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Last Updated: Thursday, 17 May 2007, 11:11 GMT 12:11 UK
What is holding India's economy back
By Jonty Bloom
The World Tonight, Mumbai

Slum in Mumbai
Many in India have missed the economic boom
The number one Bollywood blockbuster in India this week is Ta Ra Rum Pum, a traditional story of rags to riches with a few setbacks on the way.

At one point in the film a couple persuade their children that they are only pretending to live in poverty, not because they really have lost their money but because they are part of a reality TV show.

It's just the kind of story that India loves.

Not least because for hundreds of millions of Indians the movies is the easiest way of escaping reality.

Grim conditions

Take the slum of Dharavi in Mumbai (Bombay), home to a million people and a warren of small workshops, potteries and homes.

Workers in Dharavi are mainly refugees from rural poverty, hoping to make their fortune, but they are also less educated and work in pretty grim conditions.

While their labour ensures that thousands of small workshops in the slum keep on operating, their efforts are not the driving force behind Mumbai's growing economic wealth.

Unemployed Indian man collecting waste
There is a shortage of skilled workers

What Mumbai really needs are highly trained, highly qualified staff to fuel its booming service sector.

Such workers are in such short supply that their wages are rising fast.

Aniket Keshkamet, an MBA graduate who now works for GE Finance, has moved jobs twice in the last three years and seen his salary nearly treble.

"I get a pension that is part of the package and healthcare, for the whole family, dependent parents, my wife and myself," he tells me.

With a population of well over one billion people, India shouldn't be experiencing that kind of wage inflation but it is - not least because many millions of people are failing to get the education that they need.

That lack of education is made worse by the caste system.

'Held back'

Despite positive discrimination legislation, Dr Uttara Sahasrabuddhe of Mumbai University told me that life if still tough for those at the bottom of the pile.

"Basically those who don't have access to education are those in the lowest castes and without a good education you aren't going to get the good jobs," he said.

Ravi Bhilane a campaigner for the rights of the lowest Dalit caste.

Railway lines in Mumbai
The Indian infrastructure remains under-developed

"India is being held back because a large part of the population is not allowed to contribute to the economy in any real way," he says, "and they are only supposed to work as labourers.

"Just look at China - why has it developed so fast? Because it has not held back anybody, it is not saying you cannot work like this or you cannot work like that. Everybody is allowed to work and contribute."

The comparison with China is well made - China is growing more quickly than India and that gap is not only caused by India's failure to use its human resources to their maximum potential.

India is also massively under-spending on infrastructure. You only have to drive around Mumbai to see how bad the roads are, and the railways are so crowded passengers ride on the roofs of trains, ignoring the risks from the overhead electric power cables.

But those are just the more visible signs, India's ports are reaching capacity, power and water shortages are common.

'Greatest strengths'

Neela Khandge is an economic advisor to HCC, one of India's largest construction companies.

"India is currently spending 4% of its GDP on infrastructure but it should be spending 8%," she calculates, "we have to spend far more because we are facing acute power shortages and port bottlenecks."

People in Mumbai watch the budget on television
The population of India will soon be the largest in the world

But money is not the only obstacle, unlike China where the communist regime can steam roller through huge construction projects.

India is a democracy with strict laws on property ownership.

Neela Khandge admits that democracy makes pushing through large infrastructure projects more difficult but she still sees it as one of the country's greatest strengths.

"Maybe it slows things down but I think that in the long run I look at it as more healthy, if the powerful cannot arm twist people."

That means Indian industry is going to have to wait a bit longer for better transport links and reliable power supplies.

Combine that with an education system that is failing to deliver the qualified workers that business needs and potentially you have serious long term economic problems.

India is growing at over 9% a year but it is competing head to head against China - which is growing at over 11%.

And in a globalised economy the country that uses all its resources best is going to win.

Jonty Bloom's report will be broadcast on The World Tonight on Thursday (2200 BST, 2100 GMT)

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