Following my Class 12 board examinations, I have now decided to pursue a Honors Graduate degree in Economics. Of course, a month back I was deeply rooting myself to make a cut into the top L-schools of the country but since that didn't really work out pretty well, I was swift to shift to my other love - Economics.
Having done a fair bit of inquisitive learning over the past few years, I have been able to accumulate certain general principles of economics ingrained within me. How a good monsoon would mean a good economic year for the country is something we are taught in India since the lower grades. To understand the craze of the subject among the younger minds of the country, it doesn't take Rocket Science. The following is my very first and a small attempt at Objective Economic Journalism. Hope it serves some purpose!
Deciphering the last decade through the eyes of an Economist: The Indian Case
"India is booming economy" is probably the most used phrase over the last decade in socio-political circles all around the world.
It is, however, not just India. The shift of global economic supremacy towards the east has been happening for a long time! China has been slowly and carefully mastering the art of Economics for decades now. Slow - because the time frame in context is more than four to five decades - and careful - because its policies have proved to be just about ideal for a communist regime. Needless to say, China is now well on its way to overtaking the US Economy by the next decade and a half.
But this article is not just another politically motivated piece which states what has been read and what has been heard so often over the last decade. This is my assessment, as an Indian teenager, of how, when and where we clicked and how, why, when and where we did not. The last decade has been a great experience for the Indian economy. From the IT boom (which had the essence of perpetuity) in the earlier half (in conjunction to the grand Business called ‘Outsourcing’) to the relative stability of the Economy throughout the years of recession, it has been a learning curve for one and all.
So this brings me to an attempt to decipher the last decade through the eyes of an Economist. Let me begin with our country's greatest resource - Human Resource. The latest Census figure puts our population to 1.21 billion. A large section of this population has the boon of, what is a popular scale of assessing a country's economy, employment. (The employment figures, when plotted, show a positive curve over the last few decades now.) Such a huge work force is inevitably a great attribute to any country with huge economic dreams, China is a living example. But it is not just quantity, it is more about quality. Japan would be an example for us to sight right now. And it pleases me to admit India lacks neither. The country produces top-notch Engineers, Doctors, Economists and Entrepreneurs (in thousands) every year with global recognition. India's Human Resource has been very well managed over the last decade by both the NDA and the UPA governments. The relative increases in the Literacy rate and the Percentage of under-14 children attending primary schools is a great indication of just that. (Before proceeding though, I might add, it is a certain other Census scheduled in June 2011 which would interest me more - the BPL Census. In essence, the true achievement of India's policy makers would be reflected in those figures!)
However, it is not just Human Resource which counts. A closer look at, what the current Chief Economic Adviser of India, Kaushik Basu writes in his BBC article (dated 29 June 2004), the 'Nuts and Bolts' of the Economy which provides us a better insight as to why our GDP (Gross Domestic Produce) - the often considered scale of growth - has never touched double figures.
If I had to constrict what our CEA had said nearly 6 years ago, and what is still relevant today, is that the Indian Governance fails to provide Entrepreneurial incentives. In this article that I'm speaking about, he draws a brilliant comparison. Let me now reiterate two classic sets of figures which I came across in this article. First, the number of days it takes to start a business in India, on an average (as of 2003) is 88 days in sharp contrast to 1 day in US, Singapore and 2 days in Hong Kong and14 days in China. And more startlingly, the number of months it takes to resolve Insolvency of a Firm in India is 136 months in yet sharper contrast to 8 in Singapore, 36 in US, 12 in Hong Kong and 31 in China. If I were to break that data down to layman terms; in India, it takes you a (relatively) very long time to start a business (thereby losing out on the most important resource - time) and it takes an enormously longer time (11 years) to stop a business which has faced insolvency (thereby losing out on the second most important resource - money). If "Time is Money", running business in India is difficult to explain.
The current figures of these Nuts and Bolts of the economy may be a hard statistic to get for someone in my position, but it isn't very difficult to understand how the change wouldn't be much different.
A strong argument against that case would be - the recession did happen.
Let's not forget those days of August 2007 to January 2009. The after effects of the recession are still widely prevalent. Theories have also suggested how the current Inflation in the Indian markets (and likewise around the world) is one such after effect. But to suggest lack of entrepreneurial encouragement helped India sustain the recession better than, let’s say the US, is absolutely immature. To think of it, the effect of recession in India could have been far worse, agreed. But there ware different reasons for the aforementioned observations.
One of those reasons is this innovative line of thought which has been intriguing me for some time now. Its still a largely debatable conclusion, but one which finds plenty of arguments for it, nonetheless. In 1977, India's ForEx reserves at a meager $ 5,824 million which rose to $ 14 billion in 2005 and then $ 310 billion in 2011. Subsequently, what has more importantly increased is the International investment of this Foreign Exchange. From somewhere around 20% (if I recollect properly) in the late 1970s, early 1980s to 35% of her ForEx last fiscal, this could well be the masterstroke India played.
Along with that, what was another major achievement of India in this field was the establishment of the attributes of Professionalism, Punctuality, Deliverance and Sustainability of India Inc. because of the Software and Outsourcing boom which totally re-shaped the Silicon Valley of India’s fortunes over the decade. The Liberalization and Privatization policies of 1991 could probably be thanked a million times over and yet be under-acknowledged. India targets a 10% growth on GDP in its 12th 5-year plan commencing 2012. That shows the confidence which the last 10 years has pushed into the Indian system.
However, my thoughts will not just be restricted to what has happened over the last decade that we see India among the topmost developing nations in the world. A comprehensive review of the last decade shall be incomplete without noting the deficiencies of our policy making.
Firstly, India's infrastructure. Statistics say that it takes an Indian good 32 days to be shipped to the US for marketing purposes. The same good takes 16 days from Japan. No, its not the obvious proximity geographically, it is also the lack of large ports in India. This point is entirely adopted from Kaushik Basu's Journal in "An Economist's Miscellany", a book the CEC of India published earlier this year. He mentioned this point a few years back in a convention in Singapore which also assessed the economic growth of China and India over the years, slowly taking shape as the global leaders. India's goods have to be first ferried to large ports in Free Trade zones via small vessels before car-going them to their intended destination.
Secondly, the lack of dependence on Non Conventional sources of Energy. I believe the signing of the 123 Agreement with US in 2008 was a major achievement on the part of the then ruling government. It gives us access to nuclear fuel which we can comprehensively utilize in obtaining energy. The crude oil import in India is equivalent to its 1/3 rd of its gains from exports. Coal reserves are also reducing and will be over in a couple of decades. In as such, nuclear fuel is the most fitting alternative. What happened at Fukushima earlier this year should not be the sole deciding factor in this regard. The plant was constructed at a High Risk Zone (Earthquake prone demarcation) and such an incident could well be accepted to be "bound to happen".
My suggestion would be allocating Low risk zones ONLY for such purposes. Nuclear fuel is clean and is very cost effective. In connection to this, the hue and cry over the Jaitapur project is absolutely baseless. Jaitapur lies in a low risk zone and it is highly unlikely that a Fukushima - like incident would happen. Moreover, the precautions are aplenty and it is relatively much safer than what it was even a decade back.
A positive development of the Indian economy is an absolute guarantee with a shift to Non Conventional energy sources.
Thirdly, India’s domestic policies. India's revenue accounts for only 13% of its National Income. This too, I attribute to Kaushik Basu. (Yes, that man is actually amazing!) If India were to increase that even slightly, it would show as a major development. In fact, India is already on its way to doing this. Consider subsidy reduction by strategic increase of Petroleum prices over the last 2 years a case in point.
It is still however, very premature for us to accept the above as the say all while reviewing the last 10 years. Plenty is unknown and plenty shall be made known over the next few years. The 12th 5 year plan, as I had mentioned, holds the key now for India to give that much needed push – a push similar to the push of 1991 to come out of the tag of “Potential leaders of tomorrow” and become the leader in the World Economy.
The time is now. The next International Monetary Fund (IMF) chief’s position is likely to be overtaken by either the current RBI (Reserve Bank of India) governor Duvvuri Subbarao or the current Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia. This is the absolutely the best time for India to announce itself to the world forum in a more assertive way. The power to lead lies in our hands, and whether we do succeed or let slip this glorious opportunity – only time will tell.
