The Indian Economy Blog

April 19, 2007

The Culture of Risk

Filed under: Business — Nandan Desai @ 11:18 am

Everyone knows the economic statistics and platitudes about India’s recent rise: “From Hindu rate

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of growth to 9%”; “Chindia rising”; “From emerging to surging”; etc. All of us abroad who are witnessing this miracle, and some of those in India who are living it have tried to figure out what are the underlying causes of this paradigm shift.

Is it because of reforms? Or excess global liquidity and foreign capital? Y2K and Infosys? Or is it our loose fiscal and monetary policy? What

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are the fundamental changes which are responsible for India’s rapid growth?

Economists, by training, seek practical and (ideally) empirically-verifiable answers; and we shun cultural and sociological reasoning whenever possible. Nevertheless, I would like to argue here that a subtle and far more powerful force has been guiding all the recent changes in India (including the ones mentioned above): the gradual introduction of a culture of risk.

Now I’m being dramatic here of course. Risk is indeed an economic concept – and an oft measured one. It is usually applied to an individual’s risk aversion; a company or a country’s risk-premium; and generally for all significant financial transactions. What I’m trying to refer to, however, is a far broader change in the way Indians perceive risk, and how we respond to it.

I’m not a sociologist – so my ‘evidence’ is going to be purely anecdotal and speculative. I would like to highlight three observations I have made over

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prepare to move back to Mumbai in the summer.

Firstly – in what is now a common refrain – the private sector has completely transformed. Managers are beginning to accept the idea of relinquishing control, and are looking for creative sources of capital. Companies are getting aggressive with their expansion plans – sometimes too aggressive. Some corporates have even picked up a taste for overseas acquisitions. There is an unmeasured commonality to all of this. Marketing gurus would call it “renewed self confidence”; cynics would call it dumb luck; I call it ‘taking risks’.

This change in risk tolerance is not confined to the merchants of wealth alone – it is gradually beginning to infect the government too. Begrudgingly, it is either internally corporatizing; listening to outside voices and sharing responsibility; or in some cases, completely moving out of the way in areas where it knows it is underperforming: infrastructure, finance,

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education, health. Its manner of doing so is bumbling and idiotic (for instance the recent SEZ debacle), but the change in its intention is mostly clear. Of course, our politicians have fickle wills so that could quickly change – were it not for the third, and most important observation.

Indian families and individuals, the foundations or our political economy, are also becoming bigger risk takers. There is scant evidence for this (except a rising domestic savings/investment rate) so I am basing it on personal experience. I am a tail-ender in the great reverse migration – expats returning to India to take advantage of the new opportunities that are coming available. Two or three years ago, that was impossible – the RoI on my US college education would have been terrible (Gujarati parents – that’s

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how they think). Today, for young people, the potential long-term rewards of returning to fast-growing India could be far greater than those from working on an overstretched Wall Street.

More fascinating than even the NRIs’ new risky behavior are the choices being made by the people I know in India. With more careers for their kids to choose from, parents from all income strata are seeing the value of a good and practical education and bypassing the government when necessary. Other examples abound: people are travelling a lot more for work, women are gradually entering the where to buy generic levitra labor force. Hell, online matrimony itself is quite a risk – and parents seem to have happily taken to it.

The introduction of the culture of risk at this grassroot level ensures that all the other pieces move – that the government and companies are given the message to change. This new inflexion point in our behavior is at least partially the result of the burgeoning young population. And no one can really doubt that it is the old guard who are reluctant to admit that the doctrine of governing a society through babudom has lost.

The trillion dollar* question, of course, is whether the government’s stupidity has the ability to generic levitra derail this amazing transformation. Or is

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the change so profound and deeply-rooted now that it will continue in spite of all the obstacles?

I heard an astounding statistic recently. I knew the numbers but hadn’t ever thought about it that way:

“…10% of the world’s population is Indians under the age of 25…”

I’ll place my bets with them.


* Rs 4.2 million crores (I’m moving to Mumbai – I have to practice conversions)


  1. “Rs 4.2 million crores”

    How does that work again? :) Good luck with your move (may be better to move after the rains are done in Mumbai?) and that ROI.

    Comment by Chandra — April 19, 2007 @ 1:14 pm

  2. I agree with you that a vituous cycle of risk-taking has set in, but I do not think that the culture of risk-taking was and has been a “fundamental change” which is “responsible” for the current growth rates as you state. It is undoubtedly a change as well as a consequence (but as an initiating change not very important in my opinion), and I am sure you understand correlations are not the same as causations:

    Returns with the current growth rates can be explained as the addition of the earlier risk-free normal rate of capital return + risk premium – you have mentioned this but have not elaborated it in the sense that when real wage growth rates in India for most of this blog’s readers are in the double digits, when the economy and the stock markets are all booming (or at worst benign) and when the real interest rates are at a historic low (on a mid term to long term basis) then risk appetite automatically increases.

    Educational and occupational choices irrespective of gender and geography *can* also be explained because of higher expected wages, which increase the opportunity cost of leisure (I am ignoring the further effect of cheaper washing machines et al) – “leisure” being the traditional recommendations for women in parochial patriarchal families (eg. fathers in Benaras who might not have sent their daughters to study and work in Bangalore but now see the “risk” worth it because of higher wages).

    Obviously important sociological changes alongwith risk-taking have been encouraged due to the cable television, Internet (even video games who knows) and also as you mention – demographics. But our socio-political institutions and our soft corner for the English language have been here for a while – which along with the partial economic liberalization of the 90s have kickstarted our current services and manufacturing boom. And TV and computer sales have definitely received a huge boost after the boom started.

    On the whole though I too would “place my bets with” ourselves -we, the young Indians (I myself am a first year college student). But optimism should be separated from analysis. I just feel the kind of “risks” you are referring to which were undertaken and are continued to be undertaken are entirely endogenous (as in economic risks) to the current boom (except the 91 payments crisis, which is ground zero for us) and partly endogenous and partly exogenous (for social risk-taking) – though even here I have a hunch that the former slightly dominates i.e. the economic boom has been the major factor for increased social risk-taking (In the sociological aspect, risk means different things for different people anyways. In a way the boom has forced risk-taking down the throats of Indian families by not leaving the traditional “safer” approaches to be economically viable any more – like not allowing daughters/wives to work anymore – although this is not to take the credit away from strong willed women at the individual level)

    PS: Ignore typos if present. Havent slept for 25 hours now.

    Comment by Harsh Gupta — April 19, 2007 @ 4:10 pm

  3. risktaking looks great in credit bubble environment..or when spreads are lowest in the history as in recent times..
    risk taking on tigher financial condition can upturn the lota in short order..

    Comment by andiron — April 19, 2007 @ 4:54 pm

  4. the current changes are irreversibe, and govt stupidity cannot stop it,
    may be delay more needed changes for some more time. For e.g, in
    spite of all this LPG, there still exists a powerful licnese raj
    and cronyisim in public bus tranport sector all over India. But
    the system is crumbling due to losses, corruption and in our area
    van operators transport desparate communters, illegally. (right in
    the IT highway of Chennai). hope the license raj will be abolished
    in future. And look at the mess of power situation in Maharastra
    due to EBs mismanagement, power thefts, susbisdes and populism.
    now they are desparate for power….

    man will do the rational thing after trying all other options

    Comment by K.R.Athiyaman — April 19, 2007 @ 6:46 pm

  5. well written…and very true…I however would say that there is a great possibility for the govt. to mess (edited by admin) up at every corner, every turn and every possible moment.
    India is a conflict state – confused because of the tremendous layers and divisions of society..the only way out is free market and getting out of the the govt. to tweak with the markets for convenience and a few stupid votes…

    Comment by SR — April 19, 2007 @ 8:55 pm

  6. Well written post. However, not all these risk takers are “original” as there’s herd mentality in the play here. Unlike developed world where people question their acts little more, lot of people in India make choices just because others are making. This behavior explains to some extent real estate and stock market defying logic, mall mania, lakhs of kids trying to get into IITs, 50+ TV news channels, all industrialists foraying into retail same time, even simple things like stopping on a traffic light just because someone else has stopped else jump it :)

    I would place my bets on India’s young population if they were taking risks after realizing the worst case scenario. Most of them are so young, they have no concept of a downturn. They think salaries always rise 30%, home prices double every 3 years, sensex has nowhere to go but up, indians are the smartest and we are a IT superpower, indian cricket team could never lose to bangladesh. oops…we went wrong on the last one. let’s wait for other assumptions to fail and if the young are still able to rise up, i’m putting all my money second time around. because then they’ll be real risk takers..

    goodluck on your move to mumbai btw!

    Comment by ashutosh — April 19, 2007 @ 9:41 pm

  7. Very well written article. I am an indian engineer in the States and I too am moving back to India in December. I was in Pune, where I grew up, last December and the electric atmosphere was unmistakeable. There is an energy and a desire for enterprise which was definitely not there 4-5 years back. Heck even my dad, who until recently was a respectable engineer/businessman with a very high tech,tiny company, is now talking of everthing from real estate to agro-business. There is this general feeling that opportunity lurks around every corner and that an enterprising young man can find a way to make a fortune.

    Comment by SR — April 20, 2007 @ 12:07 am

  8. Nandan, SR

    Quick question: how significant is the \”reverse\” migration (Outside –> India)? I\’m sure there\’s more of it than earlier, when it was infinitesimal probably, but my guess is that as a % of the \”conventional\” migration (India –> outside), it\’s probably still insignificant…. conventional migration is still growing rapidly — and not just the US.. it\’s also South East Asia and Australasia.

    Comment by Prashant — April 20, 2007 @ 2:00 am

  9. this site has been carrying some good writing. would like to see some perspectives on what is growth from the perspective of the middle class. I understand macroeconomic indicators are the basis for public policy design. are they aligned with private interests?

    Comment by bharath — April 20, 2007 @ 3:29 am

  10. Thank you for your comments everyone.

    Chandra – did I mess up the conversion?

    Prashant – the US–>India reverse migration is pretty big from my (anecdotal) experience. In my extended family alone, 5 people have made the move in the last couple of years. The new firm I am joining is also taking some expats with them. Even one of my best friends from college, an Indian-American guy (born and raised in the US) moved back there about a year ago. My experience is largely confined to finance; but I have heard of many others making the move in ITES, even healthcare, in the arts (film, music, etc.).

    I think part of the reason is that high growth has created a much friendlier attitude towards NRIs than there was previously. Salaries are better. And I also think globalization has seriously reduced the “cost” of these moves in terms of being able to move back, move somewhere else, etc. I came to the US a long time ago so my calculus is a little different, but I think for young people who came here recently (for instance, for college), it is an easy bet to take from a quality of life perspective. From a quality of work perspective, certain (though not all) opportunities in India are proving far better than their US counterparts (particularly the entrepreneurial ones).

    I had a great study from BBC about the reverse migration, will post a link as soon as I can find it.

    (Thanks to the others for the compliments and best wishes)

    Comment by Nandan Desai — April 20, 2007 @ 7:20 pm

  11. Nandan, oh no – just that millions go with billions and thousands where as crores go with lakhs and thousands. I won’t know where to put all the commas in million crores :)

    Prashant, I agree with Nandan. Sure students going for Masters, mainly, from India has kept up, but individuals, and especially families, moving back to India is no longer a trickle. Our secretive GOI should have the stats.

    Comment by Chandra — April 20, 2007 @ 7:40 pm

  12. Prashant,

    Well, unlike Nandan, in my personal opinion the reverse migration is still small. It could just be the age group I belong to. I completed my undergrad engineering in 2002 and MS in 2004. SO among my friends, about 50% are still doing their Ph.D while the rest, like me, have had about 3 years work experience. So far, I am the only one in my immediate circle who is going home this year. However, most of my friends intend to, or atleast theoretically talk about going back within the next 3 to 5 years. The usual trend is to work 5-7 years, save a bundle and then come back to India around the age of 30-32 when you are still young enough to adapt, have no kids or very young kids, have lots of savings and join the indian workforce directly at a mid-management level. But atleast, when I tell people I am going back, I don’t get the “You must be nuts!” look.

    Comment by SR — April 20, 2007 @ 9:28 pm

  13. “…10% of the world’s population is Indians under the age of 25…”

    How long we can place our bets on this. Right now, US is worrying about the baby boomer retirement and associated burden. So this means, that when this Indian generation is nearing its retirement, who is going to support them? If 10% of the world’s population is Indians under the age of 25, then in another 30 years, 10% of world’s population will be Indians above 55.

    Surely Indian population cannot go on to increase. There is a good chance that India may become too old before becoming another super power. So our window of opportunity is very low. We have just 3 or 4 parliaments (elections) worth of time before this big problem becomes really huge. Let us hope as a nation, we succeed.

    Comment by Niranjan — April 24, 2007 @ 4:44 am

  14. Oh the attitude about risk! Well, needless to say this risk taking is possible due to cheap availability of credit. If the Interest rates hover around 15% then we would not talk about them. I agree that risk taking is good for the economy. However, in current scenario it is pathetically stupid attempts. I had a discussion with one of my cab mates & she mentioned that her mother – a home maker is going to start a ‘chain’ of restaurants. Well, I wish her good luck & hope that she succeeds. However, can you tell me one person who has defied conventional wisdom & started something new during the dot-bomb years of 2001-02? Or some one who wanted to go global before 1999 – except Tata tea? Ashutosh has mentioned correct – we still suffer from herd mentality. That is why we have thousands thronging IT courses & degrees where as we have great opportunities in basic & pharmaceutical sciences, mathematics & every other field you can think about. God bless my country!!

    Comment by Suresh — April 24, 2007 @ 7:32 pm

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