A 2004 Dig At India Shining Pic Courtesy: Frontline

Is India Shining all over again ? This was the question that was put to me somewhat rhetorically by Harvard Business School (HBS) professor Das Narayandas a week ago. We were seated in his warm, spacious offices with racks of book shelves at Morgan Hall in the HBS campus in Boston, Masachussets.

The warm room is a welcome change from the freezing, sub-zero temperatures outside. The lawns are covered with several inches of snow. Walking up the stone steps and into the heated confines of Morgan Hall is a relief, from the cold as much as the strong wind that whips your face. You really don’t see people walking around here in this weather. Most buildings in the campus are linked by well-heated, underground tunnels.

For a moment, I thought Narayandas was referring to the BJP slogan of 2004 and making a somewhat outdated reference. He was not. Actually, he visits India almost every year and lectures selectively at the Tata Management Training Centre (TMTC) alongwith two other senior Harvard professors of Indian origin – Krishna G Palepu and Nitin Nohria. He recently concluded a case study on an Indian company, Eureka Forbes. That’s a trend in itself. Increasingly, Indian companies or their CEOs are being studied at Harvard.

Economic Euphoria

Narayandas was making a thoughtful reference to what he thought was the general economic euphoria that had gripped India. “The word gloom does not seem to exist in the general vocabulary,” he said, in a larger historical context. According to him, economies like the United States had seen many economic downswings and lived with their memories. He was not sure whether India had any, at least of that nature.

There was nothing wrong in having a good run, economically or otherwise, he felt. Yet, there was a flip side.. “As a business historian, I know there are cycles. And I wonder whether people factor this into their thinking.” Professor Narayandas went on to speak on other things but he had a point. That sort of triggered something worth pondering over as we enter a buoyant 2006.

First, if things are likely to go wrong economically, its unlikely that the government of the day is likely to admit it. As Narayandas unwittingly perhaps stated, there is an element of India Shining, without the multi-crore advertising campaigns. While this state of being may not lead to election backlashes, it can cause a dangerous lull in economic expediency.

Markets That Turn Heads

Everytime the stockmarkets have risen precipitiously, the finance minister has actually reeled off P/E numbers to say how the stock market indices are in fine fettle and there is no cause of concern. That in turn reflects the strength of the economy, for which he would like to claim rightful credit.

Buyoant stockmarkets usually cause heads to spin. Its happened in the recent past and it can happen again. And that often slows down the sense of urgency. If there was one to start with. To draw the inevitable comparison with China, the country has demonstrated sustained economic urgency for decades and reached where it had. And its not slowing down now.

Travelling across China, you get a feeling that there is still a higher goal that is being pursued. A bigger interstate expressway system, even larger ports. Even in an area like arts and culture, China has shown that it wants to be seen and recognized. Ask any curator in the top museums in the world. They will tell you China is reaching out to them like nobody does, wanting to project its culture by sending out exhibitions and initiating tie-ups.

Resurgent Populism

Former chief economic advisor to the government Dr Shankar Acharya said last week that he couldn’t help feeling that the dominant theme for 2005 was resurgent populism. He described this as economic and social policies which are popular (especially to politicians) in the short run but which are fundamentally ill-conceived and inimical to the long term economic and social progress of the country.

If you agree with this point of view, then this indeed sets the stage for 2006 as well. Acharya also says, importantly, that this resurgence has occurred against the background of stalled reforms in agriculture, labour laws, electric power, banking, privatization, pensions and employee provident funds.

One could add airports, ports and roads to it too. Sure, some roads are being built somewhere. But not at the pace that was once conceived by the former government. And surely not enough to make a real difference to an economy that would have begun needing more than what it has. Which is not to say the present government is to blame and the previous one was getting it right. The previous one could well have slowed down as well.

No More Liberalisation Gains

Which brings one back to Narayandas’ statement. Are we then getting lulled into a India Shining mode once again. Possibly yes. Some parts of the economy are doing exceedingly well. But three years down the line, its time to worry whether these (7 per cent) growth rates can be pulled through almost infinitely as is expected.

The economists are already sounding the notes of caution. By pointing out that the gains of liberalization are now beginning to taper off. And a buoyant international economy could turn any time – the flattening of Chinese steel prices is one indicator. But all this is still not a problem in itself. There is little you can do if economic forces conspire against you or your business.

The problem is that desire to talk about or ram through reform at the desired pace slows down. None of the stalled reforms that Dr Acharya speaks off make headline news. Because the attention is elsewhere. Except airport modernization (of the two largest, most decrepit airports) which is in the news. But for the most bizarre of reasons: “Look, this is how we are vetting the bid documents.” What emerges is that no one trusts anyone and this is not going anywhere.

Blow-Out Or No Blow-Out !

Back at Morgan Hall, Harvard Business School, I conclude that Professor Narayandas has a point. Perhaps we are getting a little carried away, all over again. And need to be jolted into action. The good news is that there may not be a 2000 like blow-out. The bad news is that there may not be a 2000 like blow-out.

The author was visiting HBS as part of continuing research for a book on first generation entrepreneurs.


Anonymous said…
Insightful post. As with most of your other posts it raises some very interesting questions.
But I have a question with regard to your previous post on the IISc shootout. Did you catch the shootout coverage on CNBC's sister channel CNN-IBN? If you think Indians may be on the road to paranoia for unjustified reasons, I think Rajdeep's voice rising to a crescendo at regular intervals has had some role to play in it. I don't think even you would deny the power of the media to make things seem bigger than they are.
well i think youre correct on the whole "Euphoria" phenonmenon.

IPOs are going through the roof and the stock market is MAD!
I think people need to start understanding the concept of a business cycle soon.

Anonymous said…
Frankly, I really do not see India as shining. Horrible roads, airports, sanitary conditions and the list goes on...to top it all corrupt indian politicans. growth will be unsustainable if pur infrastructure does not "rapidly" improve.
Hope you had a good trip to the US!
NevYasShwnYo said…
lets wait & hope for Bharat to shine
Harsha said…
I've raided the bull run for last 3 years and also a close observer of many economic indicators, there is optimisim and scepticism, there is smoke and fire, as things are looking out, all is not well in pure economic sense. i'm unable to comprehend valuations of many stocks, and real estate too, is it just FII or some black money also that is driving our economy.
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