The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

(This article was co-written with Sankar Venkatraman, Ph.D. Venkatraman was born in Chennia, India. He came to the U.S. in 1989 to attend graduate school. Today he lives in Silicon Valley and holds a leadership position at Cisco with global responsibilities.)


ETF Digest

) -- India is celebrating 64 years as an independent democracy today. She is a great example of why independence and democratic elections are not always a magical formula for establishing the peace and prosperity that accompanies the developed and democratic nations of the world.

India faces some significant challenges in two key areas. It's democratically elected politicians and civil servants preside over inept and interfering government institutions, and its democratic freedoms do not meet the test of equal application.

Sixty-four years of inept government have left the country with sicknesses often associated with autocratic governments. There is a byzantine regulatory system, rampant corruption, self-serving regional political parties, a weak archaic judicial system, dilapidated infrastructure, an educational system that cannot deliver universal literacy let alone the skills needed to advance the economy, and it has failed in its attempts to protect the Indian people from home-grown and external terrorism threats.

India's discriminatory social system includes the acceptance of a class system that cubbyholes people into careers and social circles and an indifference towards illiteracy that makes effective democracy impossible.

Encouraging entrepreneurship which is at the core of thriving free markets is near-impossible too. On a bureaucracy rating scale of one to 10, where 10 represents the most stifling, India scored a whopping 9.41 -- the worst in Asia in 2010. The biggest gripes are red tape and the corruption that ensues to remove the red tape.

Government corruption is pervasive and has become a source of official embarrassment, in addition to being a potent force against progress and efficiency. Criminals in government, is yet another source of official embarrassment. Out of 543 parliamentarians, 128 have faced criminal charges, including 84 cases of murder, 17 cases of robbery and 28 cases of theft and extortion. One congress member faces 17 separate murder charges.

India's judicial system is regarded as relatively free and fair, the problem is that most people don't live long enough to see justice served. In 2010 The Times of India reported that it will take the Indian judiciary 320 years to clear the backlog of 31.28 million cases. None of this is good for the rule of law or the economy. It is estimated that about 10% of India's GDP is locked up in legal disputes with no evidence of relief in sight.

The government is also failing to build the skilled and healthy workforce needed to support economic growth. Literacy rates in India at 74%, puts them at the lowest in the G20 by a wide margin. The scuttlebutt in India is that self-serving politicians have little motivation to fix the literacy gap because literate people are more likely to question the decisions of those who govern them.

Being literate is helpful but skilled workers are the requirement for economic growth. The university system in India has the capacity for 10 million students, which is less than the U.S. who has only a quarter of the population. To counter the shortage many enroll in foreign universities, often never to return to ply their much needed skills to facilitate India's economic growth, like one of the authors of this article. India's brain drain costs the country $50B and 10 million jobs annually according to a recent Indian chamber of commerce report.

India's secular credential is well documented as are its democratic freedoms, like freedom of religion. India though is not a country where ethnic and religious groups live in harmony. When India became independent the founders created states based on religion and language, rather than natural geographic boundaries. Instead of creating an integrated melting pot their they decided that their country would be one that fostered tolerance among its diverse populations.

This was surely an easier path to take but not one without ongoing challenges. Religious conflict regularly and violently percolates to the surface, leaving social and economic chaos in its path. The problems with having thirty-five languages that are spoken by more than a million people, no language spoken by a majority, and high rates of illiteracy creates a formula for ineffective communications that hobbles political and economic progress.

Rampant poverty, Illiteracy, religiosity and population density make India ripe for fomenting superstitions and blind faith. The caste system is strictly followed in India, especially in the rural areas. The bottom-most rung is occupied by the Dalits (or scheduled castes) who are confined to specific duties such as latrine cleaning and cremating the dead.

India does have affirmative action-type quotas for the Dalit in the educational system. However, this does not mean that the educated Dalit will find employment in the private sector. Discrimination may be against the law, but unenforcement and selective enforcement are alive and well. Today, the 200 million strong Dalit caste, or nearly 20% of India's population, cannot contribute measurably to India's growth.

Forecasters are predicting that India's economy by 2050 will surpass America's. Much of the support for this is derived from favorable demographics and a recent trend of high economic growth. However, India has many challenges in front of it before any confidence can be applied to such a forecast. Foremost are intractable problems in the institutions that govern India and a social system that conveniently and feebly stands behind a position of tolerance that makes a mockery of equality.

At 64, it's time for India to make some hard decisions, and enjoying old age isn't one of them if its plans also include becoming a democratic nation that is also developed.