September 16, 2013

The Euphoric Indian?

While the debate about Raghuram Rajan being portrayed as a 'sex symbol' might be worth having, the thing I noted was this unnecessary sense of euphoria in the avalanche of articles that came out when Mr. Rajan assumed the office of the Governor of the Reserve Bank of India.

It got me thinking. Is this euphoria limited to article writers who need fodder for their articles or is more widespread? Well, certainly the stock market types need any peg they can find to 'talk up' the markets. So it serves their purpose too if the markets 'rally' on the basis of the 'pep talk' given by the new RBI Guv.

But probably the larger population is not so easily driven to euphoria. Actually, if you see, there is this pattern in media reporting where they go into paroxysms of joy whenever someone new comes along.

Look at these articles that came out when Mr. Chidambaram 'returned' to the Finance Ministry last year.

http://www.firstpost.com/economy/will-chidambaram-succeed-as-market-friendly-reformer-399526.html

http://in.reuters.com/article/2012/07/31/chidambaram-finance-minister-idINDEE86U08F20120731

My thoughts on the state of the Indian economy are as follows:

(And this was posted as a 'comment' on a Livemint article)

LOL. I agree with the pessimistic outlook presented in this article.

But you guys had a 'gung-ho' article yesterday which was full of optimism.

My sense is that the media tends to get into these phases of 'irrational exuberance' over "personalities" which is based on hype rather than fact.


Not only the "inauguration" of the resplendent Dr. Rajan has caused this outpouring of hope (and even 'euphoria'), this happened last year with "The Return of the Chidambaram" to the Finance Ministry.

Before that, the arrival of the "great" economist prime minister must have led to much euphoria and exuberance. May be I too was 'prone' to such 'attacks' of optimism back then.

Going back even longer in time, 1991 saw the ascendance of the "intellectual" PM Narasimha Rao and in those poverty-ridden days of pre-liberalization India, I remember India Today gushing about the 14-language-speaking prime minister.

On the economic front, my sense regarding the 'double digit' growth of the recent past is that it can best be described as plucking the 'low hanging fruit' in terms of the benefits of liberalization.

Meaning: there was a certain scope for IT outsourcing which led to this $100 billion industry and there was scope for gems & jewelry exports and textiles exports based on India's low cost of labor. Well, those easy targets have been met.

Now the difficult challenges loom. How do you export a trillion dollars from India? Make those textiles cheaper and cheaper by paying less and less to labor? Compete with Bangladesh? Devalue the rupee? Same applies to gems & jewelry.

As to the IT sector, what does it say when the Indian IT industry is so deeply dependent on the 'arrival' of Obamacare to fuel the next growth spurt?

Just because India produces a million engineers and countless more numbers of MCAs and MBAs, I suspect the Infys, Wipros and HCLs (even TCS) cannot do much about the challenge of absorbing that workforce.

Already, these 'tech' companies are employing more than a hundred thousand to a quarter of a MILLION people. With that kind of headcount, the top tech companies of the world generate 100s of billions of dollars in revenue. The largest Indian IT outsourcing firm on the other hand just nudged over $10 billion in revenue.

Apple made a PROFIT of a $30 billion for crying out loud. Oh no. I said 30 and I take it back. Good that I checked in Wikipedia.

So, it's in fact $41 billion and $55 billion for net and operating income respectively.

I am speechless looking at those numbers.

What is the future in the next decade?

If India produces 10 million graduates over the next 10 years who want those AC-office jobs of a life spent hunched in front of a computer and if 40% of them are to be thus employed, the IT/BPO/ITES/KPO sector will need to produce 400,000 new jobs per year for the next 10 years.
Not that India will stop producing babies or graduates after 10 years.

Will the headcount of all those marquee Indian firms continue to grow and DOUBLE after a few years?

My head is exploding just thinking of these numbers.

And I have not even TOUCHED the "really REAL" problems.

I mean, if India produces 20 MILLION babies a year, those babies gotta be young men and women 20 years down the line. And the astonishing fact is this: it's tough, TOUGH to imagine a scenario of the Indian economy producing one measly million 'good jobs' (of the white collar kind) a year.

Summary: India appears to be an out of control, run away 'Mag-lev' of a train speeding at 320 miles per hour and the tracks are incomplete. Would the ending scene from Thelma & Louise be too pessimistic to describe India?

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