The irony of India story

Today, however, most investors refuse to acknowledge India as a competitor to China. Any comparison is rubbished because we are seen as being incapable of execution.

To many investors, India does not seem to have a long-term strategic game plan, and the lurch towards populism is scary. Everyone is convinced that this is a largely self-inflicted problem. The great demographic dividend is seen by most as an upcoming demographic disaster, given India’s inability to provide skills training to its people or to create jobs.

I try to think what the root cause of our travails is. I know we will point to policy paralysis, the global slowdown, lack of political will and interest in reforms, judicial activism and so on. These are serious problems, but the source of our travails goes back even further – when India was included in the BRIC group.

The inclusion of India in the BRIC group, as well as the surge in global capital flows and attention that this brought, lulled the country’s policy makers into complacency. We started believing that we were the next big thing, and that we had a god-given right to grow at eight or nine per cent for decades. We ignored the lessons of economic history, which clearly show that few countries have actually been able to deliver this type of sustained high growth. We seemed to believe that even with no effort we were destined to join this select club.

However, a great deal of effort was required to sustain this growth – serious reform, institutional adaptation, and the willingness to take some tough decisions, which could have caused short-term pain. It is here that we have been found lacking. As we began to believe in our growth acceleration and in its permanence, we started putting in place spending programmes to utilise this revenue windfall – not once questioning what would happen if growth slowed. Many economies get stuck in the so-called middleincome trap, wherein institutional weaknesses prevent the realisation of an economy’s full growth potential, which normally happens at a much higher level of income per capita (typically above INR432,871-8,000 a year). India seems to have stalled at far lower levels of economic development. This is largely due to complacency and an unwillingness to make structural improvements to our economy. I think the current growth slowdown, although harmful in terms of economic hardship, has at least shaken our policy makers out of their complacency. No longer does anyone believe that we will grow at eight or nine per cent, irrespective of policy action. Everyone acknowledges that we don’t have all the answers and that there are lessons to be learnt from other economies. Therein lies an opportunity for India. Just when most people have given up on us and on our ability to make the economic course correction required to regain a strong growth trajectory, the odds of us making the necessary changes have never been higher. Irrespective of which government comes to power in 2014, I am confident that the changes required for us to regain our growth trajectory will be implemented. Ironically, belief in India’s long-term growth outlook has never been weaker, but the chances that we will take the necessary steps to deliver that growth have never been stronger. (Source: Extracts from an Article by Mr. Ajay Shah in the Economic Times dated 10.10.2013)