Arindam Chaudhuri
[February, 2009]

I was quite young when the Harshad Mehta scam hit the headlines and the stock markets crashed. Since I was never fascinated by gambling money in stocks and was busy chasing my own dreams, I did not pay much attention to the hysterical front page stories that used to come out in newspapers! But yes, I was concerned about the direction of India both as an economy and a society. The abysmal GDP growth rates reported in those days used to make me think about the future of entrepreneurs in India. India’s pathetic education, health and infrastructure scenario used to make my blood boil in anger and frustration. I sometimes thought India doesn’t have a future.

I still get angry at the state of India. But now I am convinced that India has indeed a great future – particularly at a time when we seem to be getting bad news from everywhere. For a while, I was flabbergasted when some colleagues informed me about the downfall of Satyam and Ramalinga Raju. But then I thought for a while and realized that this was actually not surprising. Regular readers might recall an editorial I had written on how the many so called icons of Indian business were basically creating paper wealth without doing anything that can be called world class. I had talked about how the SEZ formula was tailor-made to create Indian tycoons with government help in a shameless and scandalous manner. So, I was not surprised at the decline and fall of Satyam because I always suspected that companies of that kind did the lowest possible kind of work when it comes to value addition and innovation. It is just that a friendly media and greedy investment advisors ensured such companies became talked about in the West. Now that the so called disciplined markets of the West have been shown to be worse than trick joints, I am again not surprised how ‘investment advisors’ had managed to create a myth around Satyam in Wall Street! I know, the same set of journalists and experts who were saying that Satyam is a great company are now trashing it as the worst possible example of corporate governance.

Most times, I read such stories in the media and ignore them because I know a lot of it comes from completely illiterate and intellectually dishonest individuals. But I confess, I am unable to ignore the illogical hype the media is generating about the global slow-down and the possible negative effects on the Indian economy. It is difficult nowadays to find much good news in TV channels and newspapers when it comes to the economy. The same media was reporting just a few months ago that India will grow at 9% plus for the next few years and possibly beat China in the next decade. The same media was hailing the Jaguar-Land Rover takeover by Tata Motors; the same media, I believe, was going completely hysterical in January 2008, when the Sensex crossed 21,000!
I know these are not the best of times; I know jobs are being lost in many sectors and I read reports that the Indian consumer too has been afflicted by the new American disease of not buying and hoarding money. But then, is it really all that bad? One of my editors pointed out a simple but very significant fact to me the other day. The largest employer in India is the State – including the Central and State governments, the Public Sector companies and various bodies and institutions that the gargantuan bureaucracy has spawned (and that includes the offices of Right to Information commissions!). And these tens of millions of ‘workers’ have got huge hikes and arrears – thanks to the Sixth Pay Commission, their pay hikes are with effect from January 1, 2006. Many judges will now get three times as much as they are getting, and many mid-level armed forces officers have got an almost 100% hike. Not a single one of these workers faces any kind of job insecurity. In that sense, India is indeed different. These tens of millions of middle class Indians have the money to spend and the sense of security that their jobs are there as long as they like it. These are people who will keep buying cars, two wheelers, homes and travel on holidays. The difference is, these consumers will not be the ones to spend money extravagantly the way a young manager in a financial services firm was doing till recently.

What will that result in? GDP growth rates that will be a little lower than what everyone was predicting in the heady days. And how much lower will those GDP growth rates be? Even the most pessimistic analysts reckon that the Indian economy will keep growing by at least 6% every year even in the worst of times. Now imagine India from 1947 to 1991. The economy grew mostly at an average ‘Hindu’ growth rate of about 3% every year. Even between 1991, when economic reforms were launched, and 2003, the year when the late Pramod Mahajan decided that India was indeed shining, the GDP growth rate hovered around 5.5% per year. It has been only in the last five years that we have seen growth rates in excess of 8%. And that will now inevitably fall to around 6% since the global economy is facing a crisis of unprecedented proportions.

But do remember, even a 6% growth rate means that the per capita income of India will grow at more than 4% – for most of its history as an independent nation, India’s per capita income has grown usually at about 1%. With per capita income growing at more than 4% a year, tens of millions of Indians can jump out of poverty in the next decade. That is exactly what happened in the last 15 or so years when the percentage of Indians living below the poverty line fell from about 40% to about 25%.

Inflation is down, petrol prices are down, a majority of industries - barring real estate and financial sector - have remained largely unaffected by the slow-down and of course the state machinery is thriving! India has perhaps the highest population which has a growing purchasing power and has a long way to go before a Japan/USA type of a consumer saturation sets in. So I am not so worried about the future of the Indian economy. In fact this is the big chance for the entrepreneurial Indian to innovate new businesses, and, for existing businesses to wake up from their slumber and make their companies more competitive. What is wrong is the manner in which a herd-like media is presenting the whole story. Instead of doing a detailed analysis of the situation, we are hyping lost jobs of some fat cats who, because the market was distorted, were probably earning far more than they were actually worth in any case. Every global report is categorically stating that the Indian economy is amongst the only few economies that will show a high positive growth in the near future. Instead of sensationalising things we need intellectual analysis explaining these times of ‘readjustment of past illogical hype’. And then we will see that the Indian economy is going to be least affected by the global slow-down and is instead going to grow at a healthy pace.
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