A career move means that this will be the last column of a series that began in November 1996. Writing these columns over the past 13 years gave me an amazing opportunity to crystallise and articulate my thoughts and views on prominent economic issues of the day. I would like to thank the editorial team of Business Standard for giving me the space and their support, and the readers of this newspaper for the attention they have paid me over the years.
Thirteen years is a long time under any circumstances; for the Indian economy, the 1996-2009 period may well represent an aeon. We invariably complain about the painfully slow pace of change and progress in this country. However, an objective look back over these years cannot but lead to the conclusion that dramatic transformations have, indeed, taken place. When I began writing this column, I used to take a print-out and fax it to the newspaper’s office. Now, if need be, I can compose it on my mobile phone. That is a good illustration of the distance we have travelled.
Of course, change is not always for the better. The many positive transformations that the Indian economy has gone through during this period are starkly contrasted by the several domains in which conditions have stagnated, even regressed, over the past 13 years. These domains are neither trivial nor unrelated to the ability of the economy to sustain its very impressive recent growth performance and ensure that the benefits of this growth spread more and more widely. I would like to conclude this series by outlining the three positive and three negative changes that, I believe, have occurred over the time that I was writing the column.
Of the positive changes, the first is the massive increase in the economy’s capacity to absorb shocks without significant disruptions. That this has happened even as the economy has become far more globally integrated over the years indicates that globalisation and stability can very well go hand in hand. The process needs to be managed, of course but, clearly, broad concerns about greater global exposure must give way to focus on the more technical aspects of managing the process.
Even within the domestic sphere, for example, over the issue of the current, elevated levels of food prices, the threats to macroeconomic and political stability are relatively muted, indicating that a majority of households can take such things in their stride. Overall, it adds up to an assessment that policies can focus on medium-to-long term performance without worrying too much about short-term disruptions.
The second, I believe, is in the political realm. This judgment may send a shiver up some readers’ spines, but consider the fact that, since 1996, we have had every possible configuration of political interests coming to power and the economy has been none the worse for it. One could argue, I suppose, that things would have been even better if we had had a stable, single-party government over the entire period, but somehow I doubt it.
What the politics-economics interface over the past 13 years indicates is the degree of detachment between the two; economic activity and performance have simply become less dependent on political outcomes and stability. As a corollary, we also pretty much know the boundaries within which all major configurations will operate when it comes to economic policy, thereby introducing a degree of comfort in long-term planning and investment.
The third positive change is the scope, depth and innovativeness of private enterprise across the board. From the country’s largest companies, which have grown larger and more international, to the neighbourhood store that experiments with different things to sell and ways to sell them — the risk-reward ratio has clearly turned favourable for a whole range of businesses and the entrepreneurs that start them up and run them. Survival in a complex and differentiated domestic market is often a predictor of global success and, in this regard, both Indian companies and Indian managers are making their mark.
Turning to the negatives, the first one on my list is the slow rate at which the middle class is expanding. For a variety of reasons, which have been the subjects of many of my columns, the economic processes that generate a middle class are not proving up to the challenge of dealing with such large numbers of people. The emergence of a middle class that perceives itself as such is the most important outcome as well as determinant of steady, stable growth. We need to seriously examine the failure of these processes and address them as quickly as possible.
The second negative tendency is the failure of the Indian economy, despite its own impressive performance, to act as an engine of growth and development within the South Asian region. This, I believe, is in sharp contrast to the more and more powerful influence that the Chinese economy is exerting on its neighbours. Our region is fragile and unstable enough as it is. If it cannot benefit from having the fourth-largest and second-fastest growing economy in the world in the neighbourhood, something clearly isn’t working.
The third, very visible, problem is the growing mismatch between the demands being made on the state and its capacity, in every sense of the term, to deliver on them. With each passing year, it is becoming clearer that “reforms” do not mean a disengagement and abdication by the state; rather, in their most constructive interpretation, they should imply the reallocation of roles between the public and private sectors along with the creation of capacity to play the new roles within each. Unfortunately, reforms in India have focused almost exclusively on the private sector, barely touching the state machinery. The resultant mismatch is both inevitable and enormously threatening.
The salience of both the positive and negative trends (people could have their own list of both, but the basic story does not change) suggests that the ending to the India story has not yet been written. Depending on which set of forces emerge dominant, it could go either way. The challenges of reinforcing the positive tendencies while dealing with the negative ones remain as significant as they have ever been. I will miss being part of the absolutely critical public debate on these issues through this column. On the other hand, I will have an opportunity to contribute to a positive ending to the India story.
Views are personal
