  And what if he cannot afford to buy a fishing pole? 

Thus, we can see that there is another prerequisite for ending poverty, which is capital.

That is, capital must be made available to entrepreneurs (i.e. private sector) to fuel their growth.  More importantly, the cost of that capital (i.e. interest rate) must be low enough to provide a fair return on capital.  Put simply, a man must have access to capital to finance the purchase of a fishing pole.  But if the man’s cost of capital is greater than his return on capital then he will still not be able to escape from poverty. 

To be sure, India’s high cost of capital relative to other developing economies is another constraint in terms of ending poverty.  Thus, the second key policy objective for Indian policy makers is to increase capital availability to the private sector and also to lower the cost of that capital so that Indian businesses can be globally competitive.   Historically, India’s fiscal deficit has largely crowded out private investment. As a result, the private sector has had to pay higher cost of capital to relative to that of other countries. 

What is the best solution for increasing the availability of credit for the private sector?  Once again, India’s fiscal deficit is at the root of the problem.

The third insight provided by this proverb with regard to ending poverty pertains to infrastructure development.  Imagine a man that has learned how to fish and that has also successfully acquired a fishing pole.  He earns a living by fishing and transports his catch by road to the fish market each day. Over time, more people adopt fishing as a livelihood and similarly transport their catch to the fish market.  Eventually, the roads become too congested for all the fishermen to transport their catch to the fish market.

The above example illustrates how the growth of India’s private sector places additional pressure on India’s already strained infrastructure.  Indeed, India will have to spend $1 Trillion over the next ten years on infrastructure. But, how will India finance this massive expenditure?  Once again, progress in reducing India’s fiscal deficit will be vital for increasing spending on infrastructure.

In sum, to end poverty, India will have to allocate greater resources for education, provide the private sector with greater access to capital and remove infrastructure bottlenecks. But India’s massive fiscal deficit significantly impedes India’s ability to increase spending.  Thus, real progress in terms of ending poverty will not be possible until India improves its fiscal position.  

To that end, Indian policy makers will have to implement structural economic reforms for rationalizing non-productive fiscal expenditure.  Most observers would agree that a shock therapy approach to implementing economic reforms will not be politically expedient given India’s fragmented democratic polity.  Indeed, a gradualist approach to implementing economic reforms constitutes the only realistic solution for implementing reforms given the nature of India’s coalition politics. But India is in dire need of greater speed in taking forward the economic reform agenda to end poverty.  

Raju Agarwal 

In my view, financial speculators are largely responsible for the recent surge in the price of petroleum.  Indeed, this is yet another case of “irrational exuberance”, similar to the previous technology and real estate bubbles.  Of course, as in previoius bubbles, financial speculators will provide many seemingly convincing arguments to rationalize their actions.

However, at the end of the day, we must recognize that petroleum has become an essential asset class for institutional investors.  And, given the unabated growth of institutional capital from pension funds, insurance companies, university endowments and sovereign wealth funds, petroleum prices are likely to continue their upward trajectory. 

So what can be done to stem the rise of petroleum and avert a global recession?

First, the U.S. in coordination with other major economies must create a new Petroleum Speculation Tax which would be levied on financial investors that buy and sell petroleum assets but do not take physical possession of petroleum.  Previous proposals have largely called for a windfall tax on energy producers.  However, energy producers do not set the price of petroleum; they are price takers.  The price of petroleum is set by financial investors which trade in petroleum assets.  Therefore, my proposal is likely to more directly influence the price of petroleum.  

Second, emerging market economies (i.e. Brazil, Russia, India and China) must accelerate their efforts to substitute petroleum with alternative fuels.  For example, Brazil and Pakistan have made significant progress in substituting petroleum with sugar-based ethanol and Compressed Natural Gas (CNG) respectively.  

In particular, India, which is a major sugar producer along with Brazil, must accelerate the adoption of sugar-based ethanol.  To that end, India must move towards mandatory blending of twenty-five percent ethanol with petroleum as against the current five percent.  Moreover, India should also liberalize the import of ethanol from Brazil until domestic producers are able to meet demand for twenty-five percent blended ethanol.   The advantages of substituting petroleum with ethanol are obvious.  General inflation within India would moderate while sugar cane farmers would receive higher prices.  

In short, the U.S. must curb excessive speculation in petroleum and India must accelerate the substitution of petroleum with ethanol to rein in surging petroleum prices and bolster the global economy.   

Raju Agarwal

The Growth Imperative

I believe that Infosys is at a critical inflection point in its business evolution.  If the company does not realign its business model then its growth trajectory will likely continue its downward spiral.  To be sure, Infosys is cognizant of its predicament.  The company has launched two recent initiatives (i.e. Platform BPO and Software-As-A-Service) aimed at transitioning to a more scalable (i.e. non-linear) growth model.  In my view, however, these efforts though laudable, will not be sufficient to surmount the complex challenge of revenue deceleration.  Platform BPO, for example, is expected to constitute 25 to 30 percent of revenue by 2010 for Infosys BPO, which itself constitutes less than 20 percent of total revenue for Infosys. 

Clearly, Infosys will need to demonstrate greater imagination to drive growth.  Consequently, in my view, Infosys would be well served in evolving an internal consensus for effecting disruptive change to its business model.  

Software Products Not the Answer

Many observers believe that Infosys must focus greater attention on software products to drive growth.  In my view, however, the software product business model has a significant disadvantage vis a vis the software services model.  That is, software product development requires significant investment with little assurance of a return on that investment.  The heightened risk of the software product business model can be gauged from the plethora of failed software product companies (i.e. Wordperfect, Lotus, Ashton-Tate, Borland, Corel, I2, BAAN, Netscape, etc.).  Moreover, even the most successful software product companies have had little success in sustaining long-term growth.  In fact, many leading software product companies (i.e. Microsoft, Oracle and IBM) have realigned their business model in favor of software services to offset the flagging growth from software products.  As a result, in my view, the software product business model does not constitute a compelling option for driving growth.

Lessons from Reliance

In my view, Infosys management can gain valuable insight in terms of driving growth and shareholder wealth creation from India’s largest private sector company, Reliance Industries Limited.  How has Reliance managed to successfully drive growth for several decades?   To be sure, Reliance’s spectacular success has been driven by an unconventional strategy; Business Scope Redefinition.  Beginning with textiles, the company has assiduously redefined its business scope to pursue opportunities in emerging high-growth businesses (i.e. polyester, petroleum refining, life sciences, communications, retail and infrastructure development).

Driving Growth through Business Scope Redefinition

The implications for Infosys are clear.  The company’s predicament is similar to that of Reliance in previous years.  And, it must perform or perish.  That is, Infosys must redefine its business scope given the inevitable decline in its core business of offshore services.

In sharp contrast to the declining growth of India’s offshore services industry, India’s infrastructure sector is booming. Indeed, India will have to spend more than $1 Trillion on infrastructure by 2020; which will largely be financed via the Public-Private-Partnership (PPP) model.  In particular, India’s Tier 1 and 2 cities are facing stress as a result of heavy migration from rural areas.  Moreover, urban migration is expected to become more pronounced given India’s demographic profile and the dearth of employment opportunities in rural areas.   

In my view, Infosys can best drive growth by pursuing opportunities in the emerging high-growth business of infrastructure development.  Specifically, Infosys should develop integrated townships (i.e. Special Economic Zones) in Tier 4 and 5 cities to stem migration to larger cities. Towards that end, Infosys should create a wholly-owned subsidiary, Infosys Infrastructure for spearheading its entry into the infrastructure sector.

Each such township would be branded as an Infosys Knowledge City to highlight the association of the Infosys brand with knowledge.  Moreover, these townships would predominantly be located within India’s least developed (i.e. BIMARU) states in view of the country’s dire need for inclusive growth.  Moreover, these states would likely be more cooperative in terms of providing land for township development given their surging populations and weaker economies.

To capture economies of scale, each Infosys Knowledge City will have a size of 1,250 acres and provide an integrated work-live-play environment.  That is, each Infosys Knowledge City would be a fully self-contained environment, including commercial office space, residential accommodation, retail mall, hotel and corporate hospital.  In addition, each Infosys Knowledge City will have a world-class university for developing the human capital that will drive India’s knowledge industry.  I expect the funding for these universities to largely stem from the enlightened self-interest of India’s private sector.  An overview of the sectors within each Infosys Knowledge City is provided below.

With the exception of the University sector, each sector will be comprised of fully built-up space which will be given to customers on long-term lease.  Even the residential apartments will be leased to corporations for their corporate housing requirements.  As a result, each Infosys Knowledge City will provide Infosys with a robust perpetual income stream.   

Infosys will then leverage its balance sheet to extend the above model to additional Tier 4 and 5 cities.  In addition, Infosys will unlock value for shareholders through an initial public offering of shares of its wholly-owned subsidiary.  Eventually, Infosys will create a pan-India constellation of 50 Infosys Knowledge Cities.  At which time, infrastructure is likely to constitute the major part of the company’s earnings.

Admittedly, my proposed strategy for driving the growth of Infosys contradicts many widely held beliefs with regard to core competency focus. But why should Infosys ignore its strengths in infrastructure development?  For example, its campuses in Bangalore and Mysore are considered to be amongst the world’s best.

Moreover, the core competency argument has not deterred Quark Inc., which is building a 51-acre SEZ in India.  Nor has it deterred Hotmail co-founder, Sabeer Bhatia from building an 11,000-acre SEZ in India at a projected cost of $10 Billion.  Clearly neither of these developers can boast of any experience in developing infrastructure in India, which is not the case for Infosys.  As a result, why should Infosys have reservations in pursuing opportunities in infrastructure development? 

Others will argue that it would be unprecedented for a global IT services company (i.e. Accenture, EDS and IBM) to foray outside of its business scope.  True.  But the same could also be said of Reliance Industries Limited, which has a long history of creating shareholder wealth through business scope redefinition.  For example, Reliance expects to generate $25 Billion in revenues from its emerging retail business, which is greater than the company’s current annual revenue.  That argument could also be applied to power utility company Reliance Energy Limited (incorporated in 1929) which is actively pursuing opportunities in the development of roads, airports and metro-rail systems. 

In my view, the management of Reliance Energy Limited should be commended for its bold leadership in driving growth through business scope redefinition.  As a result of which, the company delivered a 300% return to shareholders during 2007 and was the best performer on India’s Sensex Index.   

Today, business scope redefinition is being used to drive growth across corporate India.  For example, many leading companies, including the Bharti group, Unitech, Videocon and Bajaj are actively pursuing opportunities outside of their business scope.  Interestingly, the market valuation of Bajaj Auto’s Insurance subsidiary has now surpassed that of its parent company.  

Conclusion

In short, I believe that Infosys should employ a business scope redefinition strategy to drive growth.  To that end, Infosys should develop integrated townships to support the growth of India’s knowledge services industry.  These townships can be branded as Infosys Knowledge City to reflect the association of the Infosys brand with knowledge.  My proposed strategy will also enable Infosys to better utilize its financial resources.  Of course, detractors will offer academic arguments with regard to core competency focus.  But ultimately, Infosys must choose whether to perform or perish.

Raju Agarwal