Last chance for the Indian economy? Mihir Sharma explains

February 9, 2015

IMihir Sharman the history of India’s economic reforms, rhetoric has often proved to be a stronger force than substance. Scrutinizing The Indian Growth Story, a facile phrase casually tossed about by newsmakers and newswriters, reveals that. Historians, however, have documented the liberalization of the economy in 1991 — the pole around which the Story spins — furtively. A good chunk of Mihir S Sharma’s gripping first book, Restart, delves into the events of that hot summer of 1991: the colicking infancy of a reformist India and how a missed opportunity and internalised mistakes have plagued the economic agenda ever since.

“Supercharged by the cash being pumped into the arteries of global finance,” India’s economy grew consistently for years, Sharma writes. Poverty rates fell, literacy rose and an improving economy triggered a move into the middle classes for millions of people. This led to a big appetite for consumption and what looked like a clear path toward India becoming a world superpower.

“But, then,” Sharma writes, “it all fell apart.”

Sharma blames a premature rush past industrial development toward a service economy, as well as archaic laws, myopic approaches to economic policies and bureaucratic lassitude.  Today, half the population is under 25 and looking for jobs that are in short supply. Sharma spoke with me about his book and about India today. Here is an edited excerpt.

Q: What is it that makes economic development in India so uniquely complex?

A: India, today, is democratic; young and angry and demanding; socially confused and diverse; and very poor. These things have never been seen together before. This country needs to go through three transformations at the same time. The first is the demographic transition — a bulge much like the U.S.’s baby boom. The second is to build the infrastructure of a modern economy, with all the stresses and social strains that will cause. And finally, we need a turn towards modernity in our attitudes and preferences and lives. Each of these is difficult; and we have left them all to the last minute. And to top it all off, we have also to manage these three transitions while being a vibrant and diverse democracy. Who has built infrastructure while being so democratic, for example? The rich countries of the West were oligarchies when they built their roads and railways; the tigers of the east, authoritarian.

Q: Boldness isn’t something associated with economic decisions in India. Do you see a change in the old guard with the new government?

A: I think that Narendra Modi is more powerful a leader than we have had for decades, so he has a lot of political capital to spend, and he could spend it on economic reform. He hasn’t so far, but he still might. Really, in the months since his election last May, he has been far more style than substance. He’s promised reform, but hasn’t delivered it – hasn’t even started the process of delivering it, of drafting new laws, for example.

Q: The death of industry is where your book puts the blame. Is the Make In India programme a solution?

A: It is the right diagnosis of the disease. But, as I argue in Restart, the cure has to be the right one — you mustn’t make India a 1970s-style inward-looking, anti-imports economy. You have to embed India in the global economy. Which turn Make in India takes will be crucial.

Q: How deep are cronyism and corruption in policy thinking? Do you see it healing any time soon?

A: Nope. We have too powerful an executive, and regulators that are too weak, for us to fix cronyism and corruption easily or in the near future. Nor will we end it while we think it is a moral problem, and not a managerial one. It is about the wrong processes, not the wrong people.

Q: China has set an example of development for South Asia, but it came at the cost of political repression. Do you see a middle road for India?

A: Many in the Indian middle class would willingly give up the freedom of others for more growth for themselves. This is a foolish, dangerous and immoral bargain. It would end India, as we know it — and it would not grant us prosperity, either. We need freedom and democracy because we are far more diverse and vocal than is China.

Q: Reforms that will lead to economic recovery were what the country voted for last year. The government too seems willing to deliver growth. Do you see reasons to be hopeful?

A: I see the anxiety about economic growth as immensely hopeful — for too long we’ve simply had our heads in the sand as a country, assuming that we will grow at breakneck speeds without doing the spadework that’s needed. But I am depressed, too, at the lack of careful thought about how growth can be delivered. That’s why I wrote this book.

(Editing by Robert MacMillan. Follow Atul on Twitter @errows and Robert @bobbymacReports | This article is website-exclusive and cannot be reproduced without permission)

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The biggest stumbling block to growth is the vice like grip the bureaucracy has over the executive. Big bang reforms implies amending rules/laws to minimize redtapeism and improving the business environment. India needs to generate jobs at a mindless pace failing which India would disappear from the economic horizon of the World. Mr Modi needs to bite the bullet and shrink the the envelope of bureaucracy to more rational levels to keep India ticking. Will he!!! only time will tell.

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