It is said about India that whatever you say about it, the exact opposite is also true. But for me, India is one of the most predictable markets that you can look at. If you look at India’s growth performance, it has mirrored the global emerging markets boom. Even when growth has faltered it has slowed down in line with what is happening in emerging markets.
But what has me worried about India currently is the inflation problem and even more the fact that manufacturing as a share of overall Gross Domestic Product has been stagnant for many years. This is partly because of the schemes that offer rural people incentive to remain on the farm than move out into urban areas. However, the good news is there is a lot of activity in rural India. Whenever I come to India and travel to Delhi and Mumbai, I get quite pessimistic. But when I travel to rural India I feel overjoyed because that is where the real change is going on.
With a population of more than 1 billion India is more like the United States of Europe. Unlike China or Korea, which are very homogeneous societies, India is a very heterogeneous society. We have very strong linguistic barriers and a very strong state identity. One thing that has always struck me is that not a single state leader in India has been able to go national. India’s national social fabric is one of very strong state identity and we have prospered as a loose federation.
The biggest problem of the state ministers is not that they need reform; even Mamata Banerjee wants change, despite her obstructionist manner at the Centre. In West Bengal, if Banerjee wants to raise prices for electricity or milk she goes ahead and does that. And she is no paragon of economic virtue. The problem is that states had enough of being directed by the Centre in areas like healthcare and education. Over time the Centre has also encroached upon several of the subjects that are under the state list as per the constitution.
There is no business for the Centre to be involved in matters such as a food subsidy scheme or NREGA, which is under the state list. Citizens are also much engaged in political processes at the state level, which shows up in the voter turnout ratio. At the central level, voter turnout is 57-58%, at the state level it is going up steadily and now is at 67-68%. The quality of state leadership is also much better. It shows up in the average age as well. If you look at the 15-odd new chief ministers who have come to power over the last decade, their average age is about 56. At the Centre currently the average age of ministers is 65. I don’t think there is scope for much action at the Centre because the states do not want to be a constellation of the Centre. We have to respect the fact that state influence at the Centre will accelerate in the coming few years. That said, the big thing about India is that globally it remains the most attractive growth story.
The past decade saw emerging markets ride a tide of easy money. That phase is over. Emerging markets have done relatively well but within them there is a great dispersion. This year proves that. The likes of China and Brazil are muted but Turkey and the Philippines are up 30-40%. We are in a critical stage; emerging markets are 40% of the global economy. But we need to keep the return rhetoric and time horizon reasonable. The country that does best in the first decade is rarely the one that does well in the second.
To know what transpired at the India Investment Forum 2012, click here
To read an excerpt from Subir Gokarn's address at the India Investment Forum 2012 click here