At an e-Adda held this week, Ruchir Sharma, Head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment Management, spoke on India’s economic future, the government’s response to the pandemic and his new book The 10 Rules of Successful Nations.
Eminent guests who participated in the e-Adda include Aditya Shriram, Executive Director and Ajit Shriram, Managing Director, DCM Shriram; Saugata Bhattacharya, Executive Vice-President and Chief Economist, Axis Bank; Dhruv Agarwala, CEO, Proptiger.com; Gautam Kumra, MD, Mckinsey & Co; Aarti Vij, Chairperson, Media & Protocol Division, All India Institute of Medical Sciences, Delhi; Girish Agarwal, Director, Dainik Bhaskar; Hemendra Kothari, Chairman, DSP Investment Managers Pvt Ltd; Jan Thompson, Acting High Commissioner, British High Commission; Retd Prof Sudha Pai from Delhi’s Jawaharlal Nehru University; Kiran Karnik, Chairperson, IIIT-D; N Ravi, Publisher, The Hindu; Rajni Thakur, Chief Economist, RBL Bank; Rod Hilton, Deputy High Commissioner, Australian High Commission; Suketu V Shah, MD, Mukand Ltd; Manish Kejriwal, Managing Partner, Kedaara Capital and Surendra Ahuja, MD, Boeing Defence India.
On why India couldn’t become a breakout nation
In Breakout Nations (2012), my main thesis was that, at that point in time, the emerging markets, collectively known as BRICS, are way overrated. I specifically said Brazil and Russia are heading for some sort of a bust because they’re very dependent on commodity prices. I had said that India will not be able to grow at a sustained pace of about 7 per cent. In fact, in my list, India was not mentioned as one of the breakout nations. I said, at best, we have a 50 per cent chance of being able to get into the club of breakout nations this decade. So, the main thesis of that book was that the BRICS are overhyped. And the true emerging nation in the world is the United States, because the book ended on the note that technology is the key to long-term progress.
The US was just coming out of the global financial crisis and its tech prowess was further reinforced after the global financial crisis. People were not really focusing on it because they were so caught up in the commodity boom, and the BRICS boom. So I would say that one of my biggest regrets in life is that I wish I had organised my investing career accordingly, which is that emerging markets have not been the place to be over the last decade. China arguably has still done okay, but other emerging markets in general have disappointed, as far as their economic growth is concerned. And the last decade has very clearly been the decade of the US. It has been the comeback nation in terms of both its economic performance, and even more so in its financial market performance. So Breakout Nations ended on this note of optimism about the US and pessimism about a lot of the BRICS economies. Now, of course, there are some economies which did even worse than I expected, such as Turkey and some of the African countries – that’s the game of forecasting that you get some right to get some not. But broadly, I wish I had organised my investing career more according to that. And India, in the last decade in turn, in every which way, has underachieved in terms of both its economic growth, and even in terms of its stock market performance in dollar terms.
On welfare economy and slow progress
If you look at the success of East Asia, and why have economies in Latin America and Africa failed, or at least underachieved, you can see what the success storylines are about. No matter what we say about China, what we say even about Korea and Taiwan, those economies at a similar stage of development spent very little on welfare, because it was a lot of ruthless capitalism. They wanted to become manufacturing powers, they wanted to aggressively move their peoples from the farms to the ocean front, to the key ports, and export their way to prosperity. So they were very clear that they did not want to spend much on welfare at the early stages of development.
S Jaishankar at Express e-Adda: When any country rises, it will be tested, it will be challenged
On the other hand, economies in Latin America, such as Brazil, spent a lot on welfare, and look where it got them. For the last hundred years, Brazil has been stuck in terms of its per capita income, compared to the US. It’s at the same level as it was hundred years ago. So that’s the trap. Now in India’s case, we say, all this is being very ruthless, we have to spend a lot more, we have so many poor people. And my point is we have tried this for 70 years, we keep coming up with one scheme after one scheme after one scheme in the name of helping the poor. The progress we made in terms of our per capita income growth is still limited. Yes, we have made a lot of progress since the 1990s. Let’s not take that away from India, that the per capita income growth has been quite impressive, but we have still fallen short of where we wanted to be, where we aspired to be consistently. Our resources are limited, there’s only that much we can spend on and at the early stages of development, all the successful economies spent a lot on infrastructure. That is a key word for being a successful nation.
On whether politics is economy-proof
This is the point I had made in my last book – Democracy on the Road (2019). We had carried out an interesting exercise when I was doing that. There have been about 30 instances when a state’s economy has grown at a pace of about 8 per cent over the chief minister’s five-year term, but the probability that the chief minister gets reelected, after delivering a growth rate as high as that, is still only 50 per cent. That is a very telling statistic, that you can deliver 8 per cent plus economic growth, and still not get reelected. In this country, the link between politics and economics is very loose, and the Prime Minister probably has figured this out. My other disappointment, as far as India is concerned, is that if you look at other countries, especially in the West, the right wing parties out there tend to be quite business-friendly or market-friendly. They have a much more free market agenda. In India’s case, unfortunately, we don’t have such a party because everyone believes in socialism and statism. Everyone believes in control. There are some chief ministers who have been pro-development, but even then it’s been very tight fisted in terms of how they run the states. So there have been very few true free marketers in this country, and the DNA is one very much of statism and socialism. Even right wing parties, such as the BJP, are pretty left of centre.
On whether the corporate sector’s leverage over the government has increased
If anything that this pandemic has taught us is that the role of the state has increased further. In India, look at the way the state had to turn more intrusive in the way that it has dealt with the pandemic. We are still dealing with a maze of bureaucratic laws, in terms of when you can open a factory, when you can’t open. What is right is that India typically reforms but it has its back to the wall. And in that regard, the central government is realising that they need to carry out some reforms because they are cash strapped. And on the lockdown, they had to abandon that strategy a lot driven by economics, rather than by what the epidemiologist was saying that because we were just out of cash, our finances were literally broke. So we had to back down on that policy. But I don’t think that the corporate sector in India has any more leverage over the government than it did in the past. That there are a couple of corporates in India that are very powerful. In fact, one of the things I pointed out in this book is that if you look at the list of billionaires in India, we find that the margin is a bit disturbing because we’re not seeing the rise of too much new wealth in India in terms of new billionaires.
The wealth is getting concentrated in a few hands if you look at the billionaire list. But more than that, in the new economy which has come up, the 30 odd unicorns that we have in the country, hardly any billionaires have come out of that universe. Why? Because the billionaires here or the wealth creation is mainly happening outside, that you have the venture capital private equity funds or other large funds from the US and China that are taking increasing stakes in these companies, but the new billionaires coming out of that list is very small, and the size is also very small. In fact, if you speak to the corporate sector in private, they will all tell you that there’s a lot of fear about the regulatory backlash about what the tax authorities can do, what the courts can do, how the decisions can be questioned. So, I’d say there’s a fair amount of fear. The only positive is the fact that the government realises that it has its back to the wall, the finances are strapped, so therefore, we’re seeing some sort of reforms take place. I wish that it was much bolder. This is a great time to sort of think about privatisation, just look at the role of the state and how bad the public sector has performed in every sector. I wish that we will see much more of a push off in this environment.
On the definition of a good billionaire
This is for me a quick measure of what is likely to be a country’s attitude towards wealth. And what I find in this country is that, or in any country, is that if you look at the wealth being created, you can know as to what kind of wealth do people respect, and what kind of wealth is likely to be much more exemplary, than wealth which should be created through means which could be seen as unfair. So I define good and bad billionaires. Good billionaires are those billionaires who are producing their wealth because of their own innovation or manufacturing and in industries, which do not require much government or regulatory help. On the other hand, I broadly defined bad billionaires as coming from those industries, which rely a lot on wealth creation coming from sectors where you need a lot of the wealth creation from those poor sectors. So the very key point out here is how exactly do you do wealth creation in an economy, so it’s not that everyone who comes from the commodity producing or rent seeking industry is a bad billionaire. But if you get the gist, that is roughly what it is that if you have too much wealth from those sectors, it’s a negative thing. And if you have a lot of wealth from the good billionaires, that’s a much more positive aspect. And one of India’s faultlines, which is pointed out first in Breakout Nations, was that towards the end of the boom, in the 2000s, a lot of wealth in India was being created amongst the so called bad billionaires.
On whether the digital push is ushering in innovation
It is a positive aspect that India’s billionaire mix, compared to where it was a decade ago, has changed. But the one point I do find disappointing is that of these new wealth being created in the sectors you mentioned, a lot of it is happening overseas, or it’s happening because you have, what I define, as this new era of tech colonialism, which has the US and Chinese investors that are making a lot of money. But look at the stakes of some of these promoters in the unicorn universe. Their stakes have been diluted to 10-15 per cent. So full credit to them for what they’re creating, but a lot of the wealth creation is happening overseas rather than happening in India.
On tech colonialism
This is a global trend, and it’s even more pronounced as far as India is concerned that the US and China of the last decade have so dominated the tech space, and they’ve created such behemoths on the back of that, that if you look at the 10 largest companies in the world today, by market value, seven are American and three are Chinese. So it’s just all concentration of wealth between two countries. They have the muscle power to make a lot of acquisitions, to invest a lot more, and across the emerging world. This is a phenomenon that I’m seeing, and it’s particularly relevant in India.
On the time to make bets on India
In India, one of the things that I’m finding a bit underwhelming is that the choices are getting more and more limited. A unique strength of India for many years was that the number of good quality companies that you could invest in India was always very large, especially compared to other developing economies. Unfortunately, in the last three to four years, that number has shrunk a lot, either because some of the corporates have been too leveraged and they’ve been forced to do what they can to get out of that leverage, or as I said, a lot of the wealth being created in the so-called new economy, is really happening at two ends.
At one end, you have the emergence of Reliance, which is incredible, in terms of how big Reliance has emerged as a colossus as far as this country is concerned, and that outside of Reliance, if you look at it, a lot of the wealth creation is happening amongst these unicorns. But investing in these unicorns is quite difficult for the average investor. A large private equity fund or soft fund could take a big stake in those but for the average investor to invest in it is very difficult. Say that the area and the size of the pie for an average investor to invest in India has been shrinking in the last few years because of this barbell, because of this concentration at one end. So you have one or two companies which are really very big, and at the other end, new economy growth is taking place, among unicorns, which is very hard for the average investor to access.
On whether democracy is better for growth
We did a lot of research on this to figure out whether democracy or authoritarian regimes are better for growth. What we found was that under authoritarian regimes, you tend to get much more extreme outcomes. If you look at the very fast-growing economies in the world, post World War II, economies which achieved a growth rate of more than six to seven percent, let’s say for a decade, were largely authoritarian regimes, whether it was China or before that when Korea and Taiwan were growing very fast. But the downside is this: if you look at the biggest basket cases in the world, they were also authoritarian regimes and dictatorships, whether it was in Africa or Latin America. Under authoritarian regimes, what you get are very extreme outcomes. If the leadership at the top gets the formula correct and is prioritising economics, they can end up creating very high economic growth, because they can get a lot done. On the other hand, because the leadership at the top often lives in an echo chamber and in a bubble, if they get something wrong, there’s no one to criticise them, and they have the power that they can really take the country down the tubes.
Under democracy, what we find is you get much more smooth outcomes, you will not get explosive growth because you don’t have the political capital to push through that very hard growth. On the other hand, you also don’t get complete basket cases, because democracy provides some checks and balances in a system. So that is what is one of my key findings in the political chapter of this book, that it’s very popular for us to believe that China could do A, B and C because it was a dictatorship. We under appreciate the quality of the leadership at the top, like in terms of what they did to push economic reforms, because for every China, there are five countries in Africa, which have been complete disasters under authoritarian regimes and dictatorships.
On whether the term of a leader affects economic performance
That’s another key finding in my book, and it’s particularly relevant today. Typically the longer the leader stays in office, the more negative is the stock market and economic performance. Looking at emerging markets, we found that, since data is available in the last 30 to 40 years, there have been roughly about 18 leaders that have completed more than five years in office and gone into a second term. Of these 18 leaders, 13 of them produced subpar returns in the second term, after having produced very good returns in the first term. They outperformed other emerging markets in the first term, and they underperformed in the second term. So I think that this is the classic case as far as Erdogan’s (Turkish President Recep Tayipp Erdogan) concerned as well. When he first came to power, he wanted to focus on the economic agenda. He was very focused on the economic agenda in the first few years. But as he stayed in, success went to his head or his priorities changed. He has gone from being an economic reformer to now being this person, who is following very unorthodox policies that have been really damaging for the economy, and yet, he still has enough political clout to stay in office. So I think that is the risk. In so many leaders, we see there’s always an exception like a Lee Kuan Yew or someone, but broadly, the finding is that the longer a leader stays in office, the more are the diminishing returns to power, so to speak. And this is true even in the US. I’ve just written, in fact, in an Oped for The New York Times, where I’ve shown that even as far as the US is concerned, in the first term, any leader produced about three to four times higher stock market returns than in the second term. There are other factors also at play, but it’s possibly more than just coincidence that you’ve such a significant variation in the stock market and economic performance between the first and second term.
On greater private sector participation in banking and on demand of economists to spend more
I’ve long been saying that we need much greater private sector participation in the banking sector, and we need more banking sector reforms. India’s public sector share in banking is one of the highest in the world. It is very high in terms of the share of the assets, and it’s coming down on its own, because the private sector, whatever growth happens and credit happens on the private sector side – we’re seeing privatisation just by benign neglect, just wish the government would go ahead of the curve and do what they can. On the first point (on the fiscal front), I am much more sympathetic to the government’s stance than to what the experts are saying, because I find that in India’s case – this is a line I’ve borrowed from one of my favourite movies, Top Gun – that our ego keeps writing cheques, which our body can’t cash, which is why we keep thinking that we have lots of money. If the US is doing stimulus of X percent and UK is doing stimulus of Y, why can’t we do similar stimulus? And my point is this, that we are still a developing country.
Firstly, when you compare our external stimulus to other developing countries, and more than that, we entered this crisis with one of the highest public debts and fiscal deficits in the world, especially in the emerging world, and that’s your starting point. How can you afford to spend much more, now the government has done what it can outside of that. But if you look at the amount of loan guarantees that this government has extended, that’s pretty large compared to even other emerging markets. And on monetary policy, this government has done what the other governments have done. But even as far as monetary policy is concerned, we got to keep in mind that India’s inflation rate is still more sticky compared to other countries, even other developing countries. So if that is your situation, for you to just throw caution to the wind and say, ‘Oh, I’m just gonna go and print our way out of this mess’. Look at the examples of other emerging countries, Turkey is trying that, Erdogan is trying that but look at the results that he’s getting. The economy is a complete mess in Turkey. It makes our economic management look stellar when you look at what you know how badly Turkey is managing its economic affairs. You have countries in Latin America before this, even before the pandemic, the Argentinas and Venezuelas, which have tried this model, and it just doesn’t work. And this is where I think that at least the political establishment, and the Prime Minister in particular, gets this that we don’t know whether high economic growth wins you elections or not, in fact, as I said, the evidence is very mixed. But one thing we do know, high inflation, for sure, kills economic prospects. You’ve seen this year after year. The business community and even the general media underestimates that. We’ve seen that in our travels, that just how much inflation can be a killer. Narsimha Rao paid a price for it. Despite all the economic reforms he carried out in the 1990s and got high economic growth, there are many reasons why he lost, but one of the underappreciated reasons is high inflation that came towards the end of his term. It was similar with Rajiv Gandhi in the late 1980s. One of the biggest faultlines of the Manmohan Singh government was to take such a blase approach towards double-digit inflation at the end of his term. So high inflation is a killer, for sure. And I think that the government is wise to junk such advice that they could just print their way out of trouble. We need much more stimulus, but we don’t have the resources to do it, we don’t have the money to do it. So therefore, the focus needs to be on how you get the animal spirits up. How do you carry out an economic reform programme rather than do this? We keep launching, even this government, one scheme after another after another. I remember having a chat with a very senior government official about this and he told me something very startling. He said that in this country, we don’t even know the number of schemes that are currently running. He tried to get an audit done of that. And at last count, there were more than 1,000 schemes that were running. And because one gets repackaged or something new comes up because the other one doesn’t work, so you can keep launching scheme after scheme after scheme. For 70 years, we have done this. This is what we have to show as far as the per capita income is concerned.
On whether printing your way out has worked for anyone besides the US
No, I think that as far as the US is concerned, because it’s got a reserve global currency, it has much more liberty to do that. But there is a fair amount of trepidation at what they are doing, gold prices are going up, the millennials are buying bitcoins. So there is some concern about what’s happening in the US. And the US also has shown that, yes, if you have your reserve currency, you can print your way a lot. But there are still adverse consequences. One of the big paradoxes, as far as the US is concerned, is that you have this incredible tech boom and yet, what you have in the US is declining productivity over time. I’ve shown that the reason why productivity is declining in the US is because of the rise of zombie companies. Twenty percent of all US companies today can be classified as zombie companies, companies that don’t even earn enough profit to make payments on their interest, so they have to keep going to the bank. Now, there’s a consequence of that, that you have easy money, you let the zombie companies rise, but you stop startups from rising even faster. So ironically, in the US, the startups are, in fact, declining over time.
You see the rise of the tech oligopolies, and the rise of the zombie companies and the middle, a lot of these other startups are getting crushed, they’re getting crowded out. This is a consequence, which I think is underappreciated, and something that I’ve written extensively about. So there are negative consequences. No one said they should artificially maintain high interest rates or artificially do that, you should cut interest rates to the extent you can. But in India’s case, given where inflation is, I think that real interest rates are quite low. And this advice of printing your way out of trouble sounds very easy theoretically. But it is a strategy which has not really paid dividends elsewhere. So interesting that China today is being much more cautious in terms of the amount of stimulus that it is extending because it tried to do this in 2008, after the global financial crisis, built up a massive debt bubble after that, and it took many, many years to try and even shove that to the side and it took a tech boom for the Chinese economy to finally emerge after many years of slowing growth.
On whether the forecasting abilities of the market have reduced significantly
It’s a bit of both because if you look at the market today, the two drivers of stock markets around the world, one is the prospect for earnings growth of the companies listed there. And the second is a bit technical, but it’s underappreciated, is the level of interest rates. So if interest rates are very low, that automatically boosts valuations of companies, because they are able to then price growth out in the future. So because interest rates are so low, and there’s so much money sloshing around the global economy, that a lot of it is finding itself into the stock market, particularly in what people see are the winners of the post-pandemic world, the companies in the virtual world. So in that regard, this is a perfectly logical reaction to very low interest rates, and when you have very low interest rates, rather than putting money in the bank where you’re earning zero, a lot of it is finding its way into the stock market.
Having said that, so that’s the level, that’s why stock market levels today around the world, including in India, appear relatively high compared to the economic situation, and that’s the level. But if you look at the stock market movements, those I think, on a daily basis are still sort of making sense because the stock market crashed in March, because it was hit by this one-in-a-hundred year pandemic, but after that the Federal Reserve and the other authorities around the world put in this massive stimulus. And once they put in that massive stimulus, I think there was a feeling that at least the economy would be able to hold up. And since then, the economic data in general has surprised on the upside. As far as the stock market is concerned, some of the levels are a bit confusing today because interest rates are so low, so as the prices have inflated, something that has been happening for many years. But otherwise, if you track the stock market movements, they sort of are tracking what’s happening to the economy, they’re going to crash in March, and then you go to recovery. And the view the stock market is taking in, maybe this will be right or wrong, we know is that this is like a natural disaster. There’s no permanent damage going to be caused by this. This is a natural disaster that comes and goes. And then once the vaccine comes, whenever it is, life can get back to some sort of normalcy, and the world has dealt with it. Now, in the last hundred years, we have had three major pandemics, including the Spanish Flu of 1918-19. And before this crisis, nobody even remembered those pandemics.
On the American stock market bubble
There are pockets of the bubble in America, and the American stock market because it has so many of these tech companies and these exciting growth companies, that’s where a lot of the money has been channelled. Something similar, we saw in 1999. In fact, the American stock market today by many valuation measures has the most expensive it’s been since 1999-2000. So that’s not sustainable. But the rationale for that is that the price of money is very cheap and so that money just keeps flowing into those kinds of things. So if in the next year or two, for some reason, interest rates have to rise, even a bit and can be long term interest rates, then you have a giant bursting of that bubble. So it’s very predicated on interest rates being so low, but if interest rates were to rise even a bit, then all these companies trading at these crazy valuations, I think will get hammered. But the very low interest rates and low liquidity today is what’s happened so far.
On the government’s management of the Covid economy
One of the rules in my book is about state competence. If you look at the objective data of how the pandemic has been handled, the objective of handling it is that so far, how many cases and how many deaths have you had per million. Because you know, the absolute numbers in India will always look very large, given the fact that we are about the most populous country in the world. I did this exercise looking at 25 largest developing economies. Where does India rank today in terms of its caseload and his deaths per million – we are bang in the middle. So you can say that’s an average score. What I said at the outset, in fact, the moment the lockdown was announced, was the fact that a developing economy like India, cannot afford to have a draconian lockdown. And this is where I keep going back about our ego writing cheques that our body can’t cash. Maybe Europe can afford to do that but a developing economy with very high population density, that is just not a sustainable strategy. But at that point in time, the government too possibly underestimated; they thought in three weeks, they’d be able to clear this out. I think that lockdown in general today is finding fewer and fewer supporters because people are realising that this is not a sustainable strategy. I know that there’s been such a heated polarised debate about Sweden, I don’t know what the verdict on Sweden is but India has been compelled to follow the Swedish model.
On the new farm bills
In India, the debate is so polarising. In principle, what the government’s trying to do in terms to free up the agricultural sector (and) you can argue it is a positive step. But the method in which it’s done is what I think has really rankled a lot of people. So it is back to the fact that can you take people along or that once you decide on something, you don’t feel compelled to take anybody along because you have the brute majority to pass those things. This is the time to carry out economic reforms, what the nature of the reforms should be, we can argue whether it should be much more privatisation, or it should be much more about easing the regulatory and tax hassles that the average domestic business faces in India, because we have a tendency of treating most businesses in this country as crooks. I’m glad that the word reform is back in the governance lexicon, but whether it should have been done this way, and the method is something which a lot of people are debating.
On India’s growth prospects in the foreseeable future
There are like other economies on which I have always expressed very strong views, but as far as India is concerned, the line that I’ve always used and I don’t feel compelled to change it, is that this is the country that consistently disappoints the optimists and the pessimists. I think that’s how it’s going to be. My disappointment with India as somebody who loves this country so much that even if my base is New York, at the slightest excuse I come to India, is that I wish we were much more of an economic success story. I wish our politicians thought much more about giving people economic freedom. But unfortunately, I don’t think it’s just about this government, but at a state level what this episode has shown me, including the pandemic, is the incredible ability to hoard power. You don’t want to give up power, that is such an obsession, and you have so many supremos at the state level as well. So to me that is the disappointment that I wish, and maybe that’s coming bottom up maybe, as a society, we are socialist and statist and very differential of authority. I just wish that there was a more free market liberal agenda in this country than what we have.
The short answer is that I don’t think India is going to grow at much at a pace of more than 5 per cent on a sustained basis for the foreseeable future, because growth everywhere is coming down across the world, and for a developing economy with a per capita income of less than $5,000, if you’re able to grow at even 5 per cent, that’s going to take a lot in an era where you have the globalisation, but you already have high debt levels. I think that’s going to be quite a challenge. Even India’s demographics have changed. I have shown that the days when India’s demographics could power growth, that also has turned now that India’s working age population growth now has fallen below two per cent. That’s a very different sort of propeller of growth, compared to what it used to be.
On identity politics and polarisation the world over
The extent of polarisation in the US is unparalleled. In fact, a friend of mine described it as Civil War Lite. Because I’ve never seen such polarisation in America, and the data bears it out that 90 per cent of Republicans back (Donald) Trump; in the past, that number was never as high. On the other hand, more than 90 percent of Democrats hate Trump. You never had numbers like this in American political history. And it’s been systematically getting more polarised over the last four years. This is a bit worrying because even economic facts are now subject to political ideology.
On the upcoming US elections
The single best indicator that I look at on a daily basis are the betting odds. So, the betting market today, I think, is about 56 per cent for Biden and 44 per cent for Trump. That is the best indicator on how to read what’s going on.
Jaspal Bindra (Chairman, Centrum Capital Ltd) : We’ve been reading a lot about how the US and Japan are incentivising their domiciled companies to reduce or diversify their investments from Mainland China. Is that going to reshape the manufacturing scene in the world? And how does it impact India?
So far, if you look at the evidence, there is some diversification going on outside of China, but it’s happening a lot slower than you think. That’s because China is still a very large market, and has been moving up the value chain. So what’s moving out of China is much more of the low value-added stuff. The big beneficiaries of that have been countries like Vietnam. India’s share in global exports and foreign direct investment has gone up over the last three-four years, but that’s an under-appreciated story. With companies from the US and Japan trying to diversify their supply chains out of China, the competition is quite intense, because you have so many economies trying to play the same game — Vietnam, Indonesia, Malaysia, or Mexico. India does have an opportunity, and maybe because of the large domestic market size, we are seeing some movement towards India, but possibly not as rapid as we’d like, and certainly nowhere near as rapid as the likes
Ashok Khemka (Principal Secretary to the Government of Haryana): Regarding the Vocal for Local campaign in India, how do you reconcile with the benefits from global trade and favourable immigration policies?
It’s still unclear what exactly they mean by the term Vocal for Local. Are we abandoning a strategy of trying to increase our export share or is this just a new reality that we are adapting to in the era of de-globalisation? I see this as just a reality. So, it’s very interesting that the other country where the word self-reliance is very popular these days is China. It’s really ironical that some of the biggest beneficiaries of globalisation have been countries like China, and even India, that there’s no way any economy in the world can grow at a rate of 7/8/9 per cent without exports playing a major role in that. It’s never happened in history. Now, in a de-globalised environment, we’re coming up with these kind of strategies and slogans. On the other hand, it’s very clear that if we are not going to export or have export growth, the probability of achieving high economic growth is zero. Even in the boom era of 2003-2008, our annual export growth was 30 per cent. Unless you have
export growth of 20-30 per cent a year, the odds of you growing rapidly are close to zero.
Shyam Bagri (Founder and Chairman, Bagrry’s India Ltd): With economic growth, we should be able to increase the purchasing power of the poor. But at the same time, we should be able to improve the environment without impacting it adversely. How can we do that?
I think that this debate is there. It’s almost as if we think that there’s a big conflict between high economic growth and some of the other measures in the society — climate, happiness or inequality. I think that’s what you are referring to. My research shows that per capita income is the single best indicator of how a country is doing on all those metrics. The richer a nation is, with higher per capita income, the greater is its correlation with happiness, sustainability and inequality. The richest country in the world — Switzerland — has the highest per capita income of over $80,000 per head. And on both measures, like equality and happiness, it ranks high up there. The same goes for many Scandinavian nations. I would say that focusing on increasing your per capita income is the single best way of achieving your other goals in life.
Senthil Chengalvarayan(Senior Journalist): You’re a big believer in data. What are the next few data points you will be looking at, over the next six months to two years, for India?
So my book, The 10 Rules of Successful Nations, says that basically, it’s all data driven. What are those rules? Is India gaining more share in the global export world? What is India’s share of foreign direct investment? What is happening to the concentration of wealth in India — is it getting more or less concentrated? Those are the data points I shall be looking at, for the next six months, 12 months or 18 months, and that’s my entire effort in coming up with this book. Most economic books are written by academics. The big problem I have with books written by academics is that they tend to have very long term horizons, for which neither you nor I will be here to know whether you’re right or wrong. What I’ve tried to do in this book, therefore, is to come up with a timeframe using data that you can track actively to know if a nation is doing well or not. So I will be looking for these data points, to see if India is making more progress. I maintain a scorecard of all the countries — developed, developing and frontier markets — and keep updating these rules. My point was to come up with a practical read that you can look at, based on historical research, to show what is the data you should be looking at, to know if a nation is rising or falling. And in India’s case, this kind of data is what we’ll be looking at, how much are we spending on research and development rather than on welfare.
Harsh Goenka (Chairman, RPG Enterprises): What are the top global trends you’re seeing in the post-pandemic world?
I see four big trends — de-globalisation, digitisation, rise in debt levels, and the state becoming more intrusive. If you look at past crises, once something happened, the world got almost turned upside down, in terms of how things work. The distinctive feature of this crisis is that these trends I spoke about were already happening before the crisis began. And after the crisis, these trends have accelerated. In fact, they’ve been telescoped in time, so instead of playing out over the next five or 10 years, they have played out in five months.
Mudit Jain (Managing Director, DCW Limited): Is it better to abolish the taxes completely, so people will spend more and consumption will stimulate the economy?
That’s a very radical suggestion. I don’t think any economy today is doing that. Even countries in the Middle East which used to not have taxes, are introducing some form of taxation. But rationalising the tax structure is something I’m all for. I do feel that having more surcharges spoils the federal polity of our country because the revenue flows to the Centre, not to the states. So I’m in favour of simplification of the tax structure, something we were doing in the 1990s.
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