But the big question for India's economy remains: "How long will the party last?" This was the headline of an in-depth economic survey published in "India Today," on Nov. 28, 2005). The analysis was based upon the conclusions and recommendations of the "Board of India Today Economists" -- experts from various institutes and organizations.

There is obviously a bright side to India's economy in 2005 -- perhaps the best year of India's economy:

Foreign and domestic investments -- in rural areas, too -- private consumption, rising salaries, finance and product innovation and job creation form one side of the coin. However, on the flip side of the coin, we see the darker elements: Shortage of skilled workforce, rising salaries, rising inflation rates, poor governance in the Federal State of India and in many provinces and slow administration combined with corruption as well as poor infrastructure and unequal education.

These negative factors lead some experts to a more negative prognosis. "A McKinsey survey found high costs and low availability of manpower as the two biggest constrains in India," India Today noted. High salaries are good for the people and consumption, but if the rise is too high and too quick, India might lose its advantages for outsourcing from the United States and Europe.

Nevertheless, the optimistic views prevail: "The interest rate is unlikely to hit demand," Jagdish Khattar, managing director of Maruti Udyog told the India Today forum.

"The next big thing could be textiles," Jahreim Ramesh, economist and Member of Parliament told the forum. Indian companies "are looking at globally competitive costs," Mohit Batra, Head, Project Finance ICICI Bank) told it.

India Today concluded: "Booming demand, rising productivity and high returns have revived industrial investment and the boom is here to stay till at least 2006-7... It is not just price and income, but also innovation in financing and products that is driving consumption. That should make consumer demand lasting, even though interest rates will not fall further ... Jobs and salaries are the twin engines that fire consumer spending, the wheel on which everything from farms to factories move. A buoyant job market is one big reason to bet on the economy to keep rocking in 2006"

It is surprising for me -- living in Germany, an export oriented country -- that the topic "export" plays a minor role. This is certainly due to the fact that India's own population of more than a billion is seen as a promising market.

India also has many limiting factors on its economic growth..

Government; politicians and administration have a bad reputation in India. The effect of poor governance is estimated at one percent of the GDP.

Corruption of members of the government provides breaking news almost on a daily basis. Two ministers of the cabinet had to resign recently because of their involvement in the UN Oil-for-Food Program and stealing a lot of money from the "Tsunami-Aid Program." TV and radio stations play a new game with politicians: "Sting operations."

In front of hidden cameras and microphones, politicians are caught in a trap: accepting bribes - to then be asked questions in the parliament following the interests of the donor. Just recently, 11 members of the Indian parliament were arrested after a clever sting operation. Reports of this misbehavior have one good side: They symbolize that the media in India are free to criticize high ranking politicians - a good sign for the world's largest democracy.

Government and administration lag behind in economic development: There is a poor infrastructure for transportation of goods on rail, roads and in the air.

-- Today, only six out of 450 airports can handle large aircraft and 52 percent of all air movements have to be handled by the airports of New Delhi and Mombai -- creating bottlenecks for economic transportation and tourists.

-- The roads are too small and packed with camel-drawn odd vehicles, huge trucks and buses. In New Delhi and Mombai, there are permanent day-and-night traffic jams -- in spite of the unbelievably high price of gasoline.

-- One factor for the amount of private traffic is the lack and/or poor quality of public transport.

-- The bad traffic conditions do not allow industry to rely on a "just in time" cost-saving system.

-- Indian trains are overcrowded and unreliable. But improving the traffic infrastructure will cost billions or even trillions over the next decade. Privatization might be the only way out -- depending on political decisions, influenced by corruption.

The government and the administration are also blamed for bad infrastructure in healthcare, poor supply of drinkable water and a lack of environmental protection.

In some states like Bihar the situation is very bad. Standing alone these states would have the status of "failed states" -- safe havens for terrorists and a breeding ground for extremists and terrorists.

In my view, the central government in India should go for more decentralization. There are many states that are economically better off and could shoulder more responsibility. A better and more fair distribution of taxes between the federal government, the 28 states and the 7 union territories would enable more decentralized activities - combined with more privatization in all walks of life and more competition between the states to attract modern industries.

Hyderabad and Bangalore should not and cannot remain the lone lighthouses of the 21st Century in India.

Dieter Farwick is Global Editor-in-Chief of the World Security Network. This article is reprinted by permission of the WSN.

United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.

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