The Indian Economy Blog

February 14, 2007

Indian Politicians: Are They The Problem Or The Solution?

Filed under: Business — Nandan Desai @ 1:58 am

I had the chance to attend a lunch meeting earlier today with a handful of MPs from India who were in New York as part of the Indo-US Parliamentary Forum. The audience was a largely receptive business-minded one with questions like “what do you think about the future of real estate in India?”

All of the politicians displayed an admirable understanding of what India needs today (except for the gentleman from Jharkand, who spoke somewhat incomprehesibly). For the most part, the storylines were well-rehearsed: India is booming, the world is finally seeing India for what it is, democracy makes things move slow, etc. Throw in a joke or two, and that was enough to elicit the applause from the smallish audience. Two of the MPs however stood out in their characterizations of India, and their aspirations for what she can do and become.

The first was Robert Karshiing, MP from Meghalaya. His hope for an  ”India which understands humility” was refreshing. It reminded the others that all the glory of being received by businessmen in the Harvard Club in New York City will not change the fact that a large part of our population remains in poverty, or that health and education are nowhere near adequate. India may have ‘arrived’ for the rest of the world, but she has yet to do so for many of her citizens.

The last one to speak was Congress MP Sachin Pilot (elected to parliament in 2004 at the age of 26). He was intelligent and self-effacing. He understood that his strong belief in helping farmers may strike the audience as populism – and clearly explained why it was not. Towards the end of the meeting, an audience member asked a touchy question: “To what extent is bad governance retarding growth and poverty reduction? and what specific steps do you think Parliament can take to change that over the coming years?”

The others didn’t seem to want to take on the question. The man from Jharkhand looked genuinely perplexed. Pilot asked for the mic, and clearly iterated that he understood precisely what the concern was, and said that, even as a newcomer, he had seen a significant change in the last couple of years – with politicians gradually realizing the importance of finding common ground with regard to how to reduce poverty, and stimulate growth.

“Ultimately,” he said, “We are part of the problem… and hopefully, we can be part of the solution.”

Time will tell.

29 Comments »

  1. That Modi guy in Gujarat acts very Chinese. Is he the solution?

    Comment by J. Yin — February 14, 2007 @ 2:32 am

  2. No. Despite Gujarat\’s  economic success under Modi\’s stewardship, I think the longer-term \’solution\’ will come from the pragmatists rather than the ideologues.

    Comment by Nanubhai — February 14, 2007 @ 2:48 am

  3. http://money.cnn.com/2007/02/08/news/international/pluggedin_murphy_india.fortune/index.htm

    India the Superpower? Think again
    India should put aside pride about its growing economy and concentrate on improving the lives of average citizens, argues Fortune’s Cait Murphy.
    FORTUNE Magazine
    By Cait Murphy, Fortune assistant managing editor
    February 9 2007: 12:29 PM EST

    Definitely a good read for many Bullish-India folks. Don’t ignore the reality, overcome it.

    Comment by Shailesh — February 14, 2007 @ 3:45 am

  4. Actually on a recent visit to India (which is when one can talk to people more and also with 20 news channels blaring at you, one realizes better whats happening), I did see a lot of polititions coming up with ambitious developmental projects, talking anti corruption and economic development. I think to a first degree there is a lot more pride and aspirations among the populace now than before in the country and their patience with polititions who dont act towards development has become a lot shorter than it was say 10 years back and they while not trusting the polititions as much, do act more strongly when they see polititions not perform as much. The large number of news channels help too by bringing spolight on such performing and non performing polititions. Lastly, this same media and acts like the RTI have made corruption and complacency more difficult. All this is in fact causing polititions to act more proactively than in the past. Of course, any new project also means more cutbacks for the polititions themselves.

    Comment by Ardy — February 14, 2007 @ 4:01 am

  5. If only Indian politicians were as accessible to the common people in India as they are to the a bunch of rich Indian Americans in NYC.

    Comment by yum yum — February 14, 2007 @ 6:43 am

  6. Completely agree with you yumyum. However, I think it\’s worth noting that, in India we have 530 Lok Sabha members and 250 Rajya Sabha members representing a billion people (about 1.3 mn people each). In the US 535 elected representatives (435 House + 100 Senate) represent 300m (about 560,000 each).

    Accessibility is a nice concept to jibe any politician anywhere – but my guess is that the Indian pols (some, certainly not all of them) are a lot more accessible to the common man than in some other large countries.

    Comment by Nanubhai — February 14, 2007 @ 8:51 am

  7. Nanubhai, Rajya Sabha doesn’t represent anyone except themselves and political parties – it’s becoming a rich mens (and womens) club. I wish they were elected directly.

    Comment by Chandra — February 14, 2007 @ 12:51 pm

  8. Chandra – that’s the case with most upper parliament houses (“rich men’s club”).

    I agree with you that they should be elected directly though.

    Comment by Nanubhai — February 14, 2007 @ 2:17 pm

  9. If the enonomy is growing at 7% and poverty is only being reduced 1%… the missing 6% is quite simply the governments fault. This is the metric by which any government of a developing country ought to be judged by. Foreign Exchange w/Fareed Zakaria had a decent interview with the author of that new book (can’t remember his name) that pointed this out.

    Comment by Lot W — February 14, 2007 @ 5:13 pm

  10. I think you’re thinking of Ed Luce, Lot W.

    His new book on India (“In Spite of the Gods: The Strage Rise of Modern India”) is a very good read.

    Comment by Nanubhai — February 14, 2007 @ 7:59 pm

  11. Politicians are not the problem. Voters are….40% of the junta who are educated dont go to vote or contest elections. And those who get such opportunities lack the vision or the courage to take even basic decisions (Manmohan and Chidambaram).

    How many of you would agree with me that Major Gen BC Khanduri was the best minister amongst all during the last 15 years.

    rgds

    Comment by Chandra — February 14, 2007 @ 8:22 pm

  12. Nice one, Nanubhai. Heard from A about this conference – seems these guys are in DC today. On the subject of farmers, one of the most interesting news to come out recently is the CSO declaring that Indian economy grew at 9% during 2005-06, largely due to the 6% growth in agriculture. But this is not expected to be repeated. Perhaps you guys can write a piece on the challenge of sustaining agricultural growth in India as it has spillovers on the whole economy.

    Comment by Sash — February 14, 2007 @ 9:28 pm

  13. Sash,

    According to the CIA, agriculture makes up less than 20% of India’s GDP.

    How could a 6% growth in such a small sector account for a 9% growth of the larger economy?

    Wouldn’t Industry and Services have to grow faster than 9% to make up for agriculture’s lower performance?

    Comment by alphie — February 15, 2007 @ 4:21 am

  14. I think what Sash was trying to point out was that while the high growth in industry/services seems sustainable, agricultural growth certainly is not. So even though it’s 6% this year, it could be -1% next year. That makes a significant difference to the overall growth number… it could lower it by 1-2%.

    Moreover, the vast majority of the population lives off agriculture, so what happens in the sector is crucial to the overall growth in incomes.

    Comment by Nanubhai — February 15, 2007 @ 5:29 am

  15. Indeed politicians are much more easily accessible if you have money. That’s true all over the world. I just don’t like the inordinate influence that non-local Indians are having on India’s politicians. I will recuse myself from commenting any further about Indian politicians.

    Chandra, middle class and upper class do not vote because there are other more effective ways of making their voices heard in the corridors of power. Also many of these people don’t pay any taxes/hide their income. So it really doesn’t make any difference if they vote or not.

    It’s interesting that nobody talks about the almost epidemic levels of tax-evasion in India. The black market is supposed to be about 50% of real economy of India (I may not be using the technical meaning of the word ‘real’ here). Also, agriculture is not taxed, not even at a nominal level to make people understand the need to pay for services.

    Everyone is happy to ask for services from the government but nobody wants to pay taxes.

    It is a fact that during the initial phase of economic expansion, Japan, Korea, Taiwan etc had very high rates of taxation. In Post-WWII Britain taxation went as high as 96%. That’s where the savings come from and huge public debt is tackled.

    I get the feeling that India is finally taking the path that Brazil did in the 1980s.

    It weird. I started with a lot of positive feeling about the future of India but the more I think about it the worse it looks.

    Comment by yum yum — February 15, 2007 @ 9:52 am

  16. I understand now, thanks Nanubhai (apologies, Sash).

    But has India’s industrial sector been doing that well?

    Here’s some numbers about India’s economy I dug up from old CIA docs:

    GDP – composition by sector:

    Year:……….1997…..2005
    agriculture:….25%…..19.9%
    industry:…….30%…..19.3%
    services:…….45%…..60.7%

    Labor force – by occupation:

    Year:……….1995….2003
    agriculture:….67%….60%
    industry:…….15%….12%
    services:…….18%….28%

    If anything, it looks like India’s industrial sector has been lagging behind it’s agricultural sector.

    Of course, the CIA (and me) could be wrong. We’ve been wrong before.

    Comment by alphie — February 15, 2007 @ 1:22 pm

  17. yumyum

    I thought we were discussing the quality of politicians. If many of us donot go out to vote, how does on expect any improvement in quality. During the last election more than 200 seats were urban seats, with an average turnout of about 50%, most of them being urban poor.

    I am not sure about the impact of not paying taxes on the economy. The Govt uses resources very inefficiently mainly due to corruption. Whats the point in giving them more money?

    rgds

    Comment by Chandra — February 15, 2007 @ 2:46 pm

  18. Has anybody seen this report?

    http://www.doingbusiness.org/documents/Doing_Business_2007_Country_pages.pdf

    This is a world bank report that states that the total tax rate for companies in India is 81.1% on profits earned?

    I thought it was 30%!!! :-(

    rgds

    Comment by Chandra — February 15, 2007 @ 6:04 pm

  19. Euhm, just out of curiosity, isn’t it possible to check on politicians? Can’t they pass an act which would give birth to an agency checking out every single politician and their own members for kick-backs? I’m not much of a politics expert, hell, I’m just 17 years old, but shouldn’t there be some way to combat corruption?

    But talking about politics, I want to be a politician myself. Does anyone think I can do this or will I be run down and destroyed by the older and probably corrupt politicians?

    Comment by Jhaveri — February 15, 2007 @ 9:47 pm

  20. Alfie, this is the data I have from the World Development Indicators.
    2002 2003 2004
    Agriculture value added (% of GDP) 22.5 22.8 21.1
    Industry, value added (% of GDP) 26.7 26.4 27.1
    Services, etc., value added (% of GDP) 50.7 50.7 51.7

    Most importantly, the annual growth rate has been increasing at a steady rate for both industry and services, unlike agriculture which is erratic. Its projected that agriculture will grow at 2.73% in 2006-07 (opposed to 6% last year) whereas projections for industry and services are around 9% and 11%. Also, it’s argued that the 6% growth in agriculture is due to high price of agricultural commodities due to inadequate farm production – not a great scenario. The government is trying to target a 4% growth rate in agriculture but if the industry and services start doing really well, the deceleration in agriculture might not affect the overall GDP rate. But can we afford to do that when more than half the population survives on agriculture? Chidambaram pointed this out in a recent interview: http://www.indianexpress.com/sunday/story/21948.html

    In the long run, the population has to move out of agriculture but till then we have to increase farm productivity, non-farm employment etc. Maybe that will also stop the pressure on cities.

    Comment by Sash — February 15, 2007 @ 11:40 pm

  21. Thanks for the numbers, Sash.

    The discrepancy appears to come from the different methods the World Bank and the CIA use to value India’s economic output.

    I see no employment by sector figures from the World Bank, though.

    It’s quite possible that India’s industrial sector is producing more valuable goods while employing fewer and fewer workers. If that’s the case, both agricultural and industrial workers will have to find employment in the service sector.

    It can’t be easy being a politician when you don’t have good data on which to base your policy decisions.

    Comment by alphie — February 16, 2007 @ 1:38 am

  22. Alphie, World Bank had sector-wide employment figures but unfortunately it hasn’t been updated in the last WDI dataset. But India itself has a very rich dataset on all possible numbers – in fact, its quite easy to get lost in the maze of numbers… possibly appealing to us nerdy Indians :)
    You are quite right that agricultural and industrial workers would probably have to find employment in the services sector in the long run – but this is also so skill-based that we would really have to invest in education, training etc for this shift to happen.

    Comment by Sash — February 16, 2007 @ 2:12 am

  23. Just a question, but won’t the arrival of retail businesses increase the growth rate of the agricultural sector for this year? Or is this something which will not have wide-spread effects until a few years from now?

    Comment by Watcher — February 16, 2007 @ 4:16 am

  24. Watcher, that’s a great point. In fact, private investment in agriculture — whether domestic or foreign, or in food retail or processing — might be the push that the agriculture sector needs. The fact that private players like Bharti, ITC and Reliance are starting to invest in agriculture is great for the sector. What is needed is diversification towards higher value crops (like fruits and vegetables, livestock, fisheries etc) which generate higher income for farmers than staples but also have greater risks. Entry of private players will mean much-needed investment in supply chains connecting farmers to domestic and export markets. However, the entry of retailers will probably not increase growth rates immediately but it will have long-term hopefully positive effects on the sector. And the government still needs to get the infrastructure and institutions right — credit, irrigation, legal framework etc — but it has been pushing agricultural diversification vigorously in recent years.

    Comment by Sash — February 16, 2007 @ 4:46 am

  25. Indian politicians are neither a part of the problem nor can they be a solution to the problem, they are merely a symptom of the wider structural problems in the Indian democracy.

    The way Indian democracy functions, all elections are reduced to zero sum games between communities, if the BJP wins, the muslims loose, if the Yadavs win, the dalits loose, if an urban party wins, the rural areas loose and so on. Since the results of the zero sum games are apparent or almost apparent (someone from among the usual suspects will win) a large portion (30-40%) of the populace feels disencranchised and doesnt exercise its mandate.

    This challenge, how to transform Indian elections to a win-win game will be a major challege for India to solve before it can guarantee upliftment and empowerment of all.

    Comment by Sudeep — February 16, 2007 @ 5:07 am

  26. The issue partly lies with the way our political system is organized.

    In US, there is a President & a Congress (Senate, House) elected by different means. The President is elected directly, while the Congress representatives are independently elected and each institution has their power defined by the constituition and balance each other. What this means is that you might want a strong President (say Guiliani or Clinton) but still dont want your local representatives (Senators & House Reps) be from Dems/Reps and could elect a person who could serve your locality well and make good laws. Thus, many states that overwhelmingly elect Dems for President choose Reps for Senators/House Reps and vice versa.

    However, in India we dont have that choice. We have just one mechanism (vote for Lok Sabha) and it has to take care of both electing a good leader to lead your nation and good representative who can make laws and serve your locality. In this trade-off, we generally go with selecting a good leader and choose any dumb person to be chosen as MP, just by being a party representative for that locality. Most people, dont remember their MPs while they vote for Vajpayee/Sonia… Thus, we have a comparatively good leadership at the PM level, but very bad Parliament.

    Our PMs over the last 25 years – Indra Gandhi (a decent last term), Rajeev Gandhi, 2 years of interrengum, Narashima Rao, 1 year of waste, Gujral, Vajpayee, Manmohan Singh have all done well considerably compared to their peers in US, UK and other democratic countries, and have had sufficient qualities to become leaders. But, without a intellectual Parliament our political processes were hijacked by bickering, walk outs, blackmails, horse trading…

    So, its time to see if we could change to a system where we could both select good leaders at the PM/President position and good leaders to the Parliament in independent processes.

    Comment by Balaji Viswanathan — February 16, 2007 @ 6:46 am

  27. And Indians anyway always whine about their politics being a waste, without reflecting upon themselve. How good an average Indian is in taking responsibility at the social level and deliver results? People who have hardly made even an attempt at being even their class representative when going to school, comment on how PMs & Presidents should work.

    In reality, we should not expect any more perfection from our leaders than from ourselves and should go for incrementally better leaders. And if we strengthen our grassroots, so that we take more responsibilities at our ground level and strive to keep electing better and better leaders at the local level, India will definitely shine.

    I’m glad that atleast 30% of India is illiterate and poor as they are the ones who are more responsible in voting and choosing leadership, while the “educated” people sit in their homes whining.

    Comment by Balaji Viswanathan — February 16, 2007 @ 7:00 am

  28. People will get the govt (and politicians) they deserve ; no use
    blaming the politicians alone. Majority of the people sell their
    votes for money or freebies or caste/religious considerations. And they vote for the party/emblem rather than the candidate..

    One question about the real cause for current inflatiion :
    the govt has reduced fule prices yesterday and RBI raises CRR rates
    to reduce inflation. And in this blog, i found many comments about
    “supply side constraints in a growing economy, where demand is rising
    fast, resulting in higher inflation rates..”
    But (as a ardent moneterist at heart) i feel no one has really
    looked at the total deficts of central and state govts and the exact
    quantum of moentisation of this defict. This data is not readlily
    available ; i guess some 2/3 rds of the defict of some 1.5 lac crores
    are monetised. That is, the govt prints and pumps into the system
    some 90,000 crores of legal tender annually, which is the root casue
    of inflaton. It is ridiculous that to reduce this inflation all other
    measures except to reduce deficts is undertaken…

    Man will do the rational thing after trying all other ways…

    And see the present plight of Maharastra state govt’s finances and
    the acute power shortages there ; shut down for 2 week days (not weekends) now….

    Hopefully new investments and old industires from Maha may shift
    to TN, where i am located !!!

    Comment by K.R.Athiyaman — February 16, 2007 @ 7:38 am

  29. and if there is a supply side constraint which cannot meet growing
    demand, wouldn’t that have resulted in acute shortages, hoardings, etc ? Where is the data for this shortage in agri or other commodities
    or indsustrial and consumers products ? can anyone elaborate ?

    Comment by K.R.Athiyaman — February 16, 2007 @ 7:45 am

  30. Chandra, I don’t know what idiotic methodology they are using to home in on 85% for taxes in India. It is this kind of thing that infuriates many people.

    Many big corporation have never paid any taxes or have been enjoying tax holidays for years. But they have the temerity to ask for services from the government.

    watcher, there is an important thing about hype. One shouldn’t believe in it while selling it to others. Unfortunately many of us seem to be the first ones to buy our own hype. The Economist was right that the only thing growing is hype.

    Don’t bet on retail industry bringing more revenue to agriculture. They are going to put in the big squeeze. Ask anyone in the US what happens to suppliers of big mega marts.

    Indian agriculture can generate more income only when the West stops subsidizing their farmers and that is not going to happen anytime soon.

    Sudeep, Indian politics is not a zero-sum game. All political parties make compromises to cater to the widest segments of the electorate. British historians have described the Indian political system from the time of our struggle for independence as a client-patron system where the clients and patrons are strongly coordinated. It is the still the case except that since the strength of the Congress have waned, there have been creation of multiple partonage networks and some patronage networks are competing with each other.

    Balaji, you are joking right? India should look to the US to modify its political system? India needs a system that works for itself. It’s an evolving one and it has served it quite well.

    Comment by yum yum — February 16, 2007 @ 9:10 am

  31. yum yum, US political system is a good example because that country industrialized within the political framework of a democracy. Not a lot of countries have done that. Also I like the US system in a way that it places a lot of responsibility on the president, unlike the current scenario in India, where the the responsibility is spread across the cabinet. Instead of blaming polititians generally, we should blame the guys at the very top, (I mean the PM and the guys who picks the cabinet) Its the decisions and policies of these few people that affects the general direction of the country. Smaller polititions generate chatter, thats all. They are more or less the same in every country. We even have a whip system in the parliament to make sure MPs doesn’t think too much.

    What would have been our country’s situation now if somebody with more liberal views for the economy became PM instead of Nehru? What if Sastri lived longer? Would China have become a industrial powerhouse if some staunch communist leader had become their premier instead of Deng?. India could have liberalized its economy in 1971, 1981, 1991 or 2001 depending on who was the PM at that time.

    The few policies these few people make have such wide spread influence in our society that it creates its own ecosystem of polititians, industrialists, and poor people.
    We are lucky to have good top leadership from 1990s. I just hope the next leadership is good.

    Comment by jerrin — February 16, 2007 @ 10:39 am

  32. jerrin

    Why do we have to start with Nehru? Lets go back a little more.

    Before the arrival of the British, Indians economy was about 1/3rd of the world economy. The British came and looted us clean, so that we were having less than a percent of the world economy by the time they left. All this happened under their rule.

    In the US, resources were simply taken over and handed to newly arrived immigrants.

    Now thats a very different starting point for both countries.

    The US took more than 200 years to arrive at a stage of prosperity. There was a time when the US was much poorer than the European superpower and Americans didn’t have good shoes to wear, so that they would save them for Sunday Church. America was rife with spies from European powers who are supposed to have influenced the Senators in many ways. From there to here, it took 200 years.

    I am sure in the course of 200 years of free rule, India will be at a better position.

    As for your attack on Nehru, he played an important role in keeping what was an artificially bound country together. Hindus and Muslims were fighting each other. Tamils were talking of secession. Kashmir was burning. The Nawab of Hyderabad was planning to join Pakistan. The people in the princely states were not represented in the making of the Indian constitution and so many other things.

    Also, unlike the Japanese under the Meiji era, the Koreans under Park and so on, Nehru didn’t go through with land reforms which was a big mistake.

    Deng wouldn’t have been able to achieve what he did without the work of his predecessors. It was Mao who in his own idiotic way instilled in the minds of the average Chinese that industrialization is extremely important. In contrast, our politicians were and still are praising farming as if it is the only noble profession along with fighting wars (food and fight I guess).

    The American system is for America. I am not going to comment on it.

    India has its own system. A directly elected President is not good for a country with such an enormous population. For a country that has known only autocrats before independence, our constitution makers must have been rightly suspicious of putting power into the hands of a single person. The checks and balances that they built don’t work well, so are you saying that they will work on a single powerful man? People in the US are saying that the checks and balances in the US are not working. Well!

    The “top leadership” in the 90s worked because of the political unity created in the 50s, the industrial base built in the 60s, the destruction of caste/family-based mercantile class in the 70s and the debt-fuelled growth in the 80s. Everyone of them played a part.

    Comment by yum yum — February 16, 2007 @ 11:09 am

  33. yum yum,

    Patel and others also played a vital role. And post partition,
    the sessionist movements in TN were neither deep nor dangerous.
    Poverty kept us together rather than Nehru. And we were forced
    to liberalise in 1991 only because we were nearly bankrupt and
    had to pledge RBI gold for foreign exchange. Neccesity is the
    mother of invention. or man will do the rational thing after trying
    all other options.

    and land reforms : grabing legitimate holdings of large land owners
    (other than Zamindaris) only fragmaneted holdings and rendered
    agriculture inefficent and unviable for many… Enough of land
    reforms. Pls see rajaji.net for his excellent analysis of the
    farce in the name of land reforms and socialism. He was a wise
    visonary who was dubbed ‘reactionary’ by the Congress and crony
    capitalists and license, permit, raj.

    Yes, we were unlucky that a socialist Nehru became PM instead of
    Patel or Rajaji. And Shastri’s untimely death in ’66 paved the way
    for the populist and autocratic Indira Gandhi whose reign is the
    worst in modern India. We were luncky on both counts..

    Comment by K.R.Athiyaman — February 16, 2007 @ 3:50 pm

  34. The issue is Quality of Politicians.

    I squarely blame lack of good quality politicians, on our in-ept education system. In US, democracy & running for election is taught from childhood. My 6 year old daughter had election in her class, and everyone had to speak up on what & why they want to be class president. The education system we have just rewards academics, and does not allow opportunities to develop other skills. The educated people don’t want to fight elections, is because, they have never been exposed on how to do that in systematic manner.

    The other aspect is our centralized authority approach. In my town here in US, we elect local Mayor, School Board & many other folks. They have complete authority on how much taxes to charge, how and where to allow development etc… In Mumbai, where I grew up, the corporater has no such powers. The power of Mumbai’s development lies in hand of one lousy CM. That is too much power in few people at top and no power at lower end. The powerful top people don’t won’t to dillute their authority. I don’t understand, why Mumbai residents can not control their own destiny. The only answer I come up is that we don’t have local government, truely elected and responsible to residents. Changing things at State level takes time, while if it is allowed at local level, you will see some local communites take initiatives, and many other will follow after some experiments get successful.

    In my opinion, 2 things are necessary.
    Education – make it mandatory to have many posts at every grade level and let students learn how to win elections from childhood.
    Decentralization – Make small regions (suburbs in cities & districts in rural areas) run by local govt.

    Comment by Shailesh Gala — February 16, 2007 @ 3:50 pm

  35. India is a sham.It doesn’t matter who rules the system,the
    country will end with all sorts of problem when the current
    economic growth comes to an end.When america goes into a recession
    it would be certain India would be doomed to death.
    India would be facing a fiscal crisis soon.
    To keep current acoount deficit funded,India needs atleast 60bn$
    They get it through FII flows,remittances and software services.

    Software service revenues come from finance institutions,bankers
    and insurance firms(90%).When the recession occurs,these companies
    will go into losses.So everybody has to cut spending.These software
    spending is dicretionary spending.The existing software will work
    perfectly without upgradation.So IT services will come to grinding
    halt.so 90% of 32bn is roughly 29 bn$.

    This should lead to reduced consumption in India(consumption story
    is broken here).Negative earnings growth for companies.FII will flee.
    Another 13bn$ is lost(including private equity).

    Indian housing sector fuelled funded by FII and IT revenues will
    be lost.Remittances lately has come to this sector.Some 5bn$ came
    last year for real estate investments.That will be lost.

    And indian companies will not be allowed to raise foreign funds.
    some 15 bn$ was raised last year.This will be lost.

    Summing up all 65 bn$ will be lost revenues.If such money goes out
    through forex markets,rupee will tumble.IT will be another
    financial crisis finally leading to indian disintegration.

    Comment by Satish — February 16, 2007 @ 3:55 pm

  36. Athreyan,

    Just because a secessionist movement didn’t become serious doesn’t mean it couldn’t have become one.

    Indian politicians have always prioritized unity and integrity about “prosperity” (a subjective term.) I am not going to judge that but it will ensure that the country remains together no matter how deep any crisis is. So Satish will turn out wrong about India.

    Satish,

    A good part of the remittances come from the Arab Gulf countries. I think they will hold. From the chart I saw in the Economist, I was amazed how resilient this flow is.

    India won’t disintegrate. We do not have deep hatreds between different people like in the Balkans. The current fight between Karnataka and TN is not a good sign but on the whole most people are signed up to the Indian project.

    Yes, the US economy is not looking very good.

    Comment by yum yum — February 16, 2007 @ 5:57 pm

  37. Some excellent comments here. Thanks to all for the great discussion. There are a couple I wanted to address.
    Jhaveri: “just out of curiosity, isn’t it possible to check on politicians?… But talking about politics, I want to be a politician myself. Does anyone think I can do this or will I be run down and destroyed by the older and probably corrupt politicians?”
    there are ways to check on the politicians – you just have to be curious. Check out this link: http://www.prsindia.org/ – it’s a think tank which reviews acts of parliament. The first step is educating ourselves and others about what is happening. The second step is getting involved – this can be as simple as casting a ballot, or in your case, entering politics and challenging the status quo. The important thing though is to never forget what you learnt in that first step.
    Sudeep: “This challenge, how to transform Indian elections to a win-win game will be a major challege for India to solve before it can guarantee upliftment and empowerment of all.”
    I think this happens only when politicians of different parties can find common purpose. In our case, it’s quite clear to me that that purpose can and should be economic growth. It is also a challenge for the Indian populace to define that as the key criteria for people entering public life. They should be expected to disagree about the means needed to get to ultimate goal (ending poverty, making India an economic powerhouse), but not about the goal itself.

    Comment by Nanubhai — February 16, 2007 @ 8:25 pm

  38. >>>> Sudeep: “This challenge, how to transform Indian elections to a win-win game will be a major challege for India to solve before it can guarantee upliftment and empowerment of all.”

    >> I think this happens only when politicians of different parties can find common purpose. In our case, it’s quite clear to me that that purpose can and should be economic growth. It is also a challenge for the Indian populace to define that as the key criteria for people entering public life. They should be expected to disagree about the means needed to get to ultimate goal (ending poverty, making India an economic powerhouse), but not about the goal itself.

    Agreeing about the eventual goals where India should be is a bit tautological, I dont think people from any community or politicians of any colour will have any problems in agreeing to this goal of an India with rivers of milk and honey :-) Its also a bit unrealistic to expect something that hasnt happened in the past 60 odd years.

    The question to ask is:

    Why does this agreement about “gareebi hatao” not result in prompt movement towards these goals ?

    Everyone knows, a lot of politicians are “bahubalis” who know nothing except ancient outdated codes of violence, crime and raw power. Why do people still elect these good for nothing bahubalis from a populace that also boasts of a huge pool of engineers, economists, doctors, educationists and so on ?

    Is the mechanism by which reward (you get elected) and punishment (you loose your seat) are delivered in the Indian democracy, not helpful to evolving a win-win game for all players ?

    As long as there are underlying fissures in the Indian society – be they religious, linguistic, contention for resources, economic – the first past the post election system in India will give rise to a polity, that gets elected and rejected playing a zero sum game. In an electorate composed of 3-4 communities, roughly comparable in number, that feel threatened by each other and whose only chance at protection and resources comes from being a part of the elected government, the government formed by a first past the post system, will always be a loose coalition of 2-3 from the 3-4 communities, interested in delivering only protection and resources that are at its disposal to the communities that form it.

    This is not a fault of the political actors or even the people who elect them, merely the result of the conflicts and the (inept) tool (first past the post democracy) that the Indian people have to resolve these conflicts. Hence my assertion that politicians are neither a problem, nor the solution, only a symptom of the problem.

    e.g.
    What stake does the Muslim commmunity have in Narendra Modis govt today ? What stake does the Modi govt. have in the welfare of the muslim community in Gujarat ?

    What stake does a Yadav govt. have in the welfare of the brahmins and the dalits in UP today ? and vice versa..

    What stake does the DMK govt. have ..

    I hope you get my point.

    Perhaps its time to move from the present system of electing representatives to a preferential voting mechanism where all communities will have a stake in the govt. and the govt. will have a stake in all communities. Then and only then, will we move on to a win win game.

    Up until that time, be happy with reforms by stealth and economic prosperity that comes from picking the low hanging fruit: demographic dividend, utilization of skilled manpower that was hitherto unutilized. Not one tough reform will be undertaken and when the present gen of reforms will have run their up and down course, conflict based governments will take over again.

    Comment by Sudeep — February 17, 2007 @ 6:44 am

  39. Yum Yum,

    Yugoslavia hold out for 70 years.Anyone in the eighties had told
    Yugoslavia would disintegrate, nobody would have believed it.Yet it
    happened.

    It should be noted that prior to disintegration,Yugoslavia entered a
    period of hyperinflation, goods rationing because of shortage
    especially oil( india lacks oil).

    I didn’t tell 20bn remittances would not come.Only 5bn of the 20 bn
    from gulf will not come.15 bn will come as remittances.Just 5bn of
    it adds up to 65bn$.Had i included 20bn$,it would have been 80bn$
    fleeing India within 6 months.That would be even more worse.

    I didn’t include capital flight accompaning tumbling rupee that
    happened in Russia or in Argentina(capital flight follows falling
    currency).

    That would make situation grave.

    India did hold in past 60 years because not a single year did it
    go into a recession of over 1%.IF economy were to go into recession
    it will tell where India stands.

    Compounding an oil crisis along with it would be recipe for disaster.
    It should be noted that every disintegration followed disaster in
    economy.NO matter what politician are upto, if people decide enough
    they will disjoin either peacefully or violently.

    India is heading towards such a phenomena( current account deficit,
    trade deficit and to balance it through FII than FDI) similar to all
    disintegrated countries

    Comment by Satish — February 17, 2007 @ 6:52 am

  40. Sathish,

    We are much secure and stable than in 1991. And everyone has learnt
    from the 1997 east Asia currecy crisis. So situation is not so bad
    and need not be so pessimistic. The fiscal and trade deficits are
    alarming, but our growth may compensate it somewhat. Disintegartion
    is a big word and it seems highly improbable in the near future..

    Yum Yum,

    In TN, DMK party was harping about secession in the 50s but there was
    not much heat or sincerety. And post China war in 62, they abandoned the idea. I knew sometihing about TN and DMK histroy as my grandpa
    was a DMK MLA (a honest man) in 70s. They were never strong or
    sincere enough in their agenda for secession. Mere rhetoric like the
    Teleganga group in AP now…

    And Jhaveri,

    I am a memeber of the party Lok Paritran launched by ex-IITians
    and we contested in assembly elections in TN. Pls see
    lokparitran.org

    It is impossible for any member of ordinary political parties to be honest in this elction system where lot of (black) money is spent
    and has to be re-couped if the candidate wins. Unless the people
    vote spontanoeulsy without so much expenditure, thir rot cannot
    be cured. We are trying slowly..

    Comment by K.R.Athiyaman — February 17, 2007 @ 9:06 am

  41. Athiyaman

    Situation is not as bad as 1991.We have 180 bn $ of forex reserves
    and as strong consumption.The problem with both is that forex are
    denominated a good chunk in dollars and consumption not backed by
    production(lack of productive investment) of goods which leads to
    higher inflation as seen now(6.73% inflation).

    Dollar will be a worhtless currency in event of trouble and forex
    will not save us from trouble.

    Sooner our consumption economy will hit a road block soon because of
    lack of productive investment in manufacturing.Thus the illusion
    that growth will take care of problems will be shattered.

    It will be dooms day scenario for India if global liquidity is
    stunned due to
    a) Housing bubble burst in US
    b) End of japanese carry trade
    c)Oil crisis
    d) free float of chinese yuan

    Comment by Satish — February 17, 2007 @ 11:45 am

  42. GDP break-up compariion India/china, Source: Central Statistics Organiation India (2006), China Bureau of statistics (2004)

    Agri and Fishery:17.5%/ 15%

    Mining and related: 2.8%
    Mfg: 16.1%/ 39%
    Utilities: 1.9%
    Construction: 6.9%/7%

    Services 1 (Trading, Transport,hotel and Comm)- 26%
    Services 2 (Financing, Insurance, real estate and biz services) – 14.6%
    Services 3 (community, social & personal services) – 14.4%
    China, Services: 39%

    Comment by Chandra — February 17, 2007 @ 2:53 pm

  43. who was the gentleman from jharkand?? just out of curiosity..

    Comment by Tat — February 20, 2007 @ 9:38 am

  44. Our hopes indeed rest on these young turks of Indian politics.
    Education will churn more of them.
    And lastly, after entering the Parliament they need to work above party lines.

    Comment by tejbir — February 20, 2007 @ 7:46 pm

  45. Hi,
    The politicians is the pillar of indian economy, The indian are ruled by to strong person The president MR. ABDUL KALAM (THE MISSILE MAN)and prime minister MR. MANMOHAN SINGH (THE ECONOMIST).

    The two are the strong pillar which can bring indian up and out of povety . But the other politicians are worst but nothing. They want to fill their pocket and livelyhood’s first and not for other.

    The indian’s are failing to understand the economy, though they are educated or uneducated.

    If allowed the primeminister can develop his indian economy in a strong position, than non of the other country can comptete with us.

    The president can stand a guard with our defence with providing new techinique of defence product.

    We must stand with two leader under stand our economy and the positon which we are now facing not other leader .

    Comment by Ajay — February 21, 2007 @ 10:53 am

  46. Politicians of India will never be a solution as they never were. Indian politics today is all about selffishness and regigional, due to n no of parties and interests a common cause of central development is going away. How many young MPs have time to commune with there voters and do something solid. Infrastructure is crumbling, politicians donot look at negative picture where world economies slow down, what will be Indias eceonomy then.

    Its good to say we boooming and moving etc.. We still have 1000s of miles to run before we can even say we will be a developed nation.

    Comment by vijay kurhade — March 3, 2007 @ 9:30 pm

  47. reading all this somehow i think there should be more than elections for electing our politicians. i agree a US system of governance wont work and that INDIA has to evolve one of its own. but for the elections- some of the people aren’t even qualified to contest elections , this might sound weird but i think we should have something like an entrance test for politics so that only people who have a deep understanding and really want to do something for the nation should be selected. of course it involves many new problems- devising a central institution for preparing these unique tests and then proper criteria for evaluation- they can be portfolio specific. eg. i feel amartya sen should be made the finance min. plus i feel politicians who are too old and have turned senile should not be allowed to contest and should form a part of an advisory board or something so that the current govt. doesn’t lose out on the experience. does anybody think this idea is viable ?(as bizarre as it may sound.)

    Comment by konika — October 29, 2007 @ 11:06 pm

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