A surging economy

Despite a sea-change in the Indian economic scene since 1991 and the partial liberalization of the Indian economy by late Shri. P.V. Narasimha Rao, one of the most under-rated Prime Ministers of India, a lot of the socialist mind-set remains.

So it is that Indian MSMEs still go around pretending that nothing much has changed, even though there has been a near-revolution in the technological, political, social and economic environment since 1991, of which most of the businesses thriving today are the main beneficiaries.

The most important change is not just the loosening up of the rules and laws affecting Indian industry but that when the gate opened to let the world enter, it was forgotten that we also entered the world.

With a $ 2.6 trillion economy India is poised to overtake the United Kingdom this year when the World Bank will release 2018 Gross Domestic Product (GDP) figures for all nations of the world to become the 5th largest economy in the World and set out to overtake Germany in 2024.

Close your eyes, you can’t see the world

The sins of our past catch up with us in various ways.

One is, of course, by retaining some of the very ropes that tied us up economically in the past. Such as, bureaucracy and red tape. Such as endemic corruption. Such as labour laws which simply do not permit the kind of free-ranging entrepreneurship which is necessary for an economy to break loose and go hell for leather. Such as, infrastructure catching up far more slowly than required.

All of this gives us, particularly MSMEs, the comforting feeling that nothing much has changed, somewhat like becoming attached to being in the restricting but comforting cocoon of a mother’s womb much after term.

But the real fact is that the Indian economy is to a great extent rising and falling with the ebb and flow of the Global economy. So, when politicians take the credit for the growth of our economy, take it with a fairly large pinch of salt.

Of course, domestic policies do create possibilities for both better and worse, such as demonetization, the introduction of Goods and Services Tax, Bankruptcy Law etc. But the larger world outside impinges on our economy in ways we are not immediately able to fathom. India’s trade deficit with China, for example, has nearly tripled to $63 billion in 2017-18 from $23 billion during 2008-09.

So, what’s really happening with the world?

In an excellent article ‘The Sorry State of the World Economy’ economist Kaushik Basu lists some of the factors which should make all of us more than a little anxious.

The World Bank’s Global Economic Prospects, painted a fairly gloomy picture of the world economic scene with a growth forecast of advanced economies in 2020 brought down from 2.2.% in 2018 to just 1.6%.

The European Central Bank sounded the alarm over the eurozone economy. Britain is currently in the throes of a Brexit scare which will climax by March-end. In the meantime, neo-protectionism, mainly fuelled by Trump’s America with a host of nations and its ongoing trade war with China has Europe and much of the world caught in spasms of uncertainty.

Germany is facing a growth slowdown. According to its own official data, the economy contracted by 0.2% in the third quarter of 2018, while the Purchasing Managers Index for manufacturing sank to 49.9 – a four-year low. Given Germany’s role as the eurozone economy, its economic struggles are likely to cascade beyond its borders.

Mr. Basu has not highlighted the biggest threat to the world economy, which is the wobbling Chinese economy. China’s growth has been highly credit intensive. In 2008, China’s total debt was about 141 percent of its gross domestic product. By mid- 2017 that number had risen to 256 percent.

The IMF identified 43 credit booms in which the credit-to- GDP ratio increased by more than 30 percentage points in five years. All but five ended with a significant growth showdown or financial crisis. China’s debt-to-GDP ratio has risen 54 percentage points in the five years up to 2018.

China is now the second- largest economy in the world and the biggest trading nation, and it has the third-largest bond market. A meltdown would have global repercussions.

What does all this augur for India and MSMEs

Despite socialism and the gross mis-management of the Indian economy, India has been almost consistently growing from the day it became independent. In today’s terms, the economy crawled for the greatest part of the years till 1991 when the balance of payments crisis hit us, $200 million of gold had to be airlifted to the bank of England and an IMF bailout with conditions, which triggered liberalization and the faster growth of the Indian economy which we now take for granted.

India today is a far different economy. Just the fact that we are more than self-sufficient in food and an economy in which, GST data suggests, that India’s internal trade in goods and services (excludes non-GST goods and services) is actually even higher and is about 60% of GDP.

This should sound reassuring but for the fact that with what is called the demographic dividend India will have nearly a million young people entering the job market and an existing abysmal per capita income of 1,977.286 USD in Mar 2018. We need an unbroken growth of upwards of 8% over the next several decades to pull ourselves up.

This is no longer a question of “if” but an absolute “must”. No country which is of continent-size like India can afford to wallow in mediocrity, without being coveted by powerful neighbours or disintegrate.

It is also nothing less than what it owes to its great past, when for nearly 1500 years it was the dominant economy of the world.

 Author: Seshan Ranganathan

Seshan Ranganathan is the Executive Editor of TISA, Trustee of HEAD Foundation & former CEO of SSEA, TTC. He has been championing the cause of  MSMEs for more than 3 decades and is a perceptive observer and writer on a wide range of subjects.

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