Our polity lacks reform capability to spur 9-11% growth: Ruchir Sharma
“For 30 to 40 years, China was the world’s biggest success story. It didn’t happen naturally. The kind of reforms that China carried out in those years is something our polity... I don’t think it is capable of carrying out,” Sharma said.
Ruchir Sharma, Chairman of Rockefeller International, and Founder and Chief Investment Officer, Breakout Capital, at the Express Adda event in Mumbai on Tuesday. (Express photo by Narendra Vaskar) India can clock a GDP growth rate of 6-7 per cent but its polity lacks the capability to carry out reforms that can spur growth in the range of 9-11 per cent, said Ruchir Sharma, global investor, fund manager and author of best-selling books.
At the Express Adda, organised by The Indian Express in Mumbai on Tuesday, Sharma said, “I think that we can grow at 6 (per cent), or maybe 7 per cent with some help of foreign capital but the kind of growth rates that China did…9 per cent, 10 per cent and 11 per cent, I don’t think our polity… and the consensus in this country is there. We still don’t give our people enough economic freedom. We still have a mindset of the fact that we need to protect… Government still plays a pretty interventionist role in this country,” Sharma said.
He was responding to a question on when can India witness a situation where its currency is strengthening, interest rates are lower and growth is accelerating, similar to what Japan experienced from 1970 to 1995, and China in 2000.
“For 30 to 40 years, China was the world’s biggest success story. It didn’t happen naturally. The kind of reforms that China carried out in those years is something our polity… I don’t think it is capable of carrying out,” Sharma said.
He explained that China, which began as a very controlled communist state in the 1970s, gave its people a lot of economic freedom over time. Until the 1980s, Chinese people couldn’t even own their property but then all the reforms began one by one. In the 1990s, China fired nearly 100 million people from its public sector enterprises and there was no welfare state.
“…The kind of reforms that China and other Eastern European, East Asian countries carried out by really downsizing the public sector, I don’t think we (India) have the capacity or consensus to do that. Privatisation in this (India) country is dead on arrival for most things as we know. It only happens by malign neglect, which is that something is allowed to privatise on its own because the private sector takes on greater share… that’s what happened with the banking sector,” Sharma said.
He said most countries first give their people economic freedom and when they reach a certain per capita income they start to give more political freedom. “In India’s case, we did the opposite… gave the people lots of political freedom, we never gave our people economic freedom, which began to change from the early 80s or 90s or so. That’s the big change we have seen since the 1990s, and now we see that India has also progressed a lot as it has given its people economic freedom. But it is interesting that India still ranks relatively low on the index of economic freedom compared to so many countries,” Sharma said.
When asked which industry or sector in India is in urgent need of government intervention, he said, “The less intervention, the better. I don’t think I want more government anywhere because every time the best growth happens when the ministry has not even been formed… happened with tech, right?”
Sharma believes that the Indian rupee will strengthen against the dollar going forward. “…Rupee is 84 today. I am going to bet that the next move in the rupee is towards 80, not 90,” he said. Sharma said if the US dollar weakens then India will see more capital inflows which will help in keeping interest rates lower than the current level.
According to him, the last decade, or 12 years or so, have been pathetic for emerging markets in general, both in growth and in equity market terms. The stock markets in the emerging markets have delivered poor returns in the last 10-15 years. However, India has been the one exception to a general rule and the country has witnessed an incredible stock market run.
During the last interaction at The Indian Express Adda in 2023, Sharma had mentioned that India was the most expensive market in the world.
When asked if the Indian market’s valuation continues to remain high, he said, “I said back then that these traditional valuation metrics aren’t working in India. Broadly, I still feel India is on the right economic trajectory. So, I don’t have a problem with the market, except the fact that I find much greater value in some of the other emerging markets, which have been totally beaten down and stayed at a fraction of the valuation of India.”
“Some other countries are finally staging a comeback, and they trade at a much cheaper valuation. So for me, that is a more exciting opportunity at this point in time…my heart lies here (in India) and I still feel the fact that the market is so big, so diverse, that it will always remain a cornerstone of any emerging market investor,” he said.
Sharma, Chairman of Rockefeller International and Founder and Chief Investment Officer of Breakout Capital, has authored five books — What Went Wrong with Capitalism; The 10 Rules of Successful Nations; Democracy on the Road; The Rise and Fall of Nations: Forces of Change in the Post-Crisis World; and Breakout Nations: In Pursuit of the Next Economic Miracles.
He moved to Rockefeller in 2022 after a 25-year career at Morgan Stanley Investment Management, where he was Head of Emerging Markets and Chief Global Strategist, and was responsible for managing nearly $20 billion in assets.
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