The India-Brazil Axis

India has its reasons for self-confidence. By many indicators, from the number of TV sets in the hands of consumers to the number of cars on the road, to the large and increasingly young population, India does indeed look much like China of the 1990s.

Back then, China was poised to supplant Thailand as the world’s fastest-growing economy. But to assemble a true composite picture of India that would argue that India looks just like 1990s China, one has to leave out many of the less flattering images.

Moreover, China is not the only possible model for India to consider. It turns out that, culturally and politically, India has far more in common with the chaos and confusion of modern Brazil than with the command-and-control environment that defines China.

While China has summoned the willpower to produce a new round of landmark economic reforms every four or five years for some decades now, the once-dynamic reform cycle stopped in Brazil back in the 1970s.

After that, the dynamism and optimism the world associated with the then-very modern buildings of Brasilia, its new capital city, began to languish. Brazil became self-absorbed and, before long, fell off the list of up-and-coming economies and entered the abyss of having to contend with one of the worst bouts of hyperinflation the world had ever seen.

Both India and Brazil are “high-context” societies, a term popularized by the anthropologist Edward Hall. It describes cultures in which people are colorful, noisy, quick to make promises that cannot always be relied on, and a bit too casual about meeting times and deadlines.

These societies also tend to be particularly family-oriented, with tight relationships even beyond the immediate family, based on close ties that are built over long periods of time. In an environment this familiar, there is a lot that goes unsaid — or is said very briefly — because values are deeply shared.

By the same token, much is implicitly understood from context. The spoken word is often flowery and vague. Apologies are long and formal. In that regard, Indians and Brazilians are a lot more like Italians than, say, Germans.

High-context societies believe deeply in tradition, history and favoring the in-group, whether it is one’s own family or business circle. They are vulnerable to corruption. If this description sounds questionable to businessmen or tourists who know Brazil and India as open, familiar and straightforward, think again.

It could very well be that what you have experienced is only the low-context facade adopted by the outward-facing elites who need to deal with foreigners. Sure, everyone is welcome at Brazil’s Carnival or an Indian wedding, and they may even be made to feel like an insider. But the reality is that it takes decades to become a real part of these cultures.

India’s Prime Minister, Manmohan Singh, is fond of remarking that whatever can be said about his country, the exact opposite is also true. There is something to this — India is rife with contradictions, no doubt.

But his remark also represents a convenient form of high-context analysis. It is a way of avoiding overt confrontation with hard facts — or with the side of India that could drag it down.

A passage to India

Of course, Brazil and India are far from the only high-context cultures. This kind of social interaction is typical in much of Asia and Latin America. Yet I am convinced that there is a particular bond between Brazil and India. I feel it all the time when I visit these countries. The parallels range from the late dining habits and colorful personalities to casual informality and cultural choices.

Attesting to this is that fact that the most popular soap opera in Brazil in recent time has been “A Passage to India.” This is a Brazilian-Indian love story, filmed in the Indian cities of Agra and Jodhpur, and in which Brazilian actors play the Indian roles and pass easily for North Indians. To Indians who have seen it, the show is right on the mark in terms of look, mood and even lighting.

At the same time, Indians and Brazilians are only very loosely aware of their connection, if at all. And yet the mutual admiration and emulation society works in some very ephemeral ways.

Consider Google’s purchase in 2002 of a California-based social networking site called Orkut. Google was keen to compete with Myspace and Facebook in Orkut’s 48 languages.

The site fizzled out in just about every country — except for in India and Brazil, which together generate more than 80% of Orkut’s traffic. Evidently, something about the site’s look, feel and features hits that Indo-Brazilian chord of brotherhood.

Social media habits and preferences aside, there is also a distinct Indo-Brazilian connection in politics. This is visible in the desire for state protection from life’s risks — social welfare for the nation as one big in-group — to a degree that is rarely found in other high-context societies, such as China and Chile.

The political elites of India and Brazil share a deep fondness for welfare-state liberalism. In addition, both countries’ populations demand high levels of income support — even though their economies do not yet generate the necessary revenue to support a welfare state.

Per capita income is about $12,000 in Brazil and only $1,400 in India. Brazil offered what was probably the emerging world’s most generous, yet strategically placed and effective welfare program — the Bolsa Familia income supports.

Not to be outdone, India’s governing Congress Party has lately turned to generous spending in an effort to recover the political backing it lost in recent decades to an array of regional parties. In 2005, it pushed through the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which guarantees the rural poor a hundred days of public-sector employment each year, at an annual cost to the Indian Treasury of nearly $10 billion.

It was easy enough for India to increase spending in the midst of a global boom, but the spending has continued to rise in the post-crisis period. Inspired by the popularity of the employment guarantees, the government now plans to spend the same amount extending food subsidies to the poor.

If the government continues down this path, India may meet the same fate as Brazil in the late 1970s, when excessive government spending set off hyperinflation and crowded out private investment, ending the country’s economic boom.

One of the key mistakes made in Brazil at the time was indexing public-sector wages to inflation, which can trigger a wage-price spiral. India’s central bank has voiced its fears of a similar price spiral as the wages guaranteed by MGNREGA (an inept acronym to be sure) pushed rural wage inflation up to 15% in 2011.

Furthermore, under the current regime of drift in India, crony capitalism has become a real worry. Widespread corruption is an old problem, but the situation has now reached a stage where the decisive factor in any business deal is the right government connection.

When I made this observation in a September 2010 Newsweek International cover story titled “India’s Fatal Flaw,” I was treated as a party spoiler. Top government officials in India told me that such cronyism is just a normal step in development, citing the example of the robber barons in 19th-century America.

Since 2010, the issue has exploded in a series of high-profile scandals, ranging from rigged sales of wireless spectrum to the shoddy construction of facilities for the Commonwealth Games that India hosted that year.

India’s place in Transparency International’s annual corruption perception index fell to 88 out of 178 nations in 2010. That was down from 74 in 2007. (A lower rank indicates higher official corruption.) India is approaching the point that Latin America and parts of East Asia reached in the 1990s.

That was also the point in those countries when a backlash started to build against continued economic reforms — because any opening up of the economy was tragically, but not without reason, seen to favor just a select few. That delayed true growth strategies, which were very much needed to benefit the population at large, for well over a decade in many places.

In India, similar stirrings of deep middle-class discontent about the direction (read: true beneficiaries) of economic reform appeared in 2011. That was when many urban Indians started to rally behind social activist Anna Hazare, who morphed quickly from being a hunger striker protesting corruption to the leader of a civil movement capable of paralyzing Parliament and damaging business confidence.

No other large economy has so many stars aligned in its favor as does India, from its demographic profile to its entrepreneurial energy and, perhaps most important, an annual per capita income that is only one-fourth of China’s.

But destiny can never be taken for granted. India’s policymakers cannot assume that demographics will triumph and that problems such as rising crony capitalism and increased welfare spending are just sideshows instead of major challenges. These are, after all, exactly the factors that have prematurely choked growth in other emerging markets.

Editor’s note: This article is adapted from Breakout Nations: In Pursuit of the Next Economic Miracles (W.W. Norton & Co.) by Ruchir Sharma. Published by arrangement with the author. Copyright © 2012 by Ruchir Sharma.