Wednesday, December 21, 2011

From within, the Indian economy seems even less rosy

If and when students ask me about the prospects for the US, I tell them that my long-term bets are always on my adopted country.

The USSR came and went. The Sun briefly rose in Japan, and then sank really fast.  China is only a powder-keg away from the Communist party unraveling and, in any case, the country is far from ready to deal with the coming demographic implosion. 

The "native" country?

I quote the title of Amartya Sen's book, The Argumentative Indian, and tell students that the virtue of all-talk all the time on any topic will continue to constrain its economic progress. (Though, such a take on the title is not what the book is about.)

Thus, the US wins one of two ways: either it genuinely is creative and gets ahead, or it simply waits for others to fall and then be the last one standing.  Like with the case of the Eurozone now.

A few days into the India trip, and I see no evidence to the contrary.  The data points suggest to me that India's success might have been oversold, too.

There is a huge increase in consumption, yes.  Everything from chocolates and chips to computers and cars.  But, long-term investments that could propel continuous productivity enhancements seem to be severely lacking.  From the physical manifestations in roads and power supply to education and health.

Only a few days, and this is rather depressing.

A number of areas where in the US market and non-profit ventures kick in to meet demand are through the government, here in India.  There is, in fact, an expectation that government ought to do certain things, and that it is not delivering those goods and services.

Government is thought of as the default option. And that is what bothers me.  As much as I am far from being a maniacal Republican, and with enormous sympathies coming from the left of the political center, I find it troublesome when people casually sit back expecting the government to do things.

Government, meanwhile, at the federal and state levels, is severely paralyzed--not any surprise given that the best (worst?) of the "argumentative Indians" go on to politics.  The Economist picks up on this point of paralysis:
Investors and others lament policy paralysis. Ministers shy away from big decisions, fearing accusations of graft—though Mr Singh this week urged them at least to get on with infrastructure spending. Meanwhile an obstructive opposition, the Bharatiya Janata Party (BJP), has caused gridlock in parliament for much of the year, hoping to tap public fury over corruption.
As a result, the current parliament has done the least work of any in a quarter of a century.  
It is a similar story of paralyzed and incompetent governance at the state level--at least in Tamil Nadu, where I currently am.

The piece in the Economist was jarring for another reason: it refers to the government as "rulers."  In a democracy, leaders do not rule but govern.  In the US, we don't think of the President or a governor as a "ruler."  While the usage in the Indian context could have resulted from a lack of editing, perhaps it was intentional: referring to how much the people are "ruled" by state and federal governments.

It is no surprise, therefore, that the economic health of India is not looking good:
Local and foreign investors are already unnerved by a global slowdown. Political intransigence, continuing corruption, high inflation and the possibility that India will miss its fiscal targets all add to the government’s woes.
Another metric of the economic outlook is the exchange rate, where the rupee seems set to fall even further:
International investors are boosting bets that India’s rupee will extend the worst slide since 2008 as an economic slump deepens, suggesting a lack of confidence in the central bank’s steps to curb exchange-rate volatility. ...
The rupee, the worst performer against the dollar among Asian currencies and of the so-called BRIC nations in 2011, plunged to a record low of 54.305 per dollar on Dec. 15, poised for a third straight quarter of declines, data compiled by Bloomberg show.  
All is not well. I am all the more convinced that the US politicos should stop playing the "compete against India" card.

On the other side of the planet, back home in the US, things are picking up.  Yep, my long-term bets are always on the US.

If only Indians were a little less argumentative :(

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