Tuesday, March 27, 2012

Has India lost its magic?

In the dark 80s, India was considered as a land of snake charmers and red tape. The outside world viewed it as a mystic land where doing business was not just unprofitable but also impossible. The 90s saw a sea of change with the dawn of the liberalization era. By the year 2000, India was the new hot centre for investment capital. Its huge population base was no longer scary but presented an attractive opportunity. Global companies were setting up shop. The economy started to grow at a gung ho pace.

But the fear at the back of the mind of every investor was how long will this continue? Come 2011, the magic seems to have fizzled out. Growth is back at sub 7%. The country is fraught with problems related to corrupt politics, reform paralysis, high interest rates, fiery inflation, etc. And all this has combined to hurt the economic growth. Not to mention that the government's indecisive policy actions have sent investors scurrying to the bushes. Bowing to coalition demands the government has rolled back more than one policy that was to the benefit of the manufacturing sector.

It is not just policy inaction that has hurt India. The government's concentration on populist reforms can best be described in one word- overkill. As a result important issues like public services, road transport, power are being completely overlooked. Let us not forget that these together form the backbone of any economy. To say that these are underdeveloped in India is still saying too much.

But the point here is that hasn't this always been the case in India? Were politicians ever honest? Were they ever looking at anything beyond vote banks? The answer to this is no. But even then India has managed to grow at a decent pace. This was largely due to the after effects of the huge reforms undertaken in early 90s. However, like all good things the effect of that has slowed down. What India needs now is the right kind of leadership to lead it in the next phase of growth. A leadership that is proactive and committed to the country's long term growth.

The thing is that India still has a lot of 'magic' left in it. The country has a healthy middle class that is driving consumption growth. It has a huge 'demographic dividend' which is willing to work and add to the growth of the economy. With the right leadership it can get back on track.

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