Sunday, 1 February 2015

India: The Economy of Future

The last ten days have been packed with events. Just prior to the visit of Obama the World Economic Forum in Davos concluded its 45th annual conference of the broad theme entitled ‘The New Global Context’.
This was my 17th year in the Alpine Ski Resort in Switzerland. Davos is much more than mere animated discussions ranging from the economy to politics to medicines to arts and sciences. It manages to get each successive year to engage key policy makers and game changers. The slogan is ‘Come to Davos and meet the world of Game Changers’. At the heart of it, Davos is less about meeting but more about making friends, to nexus, to connect and to leverage contacts. You need a ‘Davos Frame of Mind’ to make the best of Davos. 

Are there multiplier benefits to friendship and contacts even in an interdependent world today? Yes it is, because with face to face contacts, even brief conversation is a quick learning experience about changes, perceptions and pointers to future.

The Davos conference this year had a mixed milieu. The European delegation seemed concerned about the future of Europe and given the uncertainties in Greece and vulnerabilities of some other countries. The future of euro zone remains a question mark. Russia was struggling to keep its head above water since ruble has collapsed; oil revenues were half with rising fiscal deficit, a credit down grade with persistent foreign capital outflows. So between the uncertainties of Euro Zone and Russia, Europe remains in doldrums, if not in turmoil.

The US recovery is robust with employment figures looking optimistic even though there is uncertainty on how quickly interest rates would rise and quantitative easing wound down. In Latin America there were patches of good and bad - Brazil remains sluggish. In Asia, the Chinese economy has slowed down, partly a result of a conscious policy to ease overheating and move economic activity towards low fossil fuel use. The return of Abe and relentless pursuit of Abenomics by way of quantitative easing has yet to reverse the slowdown. In Africa, the South African economy remains sluggish and the falling commodity prices has upset many African economies. India remains in notable exception and indeed as the eminent economist Laura Tyson said in Davos, India is a high point in the short run but now importantly the economy of the future.

India in Davos has always passed through oscillations. Prior to 1991, when Davos was much smaller, India was viewed as a closed economy which discouraged foreign investment and was viewed merely as a potential market for exports of plant and technology. The reforms of 1991 brought about a major shift when the opening up of the Indian economy enthused the world as new opportunities opened. This continued for several years. However, it was during the NDA government under the leadership of Atal Vihari Vyajpayee, the opening up of the telecom sector and massive highway building programmes had Davos excited about the New India opportunity. The acceleration of the growth rate, particularly in 2007-08 continued the India fever. However, the five years of the UPA-II government dashed their expectations. India slipped from global investor radar. The sluggish growth rates of sub 5 percent over the past few years with controversial retrospective tax changes enhanced perception of governance paralysis, lack of transparency, financial malfeasance and crony capitalism; people felt it was a country which had gone back in time. 

All this has changed quickly in the last seven months.

The panel discussions in which Arun Jaitely participated and some in which Piyush Goyal did, were the most sought after meetings in Davos. Arun Jaitely’s CII breakfast meeting under the aegis of Boston Consulting Group had a packed and enthusiastic crowding. Equally Mr. Jaitely’s one on one conversation with a correspondent of New York Times had an enthusiastic response with informed questions from the audience. His televised debate on the BRICS agenda was moderated by Silio Boccanera in which participants included Carlos Ghosn(Chairman, CEO Renault Nissan),  Justin Lin(Professor at Peking University, China) and Nhlanhla Musa Nene (Finance Minister of South Africa. Similarly, the well attended NDTV debate on the Future of India had Chanda Kochar, Nouriel Roubini, Vikram Chadra with Arun Jaitely.

My broad conclusions on India at Davos would include the following four points.
  1. India is back on the global radar of investors. They are back in their reckoning and in the plans and programs of their corporates and associates
  2. The expectations of a 5.7 percent growth this year, over 6 percent in the following year, climbing on to 7 percent and higher subsequently, with moderate inflation, acceptable current account deficit, significant opening up of foreign investments in railways and defense, the prospects of reviving manufacturing, the Make in India Campaign, the Swachh Bharat, Digital India and Clean Ganga offer enormous opportunities for technology, capital and entrepreneurial skills. 
  3. Investors would watch carefully the implementation of many promised steps. They appreciated that instead of endless wait, the key ordinances on coal mining, land acquisition and insurance was a commitment to adopt the unconventional route than sacrifice growth. They would hope these are converted into legislations sooner than later. They will also watch other measures on labour laws, implementation of projects with stranded assets, clearing up of balance sheets of banks and injection of financial resources through increasingly market based instruments. 
  4. The speed of government action has taken the world and indeed investors at Davos by surprise.
Davos 2015 marks the rekindling of global hope and expectation about the India story. The world hopes this would not be yet another false dawn. We hope so too.

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