The Hindu Business Line : A galloping India and China

The Asian giants are growing more because they perform well, have reformed fiscal policies, have the right political climate, and have domestic markets increasingly inclined to consumption.

A recent survey of the intentions of international investors in the years ahead indicates that India and China will be far outpacing their other two compatriot-economies in the so-called BRIC grouping — Brazil and Russia. As far as hard statistical estimates go, the survey — involving 350 international investors — says that while 42 per cent of such investors (mostly expatriates) "felt positive" about China, 32 per cent had their thumbs up for India. These figures compare with a measly five and six per cent, respectively, for Brazil and Russia.

Within the BRIC grouping of Goldman Sachs, what this means is that the two Asian economies would fast tear away from the other two which, in a study first published in 2003, taken together were hailed as the star economic performers of the international economy in the early decades of the present century. According to that first instalment of the BRICs report, the four economies were expected to eclipse the world's richest economies by 2050, by implication heralding a new era in international relations since the 19th century. Now, in the wake of the fresh findings, the view gathering momentum is that (according to one report) "the BRIC countries can no longer be lumped together and the locus of investment geography (is) fast moving east."

Old Style economies

The question that arises is: Why has this happened? What precisely has gone wrong with Brazil and Russia or, alternatively, what has gone in favour of the Asian giants within the last three-four years which has, according to the study, altered so decisively the preferences of international investors? More to the point, what has made investors view the Russian and Brazilian economies as `old-style' as against the `new, more avant garde ones' of India and China?

The study says that investors "appeared focused on the fact that Asian markets are growing more because they `perform well; have reformed fiscal policies; have the right political background and climate; and have a domestic market that is increasingly inclined to consumption'."

On the other hand, the general view of the Russian and Brazilian economies was that they depended on resources for their growth, "which is more typical of static old-style economies." The survey further found that "despite 47 per cent of investors voicing concern about rising oil prices, energy-abundant Russia was marked down for a lack of transparency, its political climate and unstable governance." The uncertainty about Brazil stemmed from "over-nationalisation and a risky political situation."

Clearly, there is much to cheer about the optimism exuded by international investors about the Indian economy in the years ahead. Indeed, the most heartening point about the survey's findings is the shedding of the old shibboleth regarding India, namely, that it was far from being a modern economy being hemmed in as it were by the inefficiencies flowing from an inflexible bureaucracy, an unhelpful work culture and poor infrastructure. But the situation is seen to be different now.

Briefly, India today is no longer an `old-style' economy in the eyes of international investors, which is nothing if not a quantum jump as far as assessments go about the Indian economy. The point is: Seen from within the economy, is this view as authentic as it is being made out by external players?

Distant Perspective?

Sometimes, distance lends enchantment even when there is really nothing to be ecstatic about. Is this the case with the Indian economy? Sometimes again, a distant perspective affords a truer, clearer appreciation of the real state of affairs compared to a view from within — from the marketplace as it were. Should the survey's findings be seen from this angle?

This is a difficult issue to tackle because of the lack of objectivity which plagues the internal observer, perhaps making him miss the wood for the trees. Even so, one is probably not very far off the mark to suggest that the future of the Indian economy should not be taken for granted, specially given its political trappings which increasingly appear to be getting in the way of efficient functioning. This view will immediately be challenged by the school which holds that the reform process is now irreversible, and that the inherent dynamics of rapid economic growth will continue to work themselves out to the nation's advantage.

No doubt this is a welcome thought, especially now when, with the emergence of new State centres of political power (Uttar Pradesh, for example), the focus of attention is shifting to the complexion of the next Government at the Centre. One of course hopes that the `permanence' of progressive, reform-oriented economic policies will not be affected by the formation of new Union governments in the years ahead, but the danger is that the hope could be dashed on the rock of increasing political instability at the Centre which, incidentally, has a life of its own.

Political stability

There is little doubt that coalition governments at the Centre have come to stay, but can one be equally smug when commenting on the state of political stability? Admittedly, it can be argued that if most political parties are reform-oriented, then whatever the composition of the government the general direction of reforms will remain unimpaired. While this may argue for `stability' in reforms policy generally the over-arching issue of political stability cannot but affect the reforms proposed and implemented, which is almost certain to affect the "investment horizon" of intending investors.

It is against this background that the expected superlative performance of India and China in the decades ahead should be seen. In fact, even the original 2003 BRIC paper stated that the "key assumption underlying our projections is that the BRICs maintain policies and develop institutions that are supportive of growth," adding significantly that since "each of the BRICs faces significant challenges in keeping development on track," what this means is that "there is a good chance that our projections are not met, either through bad policy or bad luck." It is a pity that this caveat applies so very strongly to the Indian scene, which is essentially a comment on its politicians.

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