India! I dare you to be rich

India in for a rough ride in 2012

The euphoria of the past five years is rapidly coming to an end in India. The discovery, in 2004-2006, of its potential to do well on the world arena was a pleasant surprise for most Indians, so depressed had their mindset been before that. 

That discovery has not yet translated into ordinary self-confidence. Even today, Indians fear that somehow Walmart will take over India, just like the East India Company did. It doesn't strike them that such sentiment is absurd and totally divorced from reality.

A sense of deep despondency and lack of self-belief sets in when Indians see a foreign well-educated businessman. India's political parties have resisted FDI in retail as if the country was facing a direct military attack by Robert Clive, not a competitive commonplace battle for grocery supply with Walmart. 

Indians talk themselves up when no one else is looking (e.g. "Shining India", "Incredible India", India the superpower, and other such bogus mantras). Unlike all well-established nations that don't need patriotic songs to keep them together, India needs a huge repertoire of heroic melodies on TV and radio, and no end of gloating about its ancient past. Without such incessant song for its glorious past, it would appear that India can't survive as a single unit.

All these are signs of someone with a DEEP INFERIORITY COMPLEX.

When competition approaches (even for grocery supply), this high talk and great song disappears, and Indians flee – tails between their legs! RSS and BJP, the so-called proponents of India's "greatness" and "glory" ("Hindutva") lead in the display of TOTAL, rank cowardice.

This half-baked pride, coupled with deep timorousness – like a manic-depressive's unfortunate state of mind – arises from the knowledge (not publicly admitted) that India's useless, socialist education is GROSSLY INADEQUATE for the modern world. This timorousness is based on the sub-consciousness understanding that something is deeply wrong with India, that this "superpower" thing that India talks about is a sham, that the "emperor" is without clothes.

This inability to decide whether it is a land of cowards (with RSS and BJP being its Head Cowards) or a land of the Free (led by FTI), has caused great confusion in India. This confusion sets the context for its rush into economic turbulence today, which it can't avoid given the quality of its governance.

Today, the Keynesians have brought the USA to its knees. The European saga of excessive public debt, driven by a major Keynesian "stimulus", threatens massive loss of wealth among ordinary Europeans. China is therefore wobbling, with rapidly shrinking demand that is forcing the shut down of hundreds of factories.

In the midst of all this, people somehow assume that India will chug along as usual, forgetting that it is still a deeply socialist country. Things are now coming to a head, and India is showing signs of a slowdown that will disrupt economic growth and revert millions of Indians back into deep poverty. All signs are pointing in one direction.

Inflation

India's inflation rates are very high: around 10 per cent today. The most significant sign of a Third World economy is uncontrolled inflation. India's has always had uncontrolled inflation till its liberalisation allowed it to grow and produce more efficiently, thus lowering inflation. But it is clear (see chart below) that India is reverting to trend rates of high socialist inflation. 

Manufacturing, wages

But inflation is merely the tip of India's problems. To try to curb inflation, interest rates have been raised to 8.5 per cent, making manufacturing a huge risk. Manufacturing growth rates are therefore steeply down. More problematically, wage growth is unsustainably high (average salaries rose 15 per cent last year).

It is not well understood by many India commentators that its talent pool is very shallow. The students of IITs and other top institutions like the Delhi School of Economics are outstanding, but they are snapped up like hot cakes. Students from second tier universities don't come even a distant second in terms of quality.

Australian newspapers are lamenting the lack of basic English skills among Indian students now coming to Australia: students who are more representative of the third-rate socialist education system of India than those who generally go to top private schools and study in IITs. This second tier of Indian students won't get jobs either in Australia or India – so low is their average productivity.

Public debt

In 2010, the IMF noted that "simulations suggest that a debt ratio in the range of 60-65 percent of GDP by 2015/16 might be suitable for India" [Source]. Disconcertingly, this high level of public debt seems to have been ALREADY achieved – in 2011; with no signs of a slowdown in growth.

This level of debt might not sound much (in comparison with USA and Europe), but total government spending in India is around 18 per cent of GDP. At such low levels of taxation, the interest burden on 65 per cent debt is crushing. The first cost centre to be curbed is public sector salaries, which further increases much-lamented corruption. The fiscal deficit is currently running at around 6.5 per cent of GDP, and will go up substantially unless the tax base is dramatically widened and tax collection made free of endemic corruption.

There are no signs that India's political parties understand how to fix this chronic problem. Instead of genuine governance reform, they are being forced to create (by the street pressure of Anna Hazare) a most useless organisation (Lokpal) that will do absolutely nothing to curb corruption, but may well dramatically increase public sector inefficiency along the way.

Private debt

Most problematic of all, for the short term, is excessive private debt. It seems that in the midst of recent euphoria, Indian companies borrowed massive quantities from abroad. The capacity of companies to repay this debt is rapidly dwindling, particularly given the steeply depreciating rupee.

2012 is crunch time for India. A lot of wealth is likely to be wiped out. I note that India is trying to establish a Debt Management Office to "deal with" not just public but also private debt (as if such a thing can be debt with a petty government office).

Is this diagnosis correct?

I havent' had time to explore this issue in depth, but my reading is clear: that 2012 is going to be particularly rough for India. Like all economists I do know one thing, though – that most of my predictions are certain to be wrong. So please send in your thoughts to correct my pessimism. I do hope I'm wrong.


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Sanjeev Sabhlok

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16 thoughts on “India in for a rough ride in 2012
  1. Sudeep Shetty

    Ok That Means Another Recession , Another NO INCREMENT Tag from Management …….. Many Job Cuts ……. 

    I Think Only Some Miracle Can Save My Country , I Wish ( Pray) You may Be Wrong ………..  
     
    Sudeep

     
  2. Sanjeev Sabhlok

    Sudeep, when Ghazni attacked Somnath, it is said that the people went into the temple and prayed.

    Prayer is a bad strategy!

    Change the politics of India. Let’s have good people enter politics. That’s the only way out.

    And we don’t want the slightest whiff of Keynesian or socialist policies.

    S

     
  3. Sudeep Shetty

     
    Sanjeev 
     
    Good People To Entering in  Politics …. in Today's Scenario Where Good People Stand in Politics , Is there any Party Who Wants make it Better , Goondas , Cribbers Hood Creators are there , If a Good Man Enter in Politics They Wont allow him to make Good , Either He has to Join them or Leave Politics , 
     
    Even People Who vote they even Stupids , I know one of my friend n tamilnadu telling he saw  around 20 30 people who supposed to win by huge margin because of their honesty and service etc etc Hasnt got more than 5000 votes, in Politics Win cant be Gurantee only by Honesty its need something else , First we need to convince and persuade  people to vote for us, which takes decades ….. like Congress BJP Did . In Politics Logic Wont Work ( My Personal view) We need to Emotionally Convince People in their Own Language , For Ex : If FTI tells People u r Not freedom we will give Freedom to do Whatever You want , a Common man will Laugh at us He will tell we can slap any one in this country , we can throw Kachada on roads, according to him  we need more Laws in our country ( This is what Ramdev and Anna Telling )  , so we need to convince People in defferent way we need to convince Emotionally …. We need to find a defferent and Unique Subject like corruption so common man thinks yes it is affecting me and i need to stand with them

    I hope You agree with me on this ……

    Sudeep 
     

     
  4. Sanjeev Sabhlok

    Not quite true, Sudeep. People are smarter than we think. They don’t vote for “honest” people since these people have no capacity to work as a team with others but people want a strong team. True, we need to customise the message to their needs, but freedom is not as simple as what you’ve portrayed. They know how the government blocks their freedom of occupation, freedom of trade, and so on. It is villagers who are most responsive to the message of liberty.

    I’m not saying this is not hard, but things are far easier than what you paint them to be. What is needed is a solid team of leaders first. The rest will then automatically flow.

    S

     
  5. Sudeep Shetty

     
    Sanjeev , 
     
    What you Thinking  About 2014 Election Should we wait till we get solid 1000 Leader ( Seems not possible as we running out of time ) cant we concentrate one City  DELHI , UP or Mumbai ( Other than Gujarat  ) so from this we can tell the people of our existence , from this we will get free marketing from TV , News paper , which will certainly reduce our cost , from this we will get more Leaders , 
    If we concentrating on One Go for 550 seats we must work Together , and we need to walk in street and reach the common People , only 9% of our total population People are using Internet . I think we need to do something so that people can realize our existence 
     
    Sudeep

     
  6. Sanjeev Sabhlok

    Dear Sudeep

    This is a common failing of strategy, to imagine that voters will vote for just one person, without a massive national organisation. The reality is that except for a few independents and tiny parties, the voter has THOROUGHLY REJECTED the idea of single seat parties.

    FTI has carefully considered all options and thoroughly rejected anything less than the “big bang” option.

    Why can’t we find 1000 high quality leaders in India, with a population that is 10,00,000 times this? Is there not even one good leader for every 10 lakh people?

    S

     
  7. Sudeep Shetty

    Dear Sanjeev 
    Certainly We must get , and there is No reason Why cant we get 1000 Leader , Iam just Giving my Opinion as even i know U r Experience is not even my age , Its Pleasure and i always i learn something whenever i had word With u 
    Thanks 
     
    Sudeep
     

     
  8. allwyn

    “Indians talk themselves up when no one else is looking (e.g. “Shining India”, “Incredible India”, India the superpower, and other such bogus mantras). Unlike all well-established nations that don’t need patriotic songs to keep them together, India needs a huge repertoire of heroic melodies on TV and radio, and no end of gloating about its ancient past. Without such incessant song for its glorious past, it would appear that India can’t survive as a single unit.”

    nicely said

    and sir when u met kejriwal, did u give him BFN or has he read it? you dint say anything abt that and further did u hear back from dem?

    and sir what are your views on DR.SUBRAMANIAN SWAMY, i dont know if this is a proper question to ask but still I would like to know. He is a smart economist and all and also honest and not corrupt from what I know . He was heading his JANATA PARTY alone all this time I thought maybe he could merge with FTI but hes with NDA now. what ya think?

     
  9. allwyn

    and also now with congress messing up big time NDA will certainly come up as ppl’s fav option. Indians anyway never got much options other than the 2 and maybe just maybe NDA gets some things straight. this can cement FTI’s chances.

     
  10. Sanjeev Sabhlok

    I’m afraid Arvind has not yet responded. He promised to do so, and I’ve sent him a few follow up emails. But complete silence. I guess his priorities in life may be different. I don’t expect him to have read the book yet, though. He must be getting 100s of requests to read this or that book.

    Please write to him and suggest he consider reading BFN and responding to me. That would be very helpful.

    Re: Swamy, FTI is open to him to join subject to his meeting FTI’s conditions. Just being an economist is not enough. And on his religious views he does go overboard quite badly – such as demanding violence. That’s not good.

     
  11. Sanjeev Sabhlok

    FTI is a longer term project, and will depend on whether India has the calibre of leadership it needs. I would worry more about YOURSELF than about others around you. If you take care to understand things properly (and diligently), you will become a leader that India needs. Please read very widely and try to understand the philosophy of equal liberty (e.g. I think you tend to form some views somewhat hastily at this moment, and that’s the kind of thing you’ll do less of as you read and understand more). Anyway, that’s just my view. You will surely evolve your own views.

     
  12. allwyn

    if you meeting him dint convince him .. i dont think my writing to him will.. he wont even get to read it will jst get lost somewhere in d crowd of emails he gets but i will still do it,,no loss for trying.

     
  13. Sanjeev Sabhlok

    Thanks, Allwyn. The reality is that Arvind is very busy and he probably doesn’t have time press the pause button and refresh his mind with new ideas.

     
  14. allwyn

    on inflation
    “India’s inflation rates are very high: around 10 per cent today. The most significant sign of a Third World economy is uncontrolled inflation. India’s has always had uncontrolled inflation till its liberalisation allowed it to grow and produce more efficiently, thus lowering inflation. But it is clear (see chart below) that India is reverting to trend rates of high socialist inflation. ”

    wht does actually affect inflation? In an ideal world it should be constant because nothing actually changes but only the price is high. For eg: WiBBS bread packet is today 16rs from 7rs 5-6yrs ago and only that has changed and nothing else abt the bread has changed the size, quantity even the raw materials must be the same(i know der r other factors but even they should be are the also same and cant change). And on the other side is McDonalds which had kept prices pretty constant for a long long time and then they increased during the recent recession.
    MMS said something like INFLATION is high because we’re developing and people have more money to spend for which tweeple rubbished him. Also just 2days ago an “MBA” girl told me the same as MMS and when i mentioned abt 600-700 million poor, almost starving INDIANS she gave examples like “how much AMBANI’s spent on their house and all.”

    does MMS make any sense?

    and also are developed countries more expensive like how INDIANS always see it : $10 in US can only buy you a movie ticket but the same which is 500rs in INDIA can get you the movie ticket, beer, fried rice and then some more. So is that the right way of looking at it that $10=500rs so US is mehenga??

     
  15. Sanjeev Sabhlok

    Dear Allwyn

    Sound money should NOT deteriorate in purchasing power as has been happening with the rupee. MMS is a fool so please ignore him. He just happened to be there at the right time, once, and with his spinelessless and lack of integrity, has risen to the top.

    Please go through the literature on sound money. There’s plenty of material on the internet now. And free banking.

    s

     

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