Wednesday, August 28, 2013

Decoding the Indian Economy

(This blog post is written by Mr Mohamed Zeeshan, a junior in VIT University pursuing his Mechanical Engineering degree. He blogs at “What on Earth” and he write excellent blog posts on world affairs and various policy issues.) 
Prime Minister Manmohan Singh is heading into the sunset of his second term as the Head of Government in the world's largest democracy. Much like his first term, Dr. Singh's second term has been strewn with action and activity, and more than once, his government seemed to be on the verge of collapse. But unlike with his first term, public opinion today in young, urban India is decidedly against his seemingly passive nature. There seems little faith in the nation now in this once incredible economist of unparalleled intellect. People now believe that Dr. Singh's perceived 'silence' on matters of grave concern has let down the faith of the electorate and they aggressively want to see 'things get done'.
It's rather ironic that Dr. Singh's greatest adversaries today come from the field of economics - a subject he has mastered all his life. It is further ironic when you consider that the same people opposing him often laud him for having been the man who spectacularly turned the Indian economy on its head in the early 1990s when all seemed lost.
The trouble with economic reform is that it is seldom instantly effective. Quite often, economic ideology lasts no more than a generation and nations continuously evolve their policy outlook to suit the times. So is Dr. Singh then truly out of tune with the reigning times? Is he too old to have any further say on India's economic future? 
Turn back the years a bit - in the 1950s, as India liberated itself from the British Crown, Pandit Nehru unleashed a sweeping wave of socialism on the country. All things from factories to power stations, textile shops and grocery stores were state-controlled in one way or another. After the East India Company whitewashed the Indian people, private ownership came to be a taboo. Even the capitalist class themselves held that India's economy should be tightly in the hands of the government. Through the generations, however, courtesy of the educational institutions established during the Nehruvian era and the push for industrialization voiced by policy-makers, India went on to develop a much-hailed pool of professionals who worked as expatriates all over the world. Poverty, no less, continued to prevail and the menial worker had little or no employment. Parallel to that, the industrialist neither had the means nor the support to give him any. Then came Dr. Singh with his blueprint of Liberalization - opening the floodgates and letting the sea of capital in. What happened thereafter became part of modern Indian folklore - brands and products of all kinds flooded the Indian market overnight and the economy turned around as a new generation was born. 
Something else happened in the aftermath of Liberalization - as foreign capital flowed into India, jobs were created, causing widespread urbanization and rise in income. Although disparities between urban and rural remained (in fact, even widened), urbanization caused an evolution in manpower, exposing a new generation of poverty-stricken Indian children to a world of possibilities. The pool of professionals hence further expanded, causing a further increase in income. All these changes however have proven rather difficult to detect in a nation so vast and diverse. It then followed that the rise in income made the Indian market even more lucrative as Indians became increasingly consumerist - a process still in progress. But owing to India's still measly manufacturing power, the rise in consumption increased prices, causing inflation and even expanding the national fiscal deficit. Today, the Indian Rupee is in nosedive and prices are shooting up in the opposite direction. The nation is in debt and any debt in a country like India can be alarmingly dangerous. Where are we now headed?
The important thing to understand here is 'consumerism' - a trend introduced to the nation largely, if not solely, by Prime Minister Singh. Consumerism is a new word in Indian socio-economics. There has never been an Indian generation of middle class citizens in history that has matched the present one's ability and desire to splurge for a better way of life. In a sense, therefore, India seems headed down the path of the old time American economy. Owing to its larger population, however, India is capable of making the world want to sell to it more than America ever did. That would mean that imports would increase further as India's exporting capacity remains stagnant and abysmal. 
Nonetheless, consumerism isn't all bad. Through the ages in fact, one would find that the all-powerful superpower of the world has invariably been a consumerist society. Be it the Romans or the Greeks, the Europeans or the Americans, those with greater material desires have wielded economic influence the world over. This is not surprising when you realize that the consumer is often more powerful than the shopkeeper for without the consumer, there would be no shopkeeper. 
There is another more significant consequence of consumerism to come which will eventually expand India's manufacturing abilities like never before. The rise in demand will lead to fresh new homegrown entrepreneurs and corporate empires looking to cash in on the big splurge. This would put to greater employment India's human resources and also automatically lead to better control of prices through greater competition in the market. Competition further means invention and innovation of new products and technology (as was the case with post-Renaissance America), making the Indian market a far more lively one than any before.
Safe to say then that although the immediate times are immensely painful, Prime Minister Singh's free market economics may eventually deliver to India what its people have long fantasized - economic prosperity. But that's a long, long way down the line.
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Blogger Kalyan Inampudi said...

Hi , Zeeshan Nice article , Informative and well written . I just wanted to share my thoughts too .

Dr. Singh spearheaded 1991 reforms , but as Pratap Banu Mehta says we only do Ad Hoc and that too for short term solutions . Only when faced with crisis we took that decision and the economic boom after 1991 didn't trickle down as expected .

there are many problems with the Political side , we dont take long term policy actions ,we dont solve bottlenecks, structural problems , Investor confidence is least concern .

The economic reforms reached Indian shores long ago but from there we didnt take it to interiors .

Hope to see more Informative posts.

August 29, 2013 2:48 PM  

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