September 02, 2013

India's Economic Troubles

I would not have written this but for the fact that I put in a comment on M. J. Akbar's article today.

I came across the article in Mr. Akbar's Facebook feed although it may have been penned for his Times of India blog.


All of Mr. Akbar's articles are available on his blog.


There is much consternation and hand-wringing going on about India's current economic woes. So, is it entirely the fault of the UPA? Of Manmohan Singh and his co-conspirators Mr. Mukherjee, and Montek? Or Chidambaram and the ultimate Big Boss Sonia?


I doubt it. For example take the currency de-valuation.



It is interesting to note that while China attracts much criticism from its main business partner USA for keeping the remnimbi artificially under-valued, we see some weird nationalistic pride getting hurt when the rupee devalues.

It seems almost axiomatic that the rupee's moderate de-valuation will help the export sector and India's dreams of becoming an economic superpower presumably depend on export-led growth.

Like Krugman asked on his blog recently while talking about the rupee devaluation: "What am I missing?"

I suspect India's economic woes emanating primarily from a slowdown in GDP growth has much to do with the recession or the anemic growth conditions afflicting the developed economies.

If the U.S. and European economies were to grow at 4%, I think the boat of India's economy would happily make it to the shore as our exports would be "booming" which would create lots of secondary employment.

For a country as dependent on oil imports as India is, exports are the only way to earn the dollars to pay for those imports. Japan is probably the only other country which is so dependent on energy imports.

Is India as innovative as Japan?
It seems the developed economies have reached some sort of plateau of economic advancement or they had built up quite spectacular Ponzi economies with outsize financial sectors and outlandish home prices.

Either way, they will be de-leveraging for a while and bringing the house in order and tackling problems of gross inequalities in the distribution of wealth in their own societies. While India's problems are gargantuan, it's not as if America or Europe or Japan do not have any.

America's middle class is on the verge of collapse and it often takes one serious health crisis to push a family into bankruptcy.

While the developed economies battle with the problem of a population turning grey at a rapid pace with not enough babies and youth around, India's demographic challenge is the opposite. I do not think that it is an unadulterated blessing to have such a wealth of youth as India has.

While the 'middle income trap' is supposed to kick in when a nation's per capita GDP is around $4,000 to $6,000, it would be quite something if India hits that trap when its per capita GDP is barely $2,000.

Will India ever be able to reach a place where its citizens can be said to live a life of simple dignity? The historian that the author MJ Akbar is, he will know better than me if India has EVER enjoyed any measure of affluence.

But it seems going back centuries — as some like to do to point to mythical past glory — is pointless. India's population would have been about 100 million if you go back 150 years back.

India's population has grown exponentially from 320 million in 1947 to 1,300 million now. That we do not have desperate famines that kill millions despite such an explosion is perhaps achievement enough.

It seems to me that only countries with small populations ever become rich. India's boasting of a population which is the same as that of the U.S., Europe, and Japan combined seems an utterly inexplicable situation.

But these are longer term and deeper civilizational questions. In the short-term Game of Thrones that politics is about, perception is everything.

Even in the U.S., Reagan and Bill Clinton appear to have benefited thanks to the economic growth which happened while they were president.


India's near-term economic outlook appears grim. No matter whether the elections happen in a month or eight months from now, the economy will still be gasping and sputtering and those who are out of power will benefit and the incumbents take the blame.

It seems people have bought into the vacuous message of the CM of one small Indian state.

I am merely an amused observer.

Let the Modi Raj begin.


It may even happen that the cycle of global economic gloom lifts somewhere around 2015 and a growth environment persists till 2020. In that case, the next government will benefit as the incumbents.

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