So busy are our policymakers with their political grandstanding and permutations that are currently underway in India that they are missing the fact that a chain of international political events currently underway in Asia present opportunities that,if harnessed deftly,can lead to many long-term benefits for our nation.
Tensions between Japan and China,over the set of islands they call Senkaku and Diaoyu respectively; political unrest in the Middle East; economic uncertainty in Asian investment poster boys such as Vietnam,Thailand and the Philippines; a rising aversion of the Chinese to foreign companies (described by a popular international news magazine as the New Great Wall) and the commotion concomitant with democracys birth pangs in many nations in the Arab world means that most of Asia is in serious crisis. These are precisely the sort of events that unnerves foreign investors.
Under such circumstances,India has a golden opportunity to present itself as an ideal destination for global investors. It is not that Indias attractiveness was ever in doubt. The advantages of a large population,a burgeoning middle class and propitious demographics have been well documented. But at the same time,there is a feeling that Indian policymakers have come to take Indias appeal to investors and GDP growth for granted. This was most evident in the statements of some leading politicians whereby they would dismiss the decline in Indias GDP growth with callous comments,such as,We are still doing better than the rest of the world.
An aspect of this tendency has been brilliantly presented by Ruchir Sharma,a top executive of Morgan Stanley Investment Management,in his acclaimed book Breakout Nations,wherein he cogently argues that the famed inhabitants of the BRIC acronym need not necessarily enjoy the sort of growth being predicted by an almost naïve extrapolation of recent economic performances. Sharma goes on to point out that the United States and Europe may not be doomed to perennial aversion of investors as some commentators have predicted,and says Arab economies could well turn out to be dark horses.
The existing uncertainty in Asia has made investors extremely jittery. Last heard,Honda and Toyota are closing their plants in China,while the sort of backlash Europe and America are facing in the Arab world right now doesnt make it a very opportune time for Western companies to make their initiations in these nations. It is imperative that India seize the advantage and attract investments in areas where they are most required most notably infrastructure,agriculture and manufacturing.
If there is one silver lining in the ominously dark economic clouds hovering over India for the last few years,it is the debunking of the bogus argument that India can achieve long-lasting and sustainable growth by bypassing any growth or improvement in manufacturing. Even in the services sector,the focus remained merely on a few domains,while many sectors that could have had far-reaching impact,such as warehousing,modern transportation,etc,were left untouched. Economic growth based on the sort of woeful infrastructure (most notably power) India has was bound to be ephemeral. That the party has ended sooner than even the glummest of naysayers predictions should not come as any surprise.
But if our policymakers are alert to the opportunities,the current slowdown can just be a temporary hiatus between two periods of handsome growth,with the latter being more sustainable,pervasive and long-lasting. It is pertinent to point to the events in the 1980s,when prominent Asian nations were in similar internal turmoil. The Arab world was undergoing convulsions after the Ayatollahs arrival in Iran,the Soviets were staring down the barrel after their humiliation in Afghanistan,India hurtled from crisis to crisis as a series of secessionist movements started within a decade of the Emergency being called off,China dealt with internal dissent that culminated in Tiananmen and Sri Lanka grappled with the violent Tamilian movement. In this environment,foreign investment found refuge and returns in the famed Tiger economies. South Korea,Taiwan,Hong Kong,Indonesia,Thailand,Malaysia,the Philippines received foreign capital that lifted millions of people out of poverty and transformed their economies.
The most exceptional case was that of South Korea,where per capita income rose by almost 300 per cent within two decades. Today,it is a front ranking economy of the world,with its companies emerging as world beaters. Two decades ago,who would have imagined that a South Korean company (Samsung) would be the biggest competitor of an American technological icon (Apple)? With world-class infrastructure,prosperity and its contiguity to the impoverished Hermit Kingdom,Seoul offers a compelling example of the triumph of a free economy.
While India has already made significant strides towards progress,a lot needs to be done if we are to pull a staggeringly large number of people out of poverty. Salvation lies in getting investments in the right areas. While some of the Asian nations did suffer the cataclysms of economic crisis in the 1990s,India,with its strong fundamentals,an exceptional central bank and a robust regulatory framework can make these investments work to its maximum advantage. But for that to happen,we will have to move fast. Unlike diamonds,the attractiveness of a nation as an investment destination is not for ever. It is usually as brief as the popularity of the acronyms that describe such nations. Four Asian Tigers were followed by the Tiger Club,which in turn was followed by BRIC. The world has already started talking about CIVETS,N-11 and Africa. We need to remember that India figures in none of these.
The writer is a former finance minister of Punjab and president,Peoples Party of Punjab