Everyone knows the economic statistics and platitudes about India’s recent rise: “From Hindu rate 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 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 the last couple of years avidly watching India from abroad, and what I am most excited about as I 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, 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 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 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 derail this amazing transformation. Or is 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)