Tuesday, August 13, 2013

As we turn 66 ..

I have to admit I am pessimistic about India's future. When I first came to the US for graduate studies, India was definitely already on a declining track, but even so, I couldn't have imagined things were going to be this bad this soon. In its characteristic way of priding itself on things that deserve no pride, India has for the last several years prided itself on its attractive demographic dividend. There were doubtless proponents of this putative panacea elsewhere too. Many famous pop-thinkers such as Thomas Friedman, the big-4 consulting firms, even the likes of IMF never failed to remind us of what it means. Perhaps it would have paid to be careful to read it as what it 'can mean' than what it 'means'. Clearly, the demographic dividend comes with significant downsides too, that we didn't and in many ways still don't want to see. The foreigners' enthusiasm about it was justified; they didn't have to share the downside, and could participate in the upside at their discretion.  But for the Indian people and administration to be too happy about this demographic dividend, which is always a product of an uninhibited population growth rate, was like a stock-trader being too happy about financial volatility. True, the skilled and astute trader cannot make nearly as much money in a low volatility environment as he can in a high volatility environment, but a mediocre one invariably gets killed by volatility. Now the question that needs no answering is whether astute and skillful are words that better describe the Indian administration or is it words like mediocre. A huge percentage of Indian population today is already young, and unless population growth rate slows down, which it hasn’t been showing any signs of, the Indian population is getting progressively younger. If the Indian government and India Inc together are able to build the health and education infrastructure to support this huge young population, India can undo any and all of its previous failings. But that’s a big 'if' that we take very lightly. And it has gotten much bigger of late, with India's dismal current account deficits, depleting reserves, and the government's continuation of ever increasing and indiscriminate spending beyond its means. Foreign institutional investors have the most negative outlook for India amongst all emerging markets, and most if not all are decisively uninterested in having anything to do with India for quite some time to come. It is high time we face facts rather than languish mired in a web of emotional and ideology-ridden never ending discourse, and the fact of the matter is India has little chance of meeting its infrastructural needs for supporting the future of its young population in the absence of foreign investment. I hope that as Indians we show the courage to swallow the bitter pill for a brighter future, and I hope different people in different states of India, with vastly different and sometimes conflicting goals, can come together this time, because if we don't, the consequences are not pretty. A relapse into the sluggishness of the 1980s is not far, to begin with, but what lies ahead is more disheartening - an unimportant place in the global order, and maybe farther into the future, the need for foreign investment morphing into a need for foreign aid.

In the coming elections I am going to be rooting for Narendra Modi if for no other reason than that it would be a change from the present system. I do not think he is the miracle some people seem to think he is. It is important to notice that the state he inhabited as a chief and no doubt improved, was already prosperous, and had all the makings of a progressive society. Most of the rest of India is either only prosperous or only progressive or, in many cases, neither. Leading India with its remarkable heterogeneities is, if you ask me, a completely different ballgame. But he says that he can bring about a turnaround, and as a nobody, that and his past track record is all I have to go with. The other alternative that has recently emerged is AAP under the leadership of Arvind Kejriwal (who, most importantly, buys morning milk and bread from my best friend's general store but that falls just short of reason enough for me to support him). Despite his possibly good intentions, his campaign for the Delhi assembly elections proves beyond doubt that in finding the balance between populism and bitter-medicine, he tilts all too much towards populism. How else can we justify his plans for de-syncing of oil prices from the global markets, at a time when India's two biggest oil companies, both public sector undertakings, have already been incurring huge losses for several years running, owing to heavy government subsidies. How else to interpret a most juvenile claim to reduce electricity prices by seventy percent! Unless the power distribution companies are grossly manipulating their accounting statements, it seems unreasonable to believe that they can still be in business following a price slash of this magnitude. But besides these specific points, he has failed to come up with any ideas for India's growth going forward, except that he will let common people have their ideas implemented. This is what I have to say to that: the majority of the 'common people' are not intelligent enough (Actually they are not honest and well-intentioned enough either, but even if we assume they are) to guide India's road forward from the pit that we're currently in. And if it is true that the common people by and large will dictate India's economic, defence, home and foreign policy under a future AAP government, I am scared. And you should be too.

Things are not all bad, for sure. India still has vast untapped potential - no one can deny that. But potential alone is useless unless it can be tapped. While India Inc is getting increasingly disenchanted with India, and the government is as effete as it has ever been, India's social sector is also far from effective. Of the five nonprofits I closely worked with, two are downright corrupt, two are too lavish for a nonprofit and do creative things that really help no one, and the one that works hard is not well-funded. There are those like Teach-for-India which are great successes, but the number of such successes is very very few compared to how many we need. The most remarkable aspect of Teach-for-India's success is in being able to mesh the technically advanced graduates of IITs with the world of social work in a big way. We will need many more TFIs in the years to come. Broadly speaking, India needs more maths, more coding, and more manufacturing. I went to one of India's supposedly premier engineering colleges, and yet, I say with neither compunction nor doubt that most of my college's graduates were technically weak even in their own respective engineering trades, let alone the fact that an alarmingly high number of them didn't know how to code at all, and hardly any could code at a level that merits any special appreciation. Compare this to US universities, where everybody from Econ to Stat majors do a significant amount of coding. It might sound naive that I stretch the particular topic of coding so dear, but it is more naive yet to find it naive. All areas of enterprise, from manufacturing to banking to medicine, receive huge advancements in productivity from the simple sounding aspect of ‘coding it’ well. The thing common to the best mechanical engineers, best financial modelers, the best medical researchers, even the best movie studios of today is an abundance of coding talent. I cannot imagine a truly competitive economy of ten years from now, where a significant number of people cannot code well. Whether we like it or not, we today have huge unmet educational needs, and when your needs are as big as this, programs on philosophy and psychology are a forbidden luxury, and here I'm pointing to the massively expensive Nalanda University under preparation for the last few years. I truly hope India is rich enough one day to afford these indulgences, but till then that's what they are - indulgences we cannot afford, things to be put in the same bracket as the Commonwealth games.

Here’s wishing India well and hoping I can be of some use.


  1. Good post! I agree with your views on India's diminishing global image.If you closely look at the reasons behind foreign investors pulling out of Indian market, you'll observe majority of them are related to the current government regime. Be it the controversial retrospective tax law or series of big corruption scandals or volatility of rupee, they've all marred India's image in the eyes of foreign investors. So, we're surely in need of an overhaul of the political system. It's not a cure all but can at least provide some hope.

    Another big issue presently faced by the Indian economy is policy paralysis. There's a huge buzz about reforms, everything's nicely done on paper but the fever soon dies and there's little action.

    So, what else can fix our economic problems?

    Definitely more investment in sectors such as infrastructure, education and healthcare. This is crucial to empower India's growing young population. But also good leadership at all levels. We are in need of young and talented leaders who are truly motivated to solve India's complex socio-economic problems. And yes,less of brain drain and more of brain gain!!

  2. Policy paralysis is characteristic of all coalition governments. I have no idea how anyone could get us out of that system. The importance of a good leader cannot be overstated. I was reading a book on the economic history of the US this week, and it came home to me that although the so-called progressive era of US economy came a couple decades after Lincoln died, it was Lincoln who had set the stage for something like that to ever happen. Sometimes, only history can judge the worth of a leader. I'd be more than happy with a leader who does not make a huge difference to our GDP, Deficit etc numbers during this term, but brings about social and economic reform that can create conditions for an eventual prosperity of India, even if years after he leaves office. "Years after" is infinitely better than "never".