It’s time India reposes faith in itself

August 18, 2011

(Rajan Ghotgalkar is Managing Director of Principal Pnb Asset Management Company. The views expressed in this column are his own and do not represent those of either Principal Pnb or Reuters)

The one thing common across Asian tiger economies, including China, is that all of them have had to give up political liberties to achieve economic freedom. The situation in India is just the opposite.

Nowadays, it seems difficult to avoid an animated discussion on corruption, inflation due to our inability to drive a consensus for reforms and muster up the political will to enforce governance. Some mourn the beginning of the end of the India growth story.

A few hours into any cocktail party and lo behold the panacea for all India’s ills emerges: a baton-wielding authoritarian ruler.

The current political scenario seems to be the collective manifestation of these feelings.

India broke away from the shackles of exploitative colonial rule 65 years ago. The economy was in shambles and suffered a near flat growth rate for a decade. The first five-year plan began with a growth forecast of a mere 2.1 pct. The Cold War left our fledgling nation with no option but to continually weigh our politics on the one side and balance growth and poverty alleviation on the other. The balancing continues even today despite growing at over 8 pct.

Not till the 1990s when the Berlin wall came down taking with it the Soviet Empire and India suffered a balance of payments crisis, did we find the political window to initiate our first bout of financial reforms. FDI was encouraged, utility monopolies were gradually put down and service sectors including IT were given the opportunity to grow.

We achieved self-sufficiency in food and between 1991 and 2001 over 100 million were extricated out of poverty.

Despite the noise around India’s inability to improve on human development, it is not widely mentioned that the UNDP has acknowledged rapid improvement since the 1980s and poverty rates were down almost 10 pct.

Rapid economic progress invariably leads to a spurt in the Gini coefficient which is a measure of economic inequality. However, in India, it moved up from 0.30 (1993) to only 0.32 (2005) and is still better than that in the U.S.

Over recent years, the world has learnt to accept India as a future economic power.

The scale of India’s economic achievements can be better appreciated when we realise that our progress today has been achieved whilst our population grew from about 300 million to a billion. Surely this could not have been possible without substantial economic progress and social emancipation at the lowest strata of our population.

Of course, one could always have done better but in a way I would appreciate the Prime Minister for his honesty when he says he does not have a magic wand.

The challenges India faces (which I would liberally attribute to the growing pains of a teenager) are simply too large to be resolved within a five-year term. Therefore, our progress has to be a relay run between successive governments. Our ability to do this whilst overlooking the electoral risk to incumbency will only grow as our democracy matures.

An Indian version of a Jasmine Revolution, I would say (at the cost of disappointing many Western hopefuls) is most unlikely simply because our democracy will always work as the safety valve. There are not many other developing nations, including China, which can claim this.

However, the one factor which has exasperated the situation is the furious pace at which India has been exposed to communications technology. In a country which prided itself on underplaying success and wealth, it is getting increasingly difficult to keep them under wraps.

Glitzy television exposure has possibly highlighted economic inequalities more than anything else. Everyone can now gaze wide eyed at the lifestyle of the newly rich.

An evening spent in front of the box can leave many of us wondering if it is indeed the same world we live in. The realisation that most of the things endorsed by these attractive models are out of reach for most quickly dawns on us adding to the feeling of deprivation and inequality.

The middle class, especially the emerging, who happen to be most exposed to technology and are opinion makers seem rattled with its downsides like uncertainty in employment due to the continual rise of knowledge content in jobs and elimination of routine tasks leading to work force obsolescence.

At the Asia Society dinner in Sydney last week, World Bank chief Robert Zoellick said “what we have seen is that confidence is a fragile element of how the market economy works”. India too seems no exception to this.

We need to be wary of losing our singular achievement; possibly the most functional democracy in the world.

It’s a time when history needs to be closely read lest we are condemned to repeat it.

Hitler and Mao rode to power on the back of mobs in similar circumstances during times of economic distress — albeit using different means though quoting similar causes.

It does not take more than a charismatic personality espousing a cleansing agenda to gather a following and evoke a widespread venting of pent-up frustrations.

Based on fundamentals, India remains one of the best macroeconomic stories in the world.  It is important that we look at development and reforms in the context of our politico-economic historical context.

All economic, regulatory, judicial and electoral reforms have to be built upon our existing institutional framework lest we risk a Sophist Revolution.

In our haste to find quick fixes, I pray we don’t end up throwing the baby out with the bath water.

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