Frittering away the advantage

As years pass by it is becoming more and more difficult to be overly optimistic about India. Although the world continues to eulogize India (a lot less than China of course) for the rapid GDP growth of the country, it is becoming difficult to believe that it will last. Several incidents and news reports from the recent past are giving even incurable optimists like me, jitters. Topping the charts is the ineptness of the central government. Dr. Manmohan Singh is beginning to look like Nero, who is fiddling (rather, twiddling his thumbs!) while the country is slowly burning bit by bit.

The old India before the economic reforms of the 1990s was a poor country with very few rich elites. A majority of the people were poor while the few rich lived in their own enclaves. Exhibitionism was not a trait encouraged in those days. Occasionally one would hear about a corruption scandal, a grand wedding here or a lavish event there. The newspapers were occupied with reporting about the harshness of life especially given that the avenues for escape were not within reach of most people. The tight leash of government control kept every one limited to a low level of affluence that wasn’t easy to break out of. Making money was considered bad. The movies of the times reflected this mentality by portraying the industrialist or the rich banker as a villain. Income inequality wasn’t something to be concerned about as everyone was equally poor. However, since the economic reforms of the 1990s, new opportunities have opened up for a lot of people, many of them asymmetrically so. The freeing up of the energy of the people has resulted in exactly what was expected to be achieved. A lot of people have figured out ways to make money and wealth is no longer a bad word. There is now a scramble for wealth. This actually unleashes a lot of pent up demand among people who look at their neighbors and wish they had what their neighbors have. This is not abnormal behavior. In Economics 101, that would be called “animal spirits”. Where India has erred is in harnessing that animal spirit in ways that could benefit the country the most. As a result, very strangely, the word “reform” has slowly turned into a bad word for the same people who started the whole thing! Dr. Singh no longer believes that he has the mandate to proceed with more reforms. As a result, it is difficult to predict if the rosy projections of 9% GDP growth is really achievable. Growth is the only way to build the resources needed to achieve equity (notwithstanding the latest debate between Dr. Amartya Sen and Prof Bhagwati). What is urgently needed is to sell the idea of reform to the people and follow through with more reforms. India used a measured approach to opening its economy by ensuring that the various sectors were opened up one by one over time with a lot of debate. However, India forgot to make sure that further reforms were put in place to ensure that the fruits of the reforms would reach the wider population in due course of time. The original idea of “trickle down” economics stagnated before it could really trickle down. What I mean by this is that there are certain important reforms which are hanging fire simply because the government is unable to form a consensus on the path ahead. For instance, land use reforms is so important to ensure agricultural land is converted for industrialization appropriately and the owners are compensated fairly. Labor reforms are required to make sure manufacturing as a sector can take off. Contract farming and agricultural reforms are vital to ensure that the Indian farmer has an even chance of making it in the globalized world. This is where the government is frittering away valuable time twiddling its thumbs.

A few news items from recent past are pointers to the malaise that is building. I am not even talking about the corruption scandals, scams, the land grabs and illegal building scams. A few newspaper headlines caught my attention:

“Philippines overtakes India as the preferred country for call centers” screamed USA Today on Jan 9th 2011. DNA India cried on Jan 20th 2011 “Wall St sees China’s VanceInfo, Nuesoft toppling TCS, Infy”. The same page also had another headline saying “How India lets slip its clinical trial advantage, guinea pigs and all”. In isolation, these are probably harmless headlines about business opportunities of the past. TCS and Infosys are perhaps yesteryear’s success stories. There is perhaps no need to cry over them. But then, India needs new champions, or these champions need to remodel themselves for the new future (more about that in a later post). The fact is that there is nothing new in the horizon for India. At the same time, we seem to be preoccupied fighting each other on every topic. When will we get back to the main business of the day – moving the country forward? Our history does not give a comforting answer and that is what is making me feel less optimistic!!

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