Tuesday, September 24, 2013

A Crisis of confidence

A Crisis of confidence                                                                            25 Sep 2013
Can India’s backward polity ever provide a pro-growth economic environment?

Less than a decade ago, enthusiastic investment bankers and financial research analysts were tom-toming the India growth story. India, they said, has so much potential, it could be one of the world’s biggest economies in the next couple of decades. For this, they used spreadsheet models, in which they plugged in a growth rate of 8-10% and projected it for the next 30 years. They learnt this in MBA school.
Of course, anything growing at a compound annual rate of 10% will become pretty massive in 30 years (17.4 times, to be precise). Hence, the sharp minds made an earth-shattering prediction: that anything growing very fast will become very big over time. Clients of financial institutions, seduced with such a rosy picture about the land of miracles, bought into the idea.
Boring economies of Europe, growing at 1-2%, just didn’t carry the spiciness of India.
In all this, a few uncomfortable questions were never asked. For instance, is the government committed to providing a pro-business, pro-growth economic environment? Is the Indian polity ready to accept this new capitalist system? Are we socialist or are we market driven? Can we actually grow so fast every year, considering each power plant or new road or mining approval takes years?
Are we efficient manufacturers for the world? Are our taxation and regulations in line with fast growth requirements? Do we have an educated or skilled workforce to grow average incomes 17 times in the next 30 years? Is our infrastructure in place?
We are, whether the government like to say it or not, in the middle of an economic crisis. In the next two years, we will see many companies go bust, large layoffs, massive inflation and high unemployment. There is no getting away from it. The government could take some steps to soothe the situation, but instead it is interested in tokenism-closing petrol pumps, immaterial austerity drives and controls on consumption.
Forget growing 17 times in 30 years, we will find it difficult to sustain even modest growth.
Extract of an article TOI 7 Sept 2013 Chetan Bhagat

Undoubtedly we are in the middle of economic crisis; in the next two year we will see many companies go burst, large layoffs, massive inflation and high unemployment. Though some “Macro Economic” policies and directions could be contributory factors. The main cause is “Exploding population” not being addressed correctly. A large no. of youth who are short of quality education, enhanced lack of opportunities, gives rise to increasing indiscipline, are all causes of anxiety. A chaotic unsocial and indisciplined environment exists, where do we get investments and development.


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