Can India be the next breakout nation?

A country of diverse cultures and traditions, myriad dialects, sects and religions ; a country of paradoxical characteristics ; a country where people are colorful , vibrant , proud of their rich culture, family-oriented, unreliable, casual, bear a proclivity to stereotype, favor close kin , have a high propensity to become corrupt and bear an excessive desire for social welfare of state to the extent of jingoism. Whatever can be said about India, the exact opposite is also true. In the words of Edward Hall, India is a classical 'high-context' society. 

After globalization in early 1990s, India saw escalation in growth and during the 2003-2007 boom, it reached its peak - around 8%-9% GDP. During the last few years, the backward states in India have been growing at a remarkably high growth rate while the growth in advanced states has been comparatively lower. Bihar , Uttarakhand, Goa and some other northern states have achieved high growth rate in recent years. All the credit goes to the dynamic CMs of these states who have transformed these states dramatically. But the overall growth is disappointing. Moreover, India doesn't seem to get out of this slump whatsoever.

Like most of the Asian economies, India too is in the phase where it is expected that the demographic dividend will assist in achieving remarkable growth. The elites particularly liken it to that of China. Although China has curbed the high growth rate in population, India's is still unbridled. Indians , on an average are expected to be younger than Chinese and this young work force is expected to drive the growth. But what we need to ask is will the employment generated be sufficient to assimilate this young work force completely? i believe the answer is no. 

Post that 2003-2007 boom in india, there engendered an over-confidence in the minds of the elite. They were busy spending the windfall rather than bringing about reforms that could sustain the growth. While the global oil prices were escalating , the politicians thought they can control inflation by keeping the prices of oil low. The foreign investors saw this as a sign of an upcoming danger. They started withdrawing their money from India thereby decreasing the value of rupee against dollar. The imports eventually became higher and inflation soared high.  The present hyperinflation due to excessive spending post the boom is very similar to Brazil's lot in 1970s. So if at all India were following the footsteps of any country at all, it would be Brazil and not China.

China is a state controlled economy while India is a liberalized one. India's resemblance to Brazil (both high context with extreme desire for social welfare of nation) can also be seen in the government intervention. Petrobras ,a Brazilian multi-energy corporation, is still suffering due to the government intervention. It's stock price fell from 50$ to 14.6$ a share. Investors and speculators have dumped the shares witnessing a steep fall in the share price. At present the stock is hugely undervalued and therefore can be attractive for those who have that insight to see through and estimate a firm's true worth. Well that's a totally different story. I'll get back to it in another post. Another reason for the deplorable state of the firm apart from the government's desire to sell oil at a cheaper price is that, the government wants only indigenous machinery and equipment to be used in drilling, refining and other operations. Sounds a lot like India before Globalization in the early 1990s when the unanimous cry of the politicians of our country was that India must be made self-sufficient and independent. The import tariff was absurdly high. Imports were extremely expensive. Indigenous industries were not much developed. We were oblivious of the state-of-art technologies being used by the best of the countries. Consequently the GDP stood around 5% and inflation was high.

One of the biggest hindrance in the path to development is that there is hardly any creative destruction in India. A flaw in the system remains a flaw and usually the citizens either get used to it if its a trivial matter or protest vehemently for a short period of time during which the administration turns a deaf ear towards them and so they ultimately find themselves helpless. For instance, the protest against corruption. A lot of protest went in vain. That's because the government can never pass a bill that has real teeth. After all, their interest is above everything else. Reforms are needed in the field of business too. There is no provision for exit of failed business in such a way that the investors don't lose their money. Top-down reform is needed at every level that can substantially boost the economy. Recently, our finance minister Mr Chidambaram has taken a few wise steps which will most probably help bolster the growth. GDP is expected to reach 6.1%- 6.7% while WPI inflation is expected to fall from 7.45% to 6.2%-6.6%. The budget will no longer be kept a secret. This move is expected to ameliorate investor confidence and improve India's credit rating. It worked well until recently when Moody's warned India that targeting double digit growth will lead to negative consequences. 

It is a pity that even the elites remain indifferent towards the lot of this country. There are hardly a few who actually strive to provide growth and bring about reforms.  Our PM Manmohan Singh who is seen as merely a puppet in the hands of Sonia Gandhi brought about some tremendous reforms in early 90s and also last year. During both the instances he was initially opposed and censured but ultimately his decision proved to be a much needed reform. Moreover, he was the first person who said that coal blocks must be auctioned and not allocated in 2006 but none paid heed to it. The irony lies in the fact that when CAG brought to light the "Coal block scam" , which wasn't a scam in any sense because licenses and coal block have always been allocated in our country, he was alleged of this transgression.  

India's per capita income is around $1400, which is pretty low. This gives a huge potential for a high growth rate which will not be very difficult to achieve. The tough part is sustaining that rate as the per capita income increases.We need reforms that encourage start-ups. Entrepreneurs should be assisted in every way and starting a business must be made easier for them. India's debt/GDP ratio has fallen. It is on the leading side in the field of software , pharmaceuticals , and automobiles. If sensible reforms are brought about in judiciary and amendments in constitution, India will experience gargantuan changes. The bureaucracy needs people who not only have exceptional ability but also do not have a proclivity to stoop so low as to encourage or practice graft, corruption and nepotism. Fast-track courts, which are actually fast in delivering justice, conviction of the culprits must be setup. Our complete system needs to be overhauled in order to give India an edge over others in becoming the next breakout nation.