Thursday, August 16, 2007

More economic freedom is the key

Source: Economic Times, August 15

India is experiencing a little bit of triumphalism on the 60th anniversary of Independence. That is understandable when one considers its considerable institutional stability and, more recently economic success, compared to the state of affairs in Pakistan and its offshoot Bangladesh. Indian companies are taking over (struggling) British steel-makers and our offshoring prowess generates the respect that comes from fear. As is usually the case with a rising power, its cultural exports (largely Bollywood) have suddenly become attractive. Even the Indian cricket team delivered a series win right on cue.

The India-US nuclear deal represents a tough exercise of sovereignty unlike, for instance, Pakistan whose President reportedly had to discuss his plans to impose emergency with US secretary of state Condoleezza Rice. In a mirror image of the debate in this country, the Bush administration is accused of capitulating to India. Democracy, IT and a world-class corporate sector are the principal elements of India’s soft power.

In a speech earlier this month South African President Thabo Mbeki referred to India’s success in creating great companies, as an example for his country as it entered its second decade after liberation in 1994. The fact India has developed, like Japan and South Korea, but unlike, say, Malaysia and Thailand, world-class companies with managements that have international credibility, will stand it in good stead.

Of course, India always had plenty of soft power, staring with the freedom struggle. Unlike, for instance, the Russian and Chinese revolutions, whose legacy are controversial, to put it mildly, India’s independence movement is universally regarded as embodying the finest values of humanity, a moral beacon for all ages. Gandhi, India’s greatest export of soft power, has inspired freedom fighters in the decades after 1947. Martin Luther King, Poland’s Solidarity movement, Nelson Mandela, imbibed their techniques from the Mahatma.

Unfortunately, a glorious freedom struggle did not translate into great economic performance. Though India’s economic performance in 1947-80 was far better than that of the British Raj, a disastrous turn leftward in the late 1960s ensured that for a time India’s lustre dimmed as countries like South Korea and Malaysia raced ahead, both in terms of per capita income and social indices, particularly health and education. The pernicious legacy of the high noon of socialism still blights many sectors.

It is almost universally true that sectors with a high degree of government involvement, sugar, fertilisers, petroleum are all doing badly. That’s a lesson the government and the wider political class needs to keep in mind as it contemplates fiddling with booming sectors such as retail or natural gas.

It’s not clear if India’s politicians, many of whom are ‘knowledge -proof’, as Manmohan Singh in his avatar as finance minister once described them, entirely get it. India seems to have hit a sweet spot with savings and investment in the 34-35% range and the demographic dividend — 25% of Indians are between 20 and 35 — kicking in. According to a recent McKinsey report, India’s consumer market, currently the 12th largest in the world, will reach the size of Italy by 2015, and will be the fifth largest by 2025. Its middle class will be close to 600 million by then.

As in the case of the East-Asian miracle, high growth appears to be engendering high savings leading to high growth. GDP growth in the 8-9% range for a 20-year period will transform India. It will generate tax revenues, which if wisely spent, will improve India’s wretchedly poor social sector indices. These include an infant mortality rate of 58 per 1,000, life expectancy of 64 and the fact that too few Indians go to college.

Improving these statistics will help make growth more inclusive by enabling more and more Indians to participate in the higher rungs of the globalisation ladder. But then only high growth can generate enough revenues to make that happen. To ensure this India will have to spend more on upgrading its still abysmal infrastructure: power, roads and ports. A lot of this will be through private investment, though the government will have to step in, in case of rural roads, water supply and irrigation.

Apart from its role in hard infrastructure creation, the government will need to work concertedly at its governance, right from ensuring transparent bidding processes for public-private projects to ensuring delivery of health and education services. Above all, the state ought to reduce uncertainty in business decision, which it generates by constantly changing all rules and the occasional ban. The fabulous legacy of the freedom struggle can only be nurtured, for the next 60 years and beyond, by more economic freedom.

Saturday, August 04, 2007

Kerala - Another travelogue

D. Dhanuraj

I was on a visit to Coimbatore yesterday. i started from Cochin at 7 am in the morning. from Cochin Coimbatore is about 190 Km. Many times, I have covered the distance within five hours (not a bad one in Indian standards). But yesterday it took 6 Hours. I had some work to do there. By the time I reached there it was 1 pm, lunch break time for most of the offices. so I could leisurely enjoy the lunch for an hour. I had to rush through my official business so to leave the city by evening. i started return journey by 5 pm and reached cochin by 11 pm. What i got in Coimbatore to conduct my Business is about 3 hours. I was asking my fellow travellers on this plight. i realised that everyone is cynical in the State these days. They want to protest and make things good but they don't see any ray of hope in the horizon. Ask anyone in the street, they will say they have lost their trust in both coalitions namely LDF and UDF. then came the news; one of my fellow traveller's mobile phone rang.. It says that Hartal is declared in Ernakulam District for saturday. i was praying that the bsu could reach the city before mid night. other wise another issue may crop up since no one really wants to take risk by driving on a hartal day.. Yes this is Kerala, God's own country. The raod in between trissur and Palaghat was washed away one month back. No one has called for a hartal on this nor there was not any hartal on garbage issue in Cochin. Why? because there was no martyers to be borne as a result of Police lathicharge and Hoologanism in Streets on these people's issues..........

Thursday, August 02, 2007

India, China fail to expand benefits to people, says ADB study

India and China account for 64 per cent of GDP in 23 Asian countries included in a study but rank quite low when it comes to benefits percolating to their people.
While India ranks 18th, China ranks at 10th when it comes to benefits to the people in terms of living conditions according to a new study of the Asian Development Bank, “International Comparison Programme in Asia and the Pacific: Purchasing power Parity Preliminary Report”.
This picture was evident when the size of the economies is adjusted by population. Rather than dominating the rankings, China and India drop to 10th and 18th positions, respectively, out of the 23 economies participating in the full GDP comparison.
Similarly, China ranks 15th and India ranks 17th when economies are compared based on “actual final consumption of households” (AFCH), a better measure of economic well-being of the population.
The AFCH is a measure of what households actually consume, comprising what they purchase and what they are supplied for individual use by the government (principally education and health). The economic well-being of the population is obtained by comparing household consumption expenditure per capita.
The five economies that top the list are Hong Kong, China (HK$125,303 per capita); Taipei,China (HK$109,108); Singapore (HK$99,706), Brunei Darussalam (HK$81,744), Macao and China (HK$67,639). A Hong Kong dollar is Rs 5.14.
Country Per Capita
Real GDP
Per Capita

RealPrice Level
Index GDP
(Hong Kong,
Bangladesh 7,245 6,553 48
Bhutan 20,903 12,346 49
Brunei 269,581 81,744 74
Cambodia 8,269 7,771 43
China 23,556 11,502 57
Fiji 23,583 25,235 117
Hong Kong (Ch) 202,941 125,303 100
India 12,070 9,346 46
Indonesia 18,427 15,089 55
Iran 60,857 42,945 41
Lao 10,361 7,203 38
Macao (Ch) 212,617 67,639 90
Malaysia 65,136 35,626 63


Mongolia 15,104 10,530 47
Nepal 6,177 5,902 43
Pakistan 13,658 13,230 44
Philippines 16,663 14,145 54
Singapore 236,336 99,706 88
Sri Lanka 19,839 17,629 48
Taipei (Ch) 147,971 109,108 82
Thailand 39,086 28,917 54
Vietnam 12,295 8,541 40
The five economies that are at the bottom of the survey are Nepal, Bangladesh, Lao, China, Cambodia, and Vietnam. As for the people living in the two giant economies, a person living in China spends an average of only HK$11,502 per year, while an Indian consumes an average of HK$9,346 per year.
Purchasing Power Parities (PPP) is an idea popularised by The Economist's Big Mac Index which prices hamburgers in global cities for a quick and crude comparison of living standards. The ICP is more comprehensive as it covers a broader range of commodities.
Based on the price level index, which is the ratio of the PPP to the exchange rate, Fiji Islands and Hong Kong, China are the two costliest places to live in. They are followed by Macao, China; Singapore; Taipei and China.
China ranks eighth, and India ranked 16th in terms of PLIs. Price levels in the Philippines, Thailand, and Indonesia are very similar and are close to the Asian average. The cheapest places are Lao, Vietnam, Islamic Republic of Iran, Cambodia, and Nepal.
“The results provide the most comparable information on breakdown of GDP expenditures across the Asia Pacific,” ADB Chief Economist Ifzal Ali says. “Purchasing Power Parities are a more appropriate currency converter to compare living standards and the structure of economies than market exchange rates.”
The results are deployed for investment strategies, the global campaign against poverty and national policies such as appropriate spending on schools or infrastructure in Asia.
Using real GDP, estimates were done using assumed growth rates and how long it will take some countries to reach certain levels of per capita real GDP. For example, it will take the Philippines more than 20 years to reach Thailand's present per capita real GDP level if it grows at an average annual per capita rate of 3.7 per cent.
Looking at China, it needs only 16 years to reach the $HK100,000 per capita real GDP level but nearly 30 years to catch up with Brunei, based on an annual per capita growth rate of 9.2 per cent.
India needs more than 30 years to come up to the $HK100,000 per capita real GDP level, and almost 50 years to match Brunei's per capita real GDP, if India continues to grow at an annual per capita rate of 6.5 per cent.
The ICP Asia Pacific is part of a global initiative managed by the Asian Development Bank in collaboration with the ICP Global Office and other regional agencies across the world.
The ICP results, for the first time, enable a robust cross-country comparison of major macroeconomic indicators across diverse economies of Asia and the Pacific.

source: Business Standard