What’s right with India

By Wally Olins
July 11, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Whenever I pick up a newspaper or a magazine — especially The Economist — I keep reading pieces about what’s wrong with India. Corruption is rampant, the infrastructure, what there is of it, is falling to bits, the government is senile and feeble and the economy is flagging — and so on. All of which may be true — but it rather depends on your perspective.

I live in Europe. Well, I live in Britain.  That’s not quite right either. I live in London. And I can tell you that the perspective on India from Europe or Britain, or even London, doesn’t look all that bad. In fact, from where I’m standing, it looks quite good.

Look at us.

The Euro? Don’t ask. Indebtedness? Everywhere. Growth? Forget it. It’s negative. In other words, we’re going backwards. Corruption and incompetence? Look at the banking sector. Morale? Dreadful. Leadership? There isn’t any. Yes, I’m talking about Europe, the world’s biggest and richest trading area — still.

India manages to have fourteen, or is it sixteen, major languages, and it still sticks together; Europe has about the same number, maybe a few more, but it’s starting to fall apart.

In India, most people know that the sum is greater than the parts. In Europe, we don’t seem to know that. It’s a lesson we still have to learn.

Yes, Europe is still the most diverse and diverting place on earth. Yes, Britain is Great, at least that’s what the government’s current advertising campaign tells us.

And, yes, London truly is having a wonderful year — culturally rich, creatively amazing. And, yes, we have the Olympics — a mixed blessing — although the weather’s foul.

But I can tell you that, from where I’m standing, under an umbrella in London, there’s a lot more right than wrong with India.

6 comments

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Finally someone has the guts to say this. There is a trend in all major agencies to report negative news against India. Sometimes for no reason.

Posted by 5thestate | Report as abusive

It truely is a feel good factor for an Indian like me when i am pondering over the facts where all this mess will lead upto. Its not that i am happy that Europe is in shambles but of late there has been too much negative in India for a citizen to ignore; your comment or i must say, your views were satisfying to an extent.

Posted by MatLou | Report as abusive

Willy Olins : Amongst the courageous few

I am usually very skeptical of the forecasts and outlook provided by research houses and economists. Not only are they not meant for the retail investors, but most of them show an amazing lack of knowledge of long term trends vs. short term business cycles

However, folks like Willy Olins (and a few others like Kalpana Morparia of JP Morgan India, Prof Vivek Dehjia of New York Times, Gerard Lyons of Standard Chartered Bank) are in the exceptional category. They get the difference between long term trend and short term cycles and are bold enough to voice their opinions publicly. They understand the difference between a contraction and growth.

Amar Harolikar
Unknown Insights

Posted by AmarHarolikar | Report as abusive

India’s Growth Story Intact: Interpreting macro numbers and trends the right way
(Story done on June 9th 2012)

There has been a lot of debate about India’s growth story coming to an end, with many top brokerages like Morgan Stanley and Goldman Sachs cutting GDP forecasts to sub 6% levels. However, my analysis shows India’s growth story is not only intact, it continues on a robust path.
The gloom-and-doom scenarios being painted today are an exact repeat of the phenomenon that happened during 2008-09 when the debate started that India’s growth story might be over and the Morgan Stanleys and Goldman Sachses of the world cut the GDP forecast for FY10 to sub 6% levels and some to even sub 5% levels.

What happened next?
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In FY10, India posted a GDP growth rate of nearly 8%!

So what went wrong with all the doomsday scenarios for India? Two things went wrong.

First, an undue importance was placed on year-over-year (YoY) growth rates without looking at the trend in absolute GDP. That’s a simple number interpretation issue. A case in point is all the gloom surrounding the sub 6% YoY growth rates posted in the last two quarters of fiscal 2008-09 and the latest 5.3% YoY growth posted for the March 2012 quarter.

Second, not looking at the long-term trend and the impact of business cycles. That’s an economic analysis issue. Take a look at the chart below. I have compared the trend in absolute values of India GDP with that of U.S. GDP since 2005. I have compared just the India and U.S. trends in order to clearly explain how long-term growth rates and business cycles need to be interpreted. To facilitate a comparison, I have indexed the GDP values by initializing the starting values to 100.

As you can see, the chart speaks for itself. The trend in U.S. GDP is like a straight line, having grown only a total of 7% in the past six years. India GDP, on the other hand, is on a strong uptrend, having grown more than 80% in the same period. Within this long-term trend, the ups and down of a normal business cycle can clearly be seen.

Understanding long-term trends and business cycles, more often than not, does not need complex models. Most of the time simple charts and a bit of common sense work well enough. For those who would rather look at complex models, the RBI website is the right source, not brokerage research reports. There is some fantastic analysis available on the RBI site, the summary of which is that a growth rate in the 8% range is now the new normal.

Current Economic Problems: More imagined than real
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The U.S. economy faces some structural issues, which are very real. Meanwhile, in India, the challenges to the long-term growth trend are more imagined than real.
The problems facing the Indian economy today are more tactical and cyclical rather than of a strategic or long-term nature. It’s not as if everything is hunky dory – no it’s not. There are challenges around fiscal deficit, current account deficits, governance and reforms. But all these challenges have pretty much existed for the past six years during which the economy continued to grow at a very healthy rate.

So, Is India’s Growth Story Intact?
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As of now, yes.

As the chart clearly shows, the long-term trend in India GDP is fully intact and issues like the slowdowns in 2008 and 2011 are simply the business cycle playing itself out.

So, is there nothing that can derail the growth story? Of course, there are many factors which can do so. But it’s only major structural changes that can derail India’s growth story, things like a significant fall in competitiveness in services exports, a rollback of reforms and such like. Not factors like dollar volatility, oil prices and minor variances in fiscal deficit.

India has continued to grow at a steady pace for six years, a period characterized by a slowdown in reforms, the Lehman meltdown, dollar volatility, high fiscal deficits, high food prices and what not. Factors like these have only caused the normal ups and downs of a business cycle in India, and I forecast that they would only cause normal business cycles going forward, too.

So, What Happens Next?
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In the next phase of India’s business cycle, the continuing drop in commodity prices, oil prices and interest rates will speed up the recovery process. Corporate profitability, which has already improved significantly, would post some handsome growth numbers. All these would result in a continuing GDP uptrend.

Related analysis (Done during May and June 2012)
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• 5.3% GDP: Numbers not being interpreted correctly; recovery is intact
• GDP Downgrades: Be wary of research house estimates; India’s growth story intact
• Party Time Again: Time to buy panic for the Sensex ride to 80,000
• Hiring and Salaries Going Up: Where’s the slowdown?
• Greece Paranoia: A blessing in disguise for India
• IIP Shows Recovery, Not Contraction
• Recovery Underway: Fears unfounded

Amar Harolikar
Unknown Insights

Posted by AmarHarolikar | Report as abusive

Well you see, the negative news relate to all things economics and corruption. People in the country are fed up with the way things that must not be traded are traded for big figures. Jobs, Justice, Plum-postings, contracts and industry is dictating what price it will pay to Govt. (not the other way) everything is up for grabs for a price to be paid to a lobby and/or political party. Countries resources are treated like private resources. Privatise profits and nationalize loss CANNOT be the way a Govt. is run. Land, mines & mineral resources are given away at prices that are peanuts (of course the real value is known and some 25 – 50% of it is received back by the people in power as kickback thus a neat asset purchase at 75% discount, which would appreciate to 500% in few years).

There is callousness in Governance to address the safety/security of weaker sections. A few women get raped / tortured every other day by either politicians or mobs (who are indirectly blessed by politicians). It is nothing short of primitive fight (on your own) for survival….three children do down the borewell hole and there is no national leader stepping in to issue / warn the civil admn in various states…

Poor farmers lost their land in Singur and there is politics than any responsible approach either by State/Central Govt. or by the very respectable Industrial group TATA. Don’t they have a soul to search and answer the call in the right way, as quickly as necessary to save these farmers ?

Supreme Court and CAG are the only saviours in India -apparently. The Central Govt., the CBI and all other arms including the Election Commission appears to do the bidding only of the people in power. Otherwise what will explain the post-dated resignation of presidential-candidate, lying to the nation and it is accepted by the EC also ?

Posted by Sridhar-Chennai | Report as abusive

Mr Ollins, this is what is wrong with India. http://www.youtube.com/watch?NR=1&featur e=endscreen&v=Ll9BYEB6_RE
It isn’t a one-off incident. India is mired with deep seated unresolved psyches,patriarchy running in the blood, the inability to embrace modernity truly. “In India, most people know that the sum is greater than the parts” indeed if you see this video, and if it is approved by the editor to go up under the blog, you will see how the sum here was surely greater than the parts. There is no sense of individual responsibilty. An incident like this should have shaken the country by now, any civilised society by now. But, it hasn’t. The polity is quiet. The state doesn’t care. This is whatis wrong with India.

Posted by Anuja | Report as abusive