In the corporate board rooms of many multinational corporations the “India Story” which was weaving itself has now given way to “India Sorry” with accompanying pathos. The overwhelming feeling is of a wholesale deprivation of the aspirations of the talented Indians by their political masters. “Incredible India” is desperately ‘in’ need of a ‘credible’ script, actors, technicians and the works. Flash back to the 2003-06 time frame, thanks to the easy money flowing in from the developed markets to emerging markets that included India, the markets were on fire. Pundits and others claimed that a GDP growth of 7-8 % is the base line rate of growth, come what may and if Govt. and administration did its bit (and If China gets to host events like Olympics 🙂 ), we could head towards 9 – 10 % growth. The party was briefly interrupted by “the Lehman shock” the tremors of which shook the world – developed, developing and others. I say briefly because within a year or so markets like India and China not only recovered but were again breathing fire. This time the stimuli announced by developed countries like the US, Germany,… injected funds into the monetary system and once again easy money found its way here. This was when the “India Story” was running full houses worldwide.
I recall seeing and hearing of many multinational companies having their Board meetings in India that time. Expansion plans for global companies seldom excluded India. Forex reserves were booming whether it was thro FDI or FII money. If you look at it now, that kind of over the top India focus and fuss became detrimental to India’s future. For, the rulers(UPA-I) started imagining and talking of India which is “decoupled” from the world without realizing that if structural reforms are not put in place, the “India Story” will turn apocryphal when the flow of easy money stops. And that’s exactly what happened. This is explained beautifully in Ruchir Sharma’s book –“Breakout Nations – In Pursuit of the Next Economic Miracles”. While he analyses many emerging markets and gives his verdict, as far as India is concerned his verdict is a 50:50 chance for India to breakout. I suspect that his own patriotic “Indian at heart” feeling came in the way of saying that the chances are pretty dim for India to become a breakout nation. Ruchir also says that we will have to get used to the “New Normal” of Pre 2003 GDP Growth which is 5.5-6%.
My own sense is that if India had focused on Governance, the situation would not have been as bad as it is now inspite of the global liquidity party getting over long while ago. However in India the politics of economics is a deadly game. So instead of focusing on Governance, the Govt. headed by a Cambridge educated Economist was economic in Key decision-making and thereby introduced “policy paralysis” in the lexicon of the opposition/Industry and corporate reviews. Many observers are in unison when they point out that the Union budget presented by the present President of India in the year in the year 2012 as finance minister was the tipping point that led to world relegating India as a foot note in their strategy documents. Pranab Mukherjee amended the Income Tax Act, 1961, to impose a retrospective provision for tax on some types of global mergers, including Vodafone’s 2007 acquisition of Hutchinson’s assets in India. Even for a lay man it is difficult to fathom how somebody in the Govt. can think of passing an amendment with retrospective effect when companies have taken decisions to invest based on prevailing laws of the land. That this controversial provision passed through the FM, the bureaucracy and even the PM is till today a shocker for me. From then on it’s been a downward climb with downgrading of ratings, pulling out of money, slowdown in investments, falling off the Rupee,..,.. India got demoted while Pranabda got promoted 😦 😦 To compound to the situation, delay in environmental clearances for new projects, banning of mining, Telecom imbroglio, corruption charges all this made Indian investors to look for avenues outside of the country to invest.
As a rearguard action, Chidambaram was brought in as the Finance Minister to succeed Pranabda and frankly speaking he has been trying his best. The decision-making wheels in the Govt. have started moving. The “Rajan effect” has been just short of magic. From the time Raghuram Rajan was made the Governor of RBI, there has been some great things happening in the economy the most important being the strengthening of Rupee. But the “Sir Newton effect” has been overpowering. Newton said “For every action there is an equal and opposite reaction”. So the reaction from the world now is of a wait and watch. With the Government in the December of its term, it makes little sense to investors and others alike to jump into the fray. For them it makes more sense to wait and see if India presents a credible and durable “Change” come 2014.
And it is not just the world which is looking for a change in India but even within India the mood is the same. Though it is still not clear what the opposition’s clear economic agenda is, Narendra Modi the PM candidate for BJP is attracting attention all over. This can only be due to an overwhelming yearning for change. If that change happens, it will be interesting to see how they tackle the economy differently. Yashwant Sinha an Ex and potential finance minister in his book calls himself a “Swadeshi Reformer”. As oxymoronic as it sounds, except for opposing what the Govt. is doing, even he has not yet spelt out clearly BJP’s stand on key economic reforms.
Shankkar Aiyar a reputed columnist in his book “Accidental India” says and I quote “It would seem that everything the country has achieved has arrived by accident, catalyzed by calamity”. Turning points in the country like the liberalization of 1991,.. as per him “were not the result of foresight or careful planning but were rather the accidental consequences of major crises that had to be resolved at any cost”. For quite some time now I was of the same opinion but dismissed it as a streak of a cynical Indian. But reading this fantastic book has confirmed my worst fears around policy making which is by nature reactive rather than proactive. As the country is in the throes of another economic crisis if not collapse, we await another “accident” which will bring the “India story” back to the global theatres. Till then it looks like there is no escape (velocity) 🙂 🙂
Also pls. read my earlier post on reforms “The Politics of Reforms” written in Sep 2012 – http://wp.me/p1dZc2-bQ
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