‘Economist’ and India

Vir Shanghvi in his Sunday column in Hindustan Times talks of the public resentment touching the media too. “In the case of the Bombay attacks, it began as rage against politicians, was transformed into hatred of Pakistan and has now mutated into anger against the media.” Will the public at large react to the confusion created by media in India about the economic slow down, joblosses and a possible recession?

Economist this week has special report on Indian economy. The lead article ‘Suddenly vulnerable‘ says,

‘Asia’s two big beasts are shivering. India’s economy is weaker, but China’s leaders have more to fear. Until quite recently, the world’s fastest-growing big economies both felt themselves largely immune from the contagion afflicting the rich world. Optimists even hoped that these huge emerging markets might provide the engines that could pull the world out of recession. Now some fear the reverse: that the global downturn is going to drag China and India down with it.’

The special report- ‘An elephant, not a tiger‘-talks about the Mumbai massacre, the economy and politics of the country.

‘Amid the slaughter wrought by just ten well-organised assassins many individual Indians acted heroically. Yet the institutional response, as so often, was poor. Properly trained troops took over nine hours to arrive at the scene… Nobody yet knows how serious the slowdown will be, but in theory a recession in the rich world should hurt India less than other emerging markets: exports amount to only about 22% of India’s GDP, against 37% of China’s…To make a serious dent in poverty, India needs to keep up economic growth of around 8% a year. In the medium term that should not be too difficult. More impressive even than the success of India’s best companies is the zest for business shown by millions of Indians in dusty bazaars and slum-shack factories. They are truly entrepreneurs. It is no coincidence, as is often noted, that Indians have prospered everywhere outside India.’

If India is to sustain a growth rate of 8% or higher, as it aims to do, it will need to manage four potential constraints: its rotten infrastructure, the dreadful quality of its education, its cumbersome labour and land laws. India is getting stronger, but its problems are also growing. In the end, the pattern of its progress suggests, it will succeed.

The second article ‘The democracy tax is rising’is on the prospect of political alighnment for next election. Indian politics is becoming ever more labyrinthine.

A BJP-led government would offer India a better prospect of reform than the current arrangement, but possibly not much better. Whether Congress could make a better fist of bringing change, given another chance, would depend first on whether it was again shackled by the Communists. Of the other possible coalition leaders, one, the BSP, which is led by an autocratic former primary-school teacher called Mayawati, has captured India’s imagination.

In the third article ‘Storm-clouds gathering ‘the subject is what the world recession will do to India’s economy.

The crowning reason for optimism, however, is the savings rate. A young population should be sufficient to keep India’s savings rate close to the current level for the next two decades. Because the government eats up so much of India’s savings, the country relies unduly on foreign capital to sustain its high investment rate (its current-account deficit recently widened to about 3.5% of GDP). High public spending also contributes to inflation, which limits the RBI’s freedom to cut interest rates. Yet there are some slim reasons for hope.

One is duress. In a slowing economy it might therefore consider selling a few of the state’s many loss-making companies. Another, more tentative, reason for hope is political. In middle-class India, especially, the recent run of high growth has become a source of national pride. The third reason is intellectual. India has, so far, been proved right in opening its financial sector to globalisation only cautiously.

The next article, ‘The world is rocky’ talks about the India’s IT sector. India’s computer-services firms are in good shape to survive the financial crisis.Most Indian computer-services companies are at least in fighting form. Smaller firms, which offer imaginative-and perhaps dispensable-niche services could struggle in a slowdown. But the biggest have little debt and lots of cash. As much as 80% of their revenues, moreover, come from essential services-“keeping the lights on” in industry-speak-which their customers could not easily cut back.

‘Creaking, groaning’ infrastructure is India’s biggest handicap. India plans roughly to double its investment in infrastructure, to $475 billion over the next five years, or about 8% of GDP a year. In the next five years the government plans to increase India’s generating capacity by an annual 14%, or 90,000MW. At least almost all Indian children now go to school: a survey of 16,000 villages carried out last year by ASER, an NGO, put the enrolment rate at 96%.

‘A litany of trouble spots‘ details the trouble areas.

Yet apart from Kashmir, which carries a threat of international war, religious violence may be the most worrying of India’s conflicts. Its usual cause, discrimination against non-Hindus, is profoundly corrosive of the state.

Increasingly, where Indians have grievances over land disputes, Naxalites crop up. They are a symptom of India’s corrupt and malfunctioning state: thriving, in poor and crowded parts of Uttar Pradesh (UP), Madhya Pradesh and Bihar, where the district administration is weakest. In the short term, they represent a law-and-order problem which India needs to address more urgently.

However, even in the countryside, where caste prejudices is still virulent, there is surprising change. According to a recent survey of 19,000 dalit households in UP by researchers at the University of Pennsylvania, dalits were much less poor and caste-bound than expected. In 1990 nearly three-quarters of dalit households in western UP earned a living from skinning animals, an “untouchable” occupation. In 2007 this had come down to 0.6%, apparently because the local dalits had got rich enough to refuse such employment.

‘An awkward neighbour in a troublesome neighbourhood‘ deals with the neighbouring countries that are keeping India engaged. It is safe to assume, as Mr Emmott does, that Mr Bush’s fear of a rising China, and his wish to bolster India against it, was the main motive for the nuclear detente.

‘Ruled by Lakshmi’ finally talks of the need to keep the growth story going. Though inequalities are widening, India’s best prescription remains continued rapid growth.

I wonder why Economist came out with this special report. It is only because India is important for the world today in a way that was never before. Can the economists of India along with Man Mohan Singh, himself an economist of repute with the 1991 India’s miracle in his cap, lead the nation out of slowdown and make it isolated from the global impact? I wish the business class cooperates for its long term gain instead of going for large scale layoffs and retrenchment of its employees. With good crop prospect and no job losses that will ensure market, the economy can come on growth path faster.

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