A K Bhattacharya: BRIC, India shining and polls

NEW DELHI DIARY

Four years ago, on October 1, 2003, to be precise, Goldman Sachs Group Inc. came out with what is now widely known as the BRIC report. It coined a new acronym to describe a group of four countries "" Brazil, Russia, India and China, and forecast that in 30 years, this group would be a larger economic force than the combined strength of France, Germany, Italy, Japan, the UK and the US. The report gained instant fame and its writers were feted in India and elsewhere for having delivered to the world a new understanding of the way the global economic pecking order would change.

So far, the performance of these four economies has more or less endorsed the faith the BRIC report had reposed in their inherent strength. All these economies are growing at a decent rate. The stock markets in these countries also have been doing well. While Brazil's benchmark index has grown six-fold since 2003, similar stock market indices for the other three countries have more than trebled in the same period. These stock markets have even beaten the growth seen in the Morgan Stanley Capital International Emerging Markets index.

In India, the initial response to the BRIC report was lukewarm. In fact, it was greeted with some disbelief and surprise over the forecast that India would soon be among the world's three largest economies. There were many people, like this columnist, who felt that the forecast sounded too good to be true. In one's schooldays, the morning assembly always meant singing aloud patriotic songs that would proclaim the imminent arrival of India as a super power on the world scene. Most of us who took part in this daily ritual would also recognise that the dream was impossible, unrealisable in our lifetime and only a fond hope. The BRIC report appeared to be a re-run of those patriotic songs, of course with a big difference. With the changed context, its projections seemed more real.

Indeed, the Indian economy and the markets have been on a roll since then. Annual growth in gross domestic product in these three years has been close to 9 per cent. Industrial growth for many months in this period has been fairly robust. Exports have been buoyant. Profits have been growing at over 30 per cent and above for the top companies. Foreign exchange reserves accretion has maintained a steady pace. Foreign institutional investors have continued to invest large amounts of money in the secondary capital market. To borrow a phrase the Atal Bihari Vajpayee government coined in early 2004 to describe the prevailing economic mood in the country, India was shining.

And that is when the problem began. The National Democratic Alliance (NDA) government of Mr Vajpayee began believing that India was indeed shining everywhere "" in villages and among the farmers and the toiling masses. The reality was somewhat different. Yes, India's economic growth had picked up a momentum of its own, but its positive impact was still very limited to small sections of society. This is not to argue that the BRIC report oversold India to foreign or domestic investors. But surely to have run a poll campaign on "India Shining", influenced as the BJP leaders were by the BRIC report and the Indian economy's growth numbers, reflected poor understanding of the real economic conditions in large parts of the country.

What the BJP leaders failed to recognise was that voters were like employees in a company. Expectation levels always stay ahead of the real situation. If the job market is buoyant, whatever be the rise in the annual compensation package, rare is the employee who will be satisfied with what he has got. If the economy is doing well, voters' expectations also rise. If on top of rising expectations, large sections of the economy have not reaped adequate benefits from growth, voters are likely to get disenchanted and make no secret of their displeasure. To a large extent, the BJP's travails in the 2004 general elections could be attributed to such disaffection among people.

With another general election round the corner and a similar economic environment prevailing at present, the ruling coalition of the United Progressive Alliance (UPA) can well make the same mistake as the BJP did in 2004. Growth in the current fiscal year is expected to touch 9 per cent again. The Sensex is reaching new highs almost every other week. Foreign investors continue to show tremendous faith in the potential of the Indian economy. Prospects of corporate profit growth look bright.

UPA managers will commit a major mistake if they also use the "India Shining" story to make an impact on voters. With 66 per cent of the country's population still depending on agriculture, whose share in GDP has now shrunk to less than 20 per cent, it is reasonable to believe that large sections of people are unhappy with the government's performance. With consumer prices still rising by around 7 per cent and farmers continuing to feel cheated on the compensation that they get on the land they lose to industry, neither the BRIC report's promise nor the current economic boom can bring cheer to them. Sooner this realisation dawns on UPA, the better it will be for their poll prospects.