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Wednesday, March 21, 2007

India Needs to Remember How It Became a Player

India has become a major economic power because it has recognized how the world has become very "flat" indeed. Our ability to transport, inform, relocate, and communicate at very low (and in some cases, no) cost has made it possible for almost any country to become a major economic player. This has depended, of course, on their ability to create an economic environment conducive to attract business.

Recently, India has gotten higher marks in these areas. Lower taxes in many areas, very competitive labor in terms of quality and cost, and easier to understand business laws have made India a better place to do business and has led to an economic explosion. But everything isn't perfect in the economic world of India.

Michael Dell (above, telling it like it is) of Dell computer is taking the Indian government to task for the level of taxation on PCs. In a recent Forbes Magazine article it was pointed out that "Michael Dell told India on Tuesday that it needed to cut tariffs that hike the cost of computers by 20% to 25% if it wanted to attract more foreign investment, particularly from his company." The message that Dell is sending to India and any other country interested in investment is simple (this would include the US): "if you want more business, make it as affordable as possible to do business in your country."

If India won't lower the tariffs, some other country likely will, in the on going quest that companies like Dell pursue in order to make computers as affordable as possible. Many will argue that the government needs some revenue in order to conduct its activities, and there is no doubt that is true. But every government is going to have to learn the lesson that Walmart has learned in conducting its business: earn a little off of every activity and watch that activity explode (remember, pigs get fat and hogs get slaughtered). Walmart has among the lowest profit margins per item sold of any company in the world, but it is also among the most profitable. It is the amount of business that Walmart does that keeps it profitable. If governments took that approach in taxation, they would become business magnets and still generate huge amounts of revenue. Such an approach isn't only good for business, it is good for government, consumers, and everyone involved. India has become a major player by eliminating barriers, it clearly needs to remember that fact.

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2 Comments:

Anonymous America First said...

Why do you care about the Indian economy? I hope it goes down the drain.

9:26 PM  
Blogger Kevin Price said...

This post is actually about economies in general, not the Indian economy per se. The United States has plenty of barriors of its own.

However, the road to better relations between countries is through economic prosperity. The more prosperous a contry is, the more likely it is to behave responsibly. We have seen that with India and China.

The US has 4.5 percent unemployment, which is very low, I don't understand why we don't want other economies to prosper. Economics is not a zero sum game, there is plenty of wealth to go around.

9:34 PM  

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