The Indian economy must be an elephant. At least that’s what it feels like when you read the stuff that observers are saying about it. Blind people describing what they perceive the elephant to be through their sense of touch comes closest to characterizing the quite varied descriptions of the Indian economy. Here’s Cait Murphy of Fortune advising us “India the Superpower? Think Again” (Feb 9th, 2007) and there’s Stephen Roach of Morgan Stanley telling us that “India [is] on the Move” (Feb 9th, 2007), while Niranjan Rajadhyaksha of Mint holds forth in his new book on “The Rise of India.”
To get a better understanding of an elephant we have to walk around the elephant, of course, and integrate the various localized partial descriptions in our mind’s eye. Murphy is right of course that the myopic hubris which declares India to be an economic superpower is a load of nonsense. Surely, an economy that cannot even feed half its below-five children or one where around 20 percent of the people are chronically hungry is a pretty dismal one, never mind all the hot air about 8 percent GDP growth rates. He points to the 2006 Human Development Report’s ranking of countries according to health and human welfare measures, where India ranks 126th out of 177 countries. “India was only a few places ahead of rival Pakistan (134th) and hapless Cambodia (129) and behind such not-about-to-be-superpowers as Equatorial Guinea (120), and Tajikistan (122).” India failed according to that report card at least.
But that is not in fundamental conflict with Roach’s position that India is making progress. One can be quite sick and still be on the road to recovery. It’s the positive trend that should give some hope. Roach’s vantage point is the Indian corporate sector, which of late has been hitting the headlines. He says of his recent visit to India: “What blew me away were the corporate and entrepreneurial stories. For all the buzz over China, one of the great paradoxes of the world’s greatest development story is that it only has a handful of truly world-class companies. By contrast, India has a much deeper and broader stable of very powerful businesses. Moreover, it’s not just IT services – it’s also telecom, pharmaceuticals, energy, steel, and auto components.” You can not expect the chief economist of an investment bank and a global financial services company to not be a cheerleader in the game of international takeovers.
India is sick but on the road to recovery, seems to be a reasonable position. In the excerpt (linked above) of Rajadhyaksha’s book, I read that, “India will have to deal with myriad challenges in the years ahead if it is to ensure that it remains on its current growth trajectory and also if it is to help more and more of its citizens become active participants in the global economy. Five issues stand out: poverty trends, income inequality, energy, employment, and infrastructure.”
Poverty trends are positive, he notes, but he is worried about rising income inequality. It is somewhat puzzling that within a discussion of growing income inequality he cites irrelevant figures on how many Indians are US dollar millionaires (~70,000) and billionaires (23). Be that as it may, he does note that more than income inequality, changes in consumption patterns matter.
I intend to read Rajadhyaksha’s book at the earliest opportunity and until then I will reserve my comments on his position. But I am disappointed that he did not include education in the list of the main challenges that India faces. Sure, both Murphy and Rajadhyaksha note the lack of adequate physical infrastructure. But Murphy mentions education also.
Like everyone else, I too have my biases. Whenever I read an analysis of India’s economy, I keep a keen eye out for the word “employment.” It is red flag to me and I feel like screaming “It’s not employment, stupid, it’s production that matters.” I can argue (and will do so at length one of these days, be warned) that it’s precisely that obsession with employment at the detriment of production that has been the primary cause of India’s dismal economy. Production is king, and the rest of the bunch of concerns including employment are at best minor functionaries.
On that note as we continue to walk around the elephant, I will conclude with the immortal words of Inspector Clouseau, “Until we meet again, and the case is sol-ved.”
Notes:  It would appear that the wealth of these 70,000 US dollar millionaires and 23 billionaires (lower bound around US$ 100 billion) is being implicitly compared with India’s annual GDP (around US$700 billion.) That is like comparing apples to horses. The wealth of these super-rich 70,000-odd people has to be compared (if at all) not with the income of 1 billion Indians, but rather with the wealth of 1 billion which I guess will be around US$ 20 trillion.