Why India has only a fifty percent chance to succeed!

By Koomitara

After a decade of satisfactory global economic growth, thanks largely to very rapid growth of emerging nations, there is a pall of gloom now when the much celebrated high growth nations too are on the path of slow down. The question is which countries are going to reverse the slow down? Which will be new break-out nations? These questions have been answered in the book under review in highly refreshing manner with convincing arguments and palpable logic.

  The book remained in the chart of the Best Sellers for months together though it is not sufficient to judge its true merit. On the other hand there are a number of reasons to think that this may be the best book on global economic trends, which are puzzling and defying easy explanation.    
  
  Ruchir Sharma not only has deep insights into the economic trends of various countries owing to his profession which requires judicious investment decisions in emerging markets of the world, but also has a flair for lucid writing. He writes regularly for the Newsweek, Wall Street Journal and Economic Times. He is with the global market giant Morgan Stanley.
  
  The author takes his readers on an exciting tour of the world’s two dozen most interesting economies. He spots, describes and analyses forces that are unique to each country and which could make or mar the countries in the future. This he does convincingly as he has been a keen globe-trotter for two decades watching what was happening on the ground in developing countries. He spends one week every month in one or the other developing country.

India is like Brazil, not China

With these credentials his judgments carry conviction. His first major conclusion is that China's growth will slow sharply. The trend will be even more negative in the case of India, according to him. He thinks India is much like Brazil, not China. He observes: political elites of India and Brazil share a deep fondness for welfare-state liberalism, even though their economies do not generate the necessary revenue to support this. ‘India’s government expenditure has been increasing by 20 percent per year which is much more than the economy’s growth. The result is India’s total fiscal deficit has ballooned to 9 percent of the GDP from 6 percent. And total public debt to GDP ratio is now 70 percent, the highest for any developing country.’ If it goes on like this, India is going to face the same fate which Brazil confronted in the 1970s. The book says, it is easy to increase welfare spending during the boom, but the trouble is, it continues to rise even during a period of slowdown.

  One bigger problem he cites is the high cost of doing business in India. This makes Indian businessmen reluctant to invest in their own country; their investment has declined from 17 percent in 2008 to 13 percent now. At a time when Indians should invest more in India, they are looking for greener pastures abroad, he moans. Foreign operations now account for 10 percent of their overall profits: it was just 2 percent five years ago.

  The book is candid in theorising that corruption and crony capitalism lowers the growth as it kills competition. The book makes interesting observations on political leadership and its impact on national growth, and explains why the Congress now rules only in 2 of the ten major states of India. By citing the example of Bihar, he asserts: if people elect right leaders, the growth follows.

  Jairam Ramesh may be an ardent admirer of MNREGA, but he proves how it is damaging the country overall as it is pinning people to farms in low productivity jobs and restricting their migration to higher productivity employments in urban areas. This Indian strategy is just opposite to that of China which converted its growing labour force into an economic miracle just by helping migration. In India people living in urban areas rose from 26 to 30 percent only while in China they went up from 35 to 46 percent.

  The author finds great merit in the population explosion of India. ‘By 2020 average age of the Chinese would be 37, average Indian 29 and average European 49. China would be old before it gets rich and India would be a middle-income country and still young.’ Conventional view is, India will be able to put this young generation to work because of its relatively better educational system, entrepreneurial zeal and strong link to global economy. Still the author gives only 50 percent probability for India to emerge as a break-out nation as it is ham-strung by various risks like bloated government, crony capitalism, falling turnover of capital and the farmers’ disturbing tendency to stay on the farm. The book makes a quick survey of the global scene: Brazil will grow only at half the rate of China if it did not reform. Mexicans are migrating abroad for fear of being fleeced by petty officials and the police. (Mexico saw a net outflow of 2.4 million people during 2006-10, the largest exodus in the world.) Brazilians, very much like Indians, eagerly look for state-funded social welfare, resulting in high inflation and low growth rate-- four percent per year during 2003-07. Brazil has one of the highest interest rates in the world. As for Russia, despite having been the first into space and produced 27 Nobel laureates in science, mathematics, and economics, it has no global manufacturing company on its stock exchange. It has one of the world's worst aging population problems. In Russia there is room only at the top and things would not improve with the existing czarist mindset. 

  The book surveys the world to examine which nations are likely to flourish or disappoint, and which may emerge as break-out nations. Really interesting read!

What has Manmohan Singh done!

And on achievements of Manmohan Singh, he says he opened Indian market to foreigners and lowered import tariff from 85 percent to 25 percent. Yet, in the 1990s Indian growth rate was only 5.5 percent, not much faster than in the 1980s. India took off only during the global boom of 2003. It was not triggered by local factors. Singh remained just a figurehead, did not push any reform measure though he raised high hopes.



( The book review was first published in the monthly magazine of political affairs the ' Lokayat' (May, 2013 issue)