ANALYSIS
The Indian economy appears to be doing well. The 8.8% growth for the second quarter this financial year and the BSE looking to touch the 20,000-point peak seem to spell good news
The Indian economy appears to be doing well. The 8.8% growth for the second quarter this financial year and the Bombay Stock Exchange (BSE) looking to touch the 20,000-point peak seem to spell good news. The mood however is not sanguine despite the positive figures. Finance minister Pranab Mukherjee is cautious and so is his economic advisor Kaushik Basu. Both believe that the worryingly high inflation rate will go down by the end of the fiscal and that the growth rate will be a healthy 8.5%. What is casting a shadow on India is the persisting economic woes in the United States and Europe. Indian pundits are not willing to acknowledge that unless the recession in the west recedes completely, India will not be able to breathe easy.
The connection between the Indian and world economies is crucial as well as interesting. For many decades, and especially since the 1980s, it was the Western economy that provided the inspiration and the model. There was the additional factor that when India started off with the liberalisation process, it seemed imperative that we needed both foreign investments as well as foreign participation. It is not clear as to how much these two factors really helped the Indian success story of the reforms era.
Many economists poring over the fine print are now saying that the foreign direct investment did not amount to more that six to seven per cent of the GDP. It will be a long time before Indian investments and takeovers abroad will have some bearing on the home economy though there is now a distinct trend of overseas acquisitions as well as investments.
Similarly, the foreign participation in India has not been too spectacular. Many may want to forget that Enron was ever in India but that would be more than intellectual dishonesty. The Enron lesson has been quite painful. One learnt not to be starry-eyed either about Western quality or with Western probity. The harder lesson was that even after the company collapsed in the US and in Europe, India was left with Enron’s liabilities and its settlement remains one of those dirty secrets.
The other West-related aspect has been exports, including the IT-enabled services. It did bring in the much needed foreign exchange earnings but again it was not the main engine of growth.
The fact that the economy is growing at a respectable 8% when the West is in an economic trough tells its own tale.
But the teasing question remains. Why is it that India cannot hope to reach its full potential until the Western markets revive? Why is it that instead of looking out to the west, we are not able to look in to step up the growth rate? It is not necessary to jump to the conclusion that India is in a position to shut its door on the world.
The crucial issue is that of ideas. The technological and market innovations are still made in the West. If India wants to be on its own, then it has to take a lead on thinking on its own. That is the only way to shed this uneasiness about the bad times over there. It is not in a position to turn the tide for itself or for the world.
India can hope to become a world leader only if it can bring ideas to the table. There is the conspicuous example of Japan, which did everything that the West did and sometimes even better than the West. It did not really bring in ideas that make the difference. This would need more than getting American universities into India.
The aspirational class as yet seems inadequate to take on the big challenge.
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