Thursday, September 12, 2013

Paradise Lost I :- India – Overdriving

Paradise lost was written by English poet John Milton way back in 17th century. Primary idea of this Biblical epic is the fall of man - temptation of Adam and Eve by fallen angel Satan - and their subsequent expulsion from the Garden of Eden.

I am yet to read this book, but didn’t find a better analogy to describe the situation India is current in. A country which excelled in trade in ancient days remained in the dreams of Alexander, Roman Empire, Arabs, Persians, and Turks; European colonial powers like Portuguese, Dutch, French and English.

A country which enchanted the world to such an extent that many even imagined the presence of gold digging ants here, source of premium textiles, renowned for spice trade etc. However in times she was not able to live up to that reputation; we often failed to protect her from the invading army – Persians, Turks – who can forget the massacres committed by invading army in this land? Then another two centuries under British.
Independence in 1947 certainly freed us from British. Unfortunately, economic ideas which based more on ideals than practical realities often held the country back. These policies led us to the front door of IMF in the early eighties, then on early 90’s.

Under strict conditions of IMF GoI led by then Prime Minister P.V Narasimha Rao broke many chains and allow the fresh air to come in. Ironically many in India is not ready to give any credit to Mr Rao – who was ready to take the political risks even when running a government which holds a wafer thin majority in Parliament.

Many feared the breaking of status-quo. Firms which stuck in the old world lost their prominence. For each firm who underestimated the power of new market equations – there were ten hungry others in the street to grab the opportunity - end of dreaded License Raj.

 The biggest example may be telecom sector. We applied for a landline connection in the end of eighties and we got it at the end of nineties - almost 10 years for getting a simple connection. Things changed by the beginning of 2000s. Entry of private players with never ending appetite for market share and profits changed the whole foundation itself. Private sector banks may not offer loans for poor but it certainly offered a different option for Indian public and gave PSUs hard run for money. Unfortunately this didn’t change the attitude of PSU banks, which clearly reflects in the growth rate of private sector banks.

In the end of 90’s world also witnessed some dust, smoke and fire coming from the deserts of Rajasthan, which of course accompanied by similar smoke and dust from across the border. I am still wondering wasn’t it more practical for India to remain as an unofficial nuclear power? That blasts were accompanied with sanctions, which nationalists considered as an opportunity to show indigenous strength. Whether it was fully successful is still a matter debate. However ther is no doubt that sanctions certainly created hindrance for economic growth.

2000s also gave an opportunity for India’s IT sector. 90’s induced the momentum for Indian companies to start looking at global level. However it was in the 2000s these companies perfected what later came to known as global service delivery model - thanks a lot to Y2K as well. From there onwards it was a dream run, economy also showed rapid growth rates - averaging around 8% - for the first decade in 21st century.

In between many economists (majority of them are however Indian ones!!!) categorized India as the next major super power, shining democracy in BRIC which later changed to BRICS. Needless to say many – who really know the meaning of the word super power – described the country as ‘emerging power’. The caveat here is anyone can be an emerging power, as long as it is abstract it is difficult to put a number for that. This period also witnessed three stable governments at the centre - NDA, UPA I and UPA II. All three finished their terms.

Business also witnessed phenomenal growth. Many Indian companies went for an overseas acquisition drive, following the footsteps of earlier Japanese and later Chinese. Tetly, Corus, Natsteel, Jaguar and Land Rover etc came under Indian management.

Everything was not as good as it was presented in front of us. We jumped directly from (or tried to move from) an agrarian economy to that of service based one, ignoring the crucial middle one – Industries and factories. Because of this, our industry base was not in a good shape. Many of our exports were primary commodities such as iron ore, bauxite, mica and many of of imports were value added products. For e.g. India exported iron ore to China and they exported steel, and other value added product back to us. India exported titanium ores and imported titanium metal.

We were no longer in isolation, our economies slowly but steadily started integrating with rest of the world. This also tied as with global booms as well. Till 2007 other parts of the world showed decent growth rates, we too. Post 2007 global crisis, when we continued to travel in good pace – also backed by financial stimulus - probably a strange confidence came to us - this will go forever. For a long time, we debated and debated without any actual reforms – not much social reforms, not much economic reforms, not much reforms in science, universities, not much reforms in law and order or judicial systems either.

Older people often say we have to sit first and then stretch our legs otherwise we will fell down. Did we do that? In order to create a welfare state, government ran many programs which presented mammoth bills to exchequer. Take the case of National Employment Rozgar Yojana, this program almost emptied out Indian treasuries.

We were trying to give jobs to all but done little to reduce or atleast trying hard to control the population growth. We tried to create infrastructure, but private companies who bid for this projects did little homework and presented flimsy financial projections. Easy money for these projects – which based on unreliable projections – created too many non performing assets. Same case with power sector also, discoms never showed the financial prudence to charge people according to the generation cost, they hardly tried to reduce the power theft too. However central government indeed tried to cut the T & D losses.

So we can’t blame everything – all of our problems no matter whether it is financial or social – on global financial crisis. Our own health was week; our own house was not in order; if not today tomorrow it was bound to happen. Is global financial crisis is a cause for our current crisis? Yes. Is it root cause? No.


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