Growing pains

Behind India's astonishing growth rate lies an economy that can do the impossible, but fumbles the m

For India's newspapers and television, the country's story is of a resurgent nation of 1.1 billion people taking its rightful place in the new world order. Daily headlines in the capital, New Delhi, highlight the runaway stock market, Bollywood's soft superpower and India's 36 dollar billionaires - more than in any other Asian nation.

Despite the exhausting hyperbole, what strikes most people when they arrive is the apparent functional chaos. Cattle roam the city's poshest avenues and ragged street children beg alongside foreign-made cars and glitzy malls.

The old idea of India, of a vast and ancient civilisation mired in righteous poverty, is being overshadowed by strikingly new images. The country's pharmaceutical companies are developing blockbusting drugs at a tenth of the cost of any western firm. Its software powerhouses are adding 15,000 jobs a year each to ensure that India becomes the world's IT department. But the success of the hi-tech sector is still to make an impact on the lives of the 360 million people who live on less than 50 pence a day.

There is little doubt that India is experiencing a rapid and sustained rise in living standards for the first time in centuries. Growth has averaged 8 per cent since 2003, second only to China. According to the investment bank Goldman Sachs, India's young population gives it the potential to grow faster than China in the long term.

For many Indians this is exhilarating stuff: in the 1970s the country threw out Coca-Cola and IBM and sealed itself off from the outside world. Heady stuff, but ultimately economic folly. Growth slowed to 1 per cent a year - at that rate it would have taken 70 years to double incomes. Tentative reforms began in the 1980s, but it took a balance-of-payments crisis in 1991 for the government to usher in unexpectedly brave changes. Today, India's outward-looking, hypercompetitive policies as well as the trend towards smaller families mean incomes will double in a decade.

Yet it will remain a poor country. Last month, government figures showed that malnutrition is endemic, with about 46 per cent of children aged three or younger underweight and almost 80 per cent anaemic. Less than 50 per cent of women can read or write their name. Only a third of homes have a toilet. The country is probably the world's largest Dickensian paradox - having both the best and the worst of times.

The puzzle is that India is economically confident, yet sunk in interminable poverty. This is because most Indians live in a vast rural, feudal darkness and only a lucky few are part of the shining new future. Services, essentially white-collar work, makes up more than half of national income. But this does not mean that tens of millions of Indians sit behind terminals talking to someone in New York or London. Information technology, the poster-boy industry of India's economy, employs just 1.5 million people - a mere drop in the labour pool of 470 million.

Even worse, only 35 million people in India have any sense of job security and 20 million of those work for the government. The rest of the working population - some 435 million people - are part of "the unorganised sector": toiling on the land, or driving a taxi, or running a chai stall, or working as menial household labour.

In India, growth has been largely jobless. Historically, dynamic economies have relied on industry to fuel growth. In China, this led to millions of people leaving the land to work in factories. But during the 1990s, industry actually shrank as a proportion of the Indian economy. There is rural migration, too, where the sons of tillers leave to eke out a precarious existence as security guards and drivers in the big cities.

The problem is reaching crisis point. Each year another ten million people enter the job market. To soak up the labour, India will have to build up its manufacturing sector quickly. This might sound like a return to the past - India's first prime minister, Jawaharlal Nehru, wanted his country to rush towards industrialisation.

But Nehru pursued a strategy that would build up the country's technological capacity, not employ people. He set about institutionalising innovation and spent money on a network of world-class science universities rather than universal primary education. Nehru built huge dams. He took pains to create an atomic industry and cultivate brilliant scientists.

In a sense, he laid the foundations for an idiot savant economy that can do the impossible but fumbles the mundane. India turns out more scientists than far wealthier China, but cannot get all its children to school. While the country's business houses prowl the world picking off weaker western companies, they cannot acquire land at home because villagers protest violently against forcible takeovers.

This disparity in productivity is India's greatest asset and liability. Workers in the private organised sector are ten times more productive than those in the "unorganised sector". The emphasis on capital-intensive growth has helped India achieve impressive results with fewer resources. It is estimated that in 2007, India will grow at 9 per cent - a fraction behind its larger northern neighbour. Remarkable, given that India is achieving this growth with just 50 per cent of China's investments and 10 per cent of China's foreign direct investment.

Hoping for a miracle

But the flipside is that while new management graduates in India are offered 10,000 rupees (£120) a day in salaries, cotton farmers struggle to make 10,000 rupees in a whole season. Crossing between these two worlds rarely happens because it requires workers with skills, education and opportunity. India will have to pour more money into health and education as well as create the kinds of industries that can offer the rural poor a chance out of poverty. It needs to change its labour laws - at the moment you need government permission to shut down a factory with 100 workers in it. Clearly this is a deterrent to setting up shop in India.

For the first 1,500 years of the past two millennia, India and China dominated the world economy. Then came the western industrial revolution, which propelled smaller and less populous nations to wealth and power. The Asian giants were overtaken first by Britain, then by the rest of Europe, and finally by the United States. But in the same way as commentators refer to the 1900s as the "American century", the 21st century is forecast to be Asian. If the scale and speed of growth can be maintained on both sides of the Himalayas, by 2050 Beijing and Delhi will be the capitals of the two richest nations on the planet.

It is worth being sceptical about such claims. Historically there is no precedent for such a transformation. Britain and America took a century each to achieve primacy and had far fewer people to deal with. India and China have a billion-plus people each. Both nations expect to maintain growth rates of near 10 per cent. "What these two countries propose," wrote Willem Buiter of the London School of Economics, "is growth on a scale that is more than 200 times larger than what the UK and US managed." Such events are not beyond the bounds of possibility, but they have never happened before.

Randeep Ramesh is the Guardian's south Asia correspondent

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Are smart toys spying on children?

If you thought stepping on a Lego was bad, consider the new ways in which toys can hurt and harm families.

In January 1999, the president of Tiger Electronics, Roger Shiffman, was forced to issue a statement clearing the name of the company’s hottest new toy. “Furby is not a spy,” he announced to the waiting world.

Shiffman was speaking out after America’s National Security Agency (NSA) banned the toy from its premises. The ban was its response to a playground rumour that Furbies could be taught to speak, and therefore could record and repeat human speech. “The NSA did not do their homework,” said Shiffman at the time.

But if America’s security agencies are still in the habit of banning toys that can record, spy, and store private information, then the list of contraband items must be getting exceptionally long. Nearly 18 years after TE were forced to deny Furby’s secret agent credentials, EU and US consumer watchdogs are filing complaints about a number of WiFi and Bluetooth connected interactive toys, also known as smart toys, which have hit the shelves. Equipped with microphones and an internet connection, many have the power to invade both children’s and adults’ private lives.

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“We wanted a smart toy that could learn and grow with a child,” says JP Benini, the co-founder of the CogniToys “Dino”, an interactive WiFi-enabled plastic dinosaur that can hold conversations with children and answer their questions. Benini and his team won the 2014 Watson Mobile Developer Challenge, allowing them to use the question-answering software IBM Watson to develop the Dino. As such, unlike the “interactive” toys of the Nineties and Noughties, Dino doesn’t simply reiterate a host of pre-recorded stock phrases, but has real, organic conversations. “We grew it from something that was like a Siri for kids to something that was more conversational in nature.”

In order for this to work, Dino has a speaker in one nostril and a microphone in the other, and once a child presses the button on his belly, everything they say is processed by the internet-connected toy. The audio files are turned into statistical data and transcripts, which are then anonymised and encrypted. Most of this data is, in Benini’s words, “tossed out”, but his company, Elemental Path, which owns CogniToys, do store statistical data about a child, which they call “Play Data”. “We keep pieces from the interaction, not the full interaction itself,” he tells me.

“Play Data” are things like a child’s favourite colour or sport, which are used to make a profile of the child. This data is then available for the company to view, use, and pass on to third parties, and for parents to see on a “Parental Panel”. For example, if a child tells Dino their favourite colour is “red”, their mother or father will be able to see this on their app, and Elemental Path will be able to use this information to, Benini says, “make a better toy”.

Currently, the company has no plans to use the data with any external marketers, though it is becoming more and more common for smart toys to store and sell data about how they are played with. “This isn’t meant to be just another monitoring device that's using the information that it gathers to sell it back to its user,” says Benini.

Sometimes, however, Elemental Path does save, store, and use the raw audio files of what a child has said to the toy. “If the Dino is asked a question that it doesn’t know, we take that question and separate it from the actual child that’s asking it and it goes into this giant bucket of unresolved questions and we can analyse that over time,” says Benini. It is worth noting, however, that Amazon reviews of the toy claim it is frequently unable to answer questions, meaning there is potentially an abundance of audio saved, rather than it being an occasional occurrence.

CogniToys have a relatively transparent Privacy Policy on their website, and it is clear that Benini has considered privacy at length. He admits that the company has been back and forth about how much data to store, originally offering parents the opportunity to see full transcripts of what their child had been saying, until many fed back that they found this “creepy”. Dino is not the first smart toy to be criticised in this way.

Hello Barbie is the world’s first interactive Barbie doll, and when it was released by Mattel in 2015, it was met with scorn by parents’ rights groups and privacy campaigners. Like Dino, the doll holds conversations with children and stores data about them which it passes back to the parents, and articles expressing concerns about the toy featured on CNN, the Guardian, and the New York Times. Despite Dino’s similarities, however, Benini’s toy received almost no negative attention, while Hello Barbie won the Campaign for a Commercial-Free Childhood’s prize for worst toy of the year 2015.

“We were lucky with that one,” he says, “Like the whole story of the early bird gets the worm but the second worm doesn’t get eaten. Coming second on all of this allowed us to be prepared to address the privacy concerns in greater depth.”

Nonetheless, Dino is in many ways essentially the same as Hello Barbie. Both toys allow companies and parents to spy on children’s private playtimes, and while the former might seem more troubling, the latter is not without its problems. A feature on the Parental Panel of the Dino also allows parents to see the exact wording of questions children have asked about certain difficult topics, such as sex or bullying. In many ways, this is the modern equivalent of a parent reading their child's diary. 

“Giving parents the opportunity to side-step their basic responsibility of talking to, engaging with, encouraging and reassuring their child is a terrifying glimpse into a society where plastic dinosaurs rule and humans are little more than machines providing the babies for the reptile robots to nurture,” says Renate Samson, the chief executive of privacy campaign group Big Brother Watch. “We are used to technology providing convenience in our lives to the detriment of our privacy, but allowing your child to be taught, consoled and even told to meditate by a WiFi connected talking dinosaur really is a step in the wrong direction.”

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Toy companies and parents are one thing, however, and to many it might seem trivial for a child’s privacy to be comprised in this way. Yet many smart toys are also vulnerable to hackers, meaning security and privacy are under threat in a much more direct way. Ken Munro, of Pen Test Partners, is an ethical hacker who exposed security flaws in the interactive smart toy “My Friend Cayla” by making her say, among other things, “Calm down or I will kick the shit out of you.”

“We just thought ‘Wow’, the opportunity to get a talking doll to swear was too good,” he says. “It was the kid in me. But there were deeper concerns.”

Munro explains that any device could connect to the doll over Bluetooth, provided it was in range, as the set-up didn’t require a pin or password. He also found issues with the encryption processes used by the company. “You can say anything to a child through the doll because there's no security,” he says. “That means you've got a device that can potentially be used to groom a child and that's really creepy.”

Pen Test Partners tells companies about the flaws they find with their products in a process they call “responsible disclosure”. Most of the time, companies are grateful for the information, and work through ways to fix the problem. Munro feels that Vivid Toy Group, the company behind Cayla, did a “poor job” at fixing the issue. “All they did was put one more step in the process of getting it to swear for us.”

It is one thing for a hacker to speak to a child through a toy and another for them to hear them. Early this year, a hack on baby monitors ignited such concerns. But any toy with speech recognition that is connected to the internet is also vulnerable to being hacked. The data that is stored about how children play with smart toys is also under threat, as Fisher Price found out this year when a security company managed to obtain the names, ages, birthdays, and genders of children who had played with its smart toys. In 2015, VTech also admitted that five million of its customers had their data breached in a hack.

“The idea that your child shares their playtime with a device which could potentially be hacked, leaving your child’s inane or maybe intimate and revealing questions exposed is profoundly worrying,” says Samson. Today, the US Electronic Privacy Information Center (EPIC) said in a statement that smart toys “pose an imminent and immediate threat to the safety and security of children in the United States”. 

Munro says big brands are usually great at tackling these issues, but warns about smaller, cheaper brands who have less to lose than companies like Disney or Fisher Price. “I’m not saying they get it right but if someone does find a problem they’ve got a huge incentive to get it right subsequently,” he says of larger companies. Thankfully, Munro says that he found Dino to be secure. “I would be happy for my kids to play with it,” he says. “We did find a couple of bugs but we had a chat with them and they’re a good bunch. They aren’t perfect but I think they’ve done a hell of a lot of a better job than some other smart toy vendors.”

Benini appears alert to security and the credibility it gives his company. “We took the security very, very seriously,” he says. “We were still building our systems whilst these horror stories were coming about so I already set pipelines and parameters in place. With a lot of devices out there it seems that security takes a backseat to the idea, which is really unfortunate when you’re inviting these devices into your home.”

As well as being wary of smaller brands, Munro advises that parents should look out for Bluetooth toys without a secure pairing process (ie. any device can pair with the toy if near enough), and to think twice about which toys you connect to your WiFi. He also advises to use unique passwords for toys and their corresponding apps.

“You might think ‘It's just a toy, so I can use the same password I put in everything else’ – dog’s name, football club, whatever – but actually if that ever got hacked you’d end up getting all your accounts that use that same password hacked,” he says.

Despite his security advice, Munro describes himself as “on the fence” about internet-connected smart toys as a whole. “Most internet of things devices can be hacked in one way or another,” he says. “I would urge caution.”

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Is all of this legal? Companies might not be doing enough ethically to protect the privacy of children, but are they acting responsibly within the confines of the law?

Benini explains that Dino complies with the United States Children's Online Privacy Protection Act (COPPA) of which there is no real equivalent in the UK. COPPA says that companies must have parental permission to collect personal information over the internet about children under 13 years of age. “We’ve tried to go above and beyond the original layout of COPPA,” says Benini, when describing CogniToys transparent privacy documents. Parents give their consent for Elemental Path to collect their children’s data when they download the app that pairs with the toy.

Dino bears a striking similarity to Amazon Echo and Google Home, smart speakers that listen out for commands and questions in your home. Everything that is said to Amazon Echo is recorded and sent to the cloud, and an investigation by the Guardian earlier this year discovered that this does not comply with COPPA. We are therefore now in a strange position whereby many internet of things home devices are legally considered a threat to a child’s privacy, whereas toys with the same capabilities are not. This is an issue because many parents may not actually be aware that they are handing over their children’s data when installing a new toy.

As of today, EU consumer rights groups are also launching complaints against certain smart toys, claiming they breach the EU Unfair Contract Terms Directive and the EU Data Protection Directive, as well as potentially the Toy Safety Directive. Though smart toys may be better regulated in Europe, there are no signs that the problem is being tackled in the UK. 

At a time when the UK government are implementing unprecedented measures to survey its citizens on the internet and Jeremy Hunt wants companies to scour teens’ phones for sexts, it seems unlikely that any legislation will be enacted that protects children’s privacy from being violated by toy companies. Indeed, many internet of things companies – including Elemental Path – admit they will hand over your data to government and law enforcement officials when asked.

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As smart toys develop, the threat they pose to children only becomes greater. The inclusion of sensors and cameras means even more data can be collected about children, and their privacy can and will be compromised in worrying ways.

Companies, hackers, and even parents are denying children their individual right to privacy and private play. “Children need to feel that they can play in their own place,” says Samson. It is worrying to set a precedent where children get used to surveillance early on. All of this is to say nothing of the educational problems of owning a toy that will tell you (rather than teach you) how to spell “space” and figure out “5+8”.

In a 1999 episode of The Simpsons, “Grift of the Magi”, a toy company takes over Springfield Elementary and spies on children in order to create the perfect toy, Funzo. It is designed to destroy all other toys, just in time for Christmas. Many at the time criticised the plot for being absurd. Like the show's prediction of President Trump, however, it seems that we are living in a world where satire slowly becomes reality.

Amelia Tait is a technology and digital culture writer at the New Statesman.