It was the rising tide of global liquidity and not anything unique to India that accelerated its growth rate from a level of around 5.5 per cent to 8-9 per cent between 2003 and 2007. The country has a high chance of becoming a breakout nation only if it does not grow complacent,avoids becoming a welfare state,brings reforms systematically and globally,and commodity prices fall,said Ruchir Sharma,Global Head,Emerging Markets,Morgan Stanley Investment Management,and author of Breakout Nations: In Pursuit of The Next Economic Miracles.
In conversation with Uday Kotak,Vice Chairman and Managing Director of Kotak Mahindra Bank,and Shekhar Gupta,editor-in-chief,The Express Group,at the Express Adda event in Mumbai on Saturday,Sharma said when liquidity around the world became more normal,Indias growth rate slowed down. I think we mistook that boom to believe that it was all about India,not realising that it was the rising tide of global liquidity that was lifting every single developing country between 2003 and 2007 and the average growth rate of emerging market was more than 7.5 per cent, he said.
Interacting with a high-powered audience including Adi Godrej,Chairman,Godrej Group; Rakesh Jhunjhunwala,billionaire investor; Anil Dharker,writer and columnist; Uday Shankar,CEO,Star TV India; and Rashesh Shah,Chairman,Edelweiss,among others,Sharma said the reforms in 1990s positioned India to take advantage of the high liquidity beginning 2003 and accelerate to high growth rates. The history of economic development says that unless you systematically reform,you cannot grow in a sustained manner,which is what China has done, he said.
According to Sharma,there are two important criteria that categorise a breakout nation. One,expectations,and two,per capita income. If there are expectations to grow at 7-8 per cent,anything less than that will not make us a ‘breakout nation. On the per capita front,while for a country like Korea with a per capita income of over $20,000,it would feel like a boom if it grows at 4-5 per cent,for a country like India with a per capita income of $1,500 it would feel like a recession, he said.
Amongst the BRIC nations,according to Sharma,India is most likely to break out since it has the advantage of low per capita income of $1,500,more unproductive resources in the economy,more unemployed and under-employed people who can be brought up in the urban areas. Despite such advantages,he rued that India is not the fastest growing economy in the world today. His worries centre around the governments rising expenditure and the slow pace of economic and social reforms.
We should be growing at 9-10 per cent today,not because of anything special but for the low per capita income. You can make many mistakes and still get away with it, said Sharma. Of all the BRIC countries,I give India the best chance of being a breakout nation. If the commodity price collapses,it will be a big positive for India, he said.
India should,however,avoid the mistakes Brazil committed in the 1970s by creating a welfare state prematurely. It is better to redistribute the pie once you have it rather than try to do it when the pie is small, he said. India should rather look at China that followed ruthless capitalism.
Sharma expressed concern that businessmen do not find the going easy in India. He said that many businessmen told him in private that they were finding it more and more difficult to do business in India and they would rather take their money out. My confidence in India will increase a lot when I see domestic businessmen willing to invest lot more at home rather than diversifying, he said.
Saying that the quality of governance at the Centre remains very poor,Sharma was more enthusiastic about the states. Growth is coming out of states increasingly and the quality of governance is improving there,but at the Centre it still remains very poor. And the reason for India being a breakout nation is its states, he said.