The day Mahendra Singh Dhoni and
his boys lifted the T20 world cup in September 2007, it was a defining moment
not only for the Indian cricket but for a generation. Indian economy was truly
booming (2003 to 2007 – for five consecutive years, GDP grew at a rate of
around 8%) and new enterprises in IT, telecom, pharma and other sectors were
out to conquer the world. Since the Y2K crisis of the late 1990s, Indian
professionals earned global recognition. Shining new airports, signature flyovers
and swanky malls altered our city-scape and ushered in a new consumer culture.
For those too young to remember the 1983 and grew up watching humiliating
defeats to Australia, England and especially to Pakistan, Saurav Ganguly and
then Dhoni’s boys represented a new era. As stock markets continued to soar (Sensex
crossed the 20000-mark for the first time in 2007) and there were regular predictions
of India soon becoming a global economic powerhouse, one of the newspaper
headlines screamed next day – India
World Leader 2020!!
A friend recently reminded me that
when we completed our graduation in mid/late 1990s, there was not even an iota
of doubt in our minds that we would do well in life. Whichever career you
chose, generally there was such an atmosphere of optimism all around! The world
was ready to welcome middle class India like never before. In 2003, Planning
Commission unveiled Vision 2020, a
document prepared under the leadership of APJ Abdul Kalam. The book he
subsequently published was almost a compulsory reading for nearly a decade and
we all truly believed in that promise – India’s destiny to become an economic
superpower and ensure all round development for her entire population.
Instead 2020 tuned out to be our Annus Horribilis and that precious dream
now lies absolutely shattered. This year for the first time in four decades GDP
will contract. Zero growth is truly an unprecedented scenario in this country
of 1.3 billion. It also appears that 10 to 20 crore jobs/livelihoods will be
lost and an alarmingly large number of Indian businesses will go bankrupt. Even
before this pandemic struck, economy was in a serious structural crisis with
falling exports, decline in domestic demand and above all dwindling employment
opportunities. But now this lockdown completely flattens the economy. With this
the virtuous cycle that started on 24th July 1991 comes to an abrupt
but definite end.
In 1991, Gulf War had sent oil prices
soaring. With hardly any foreign reserves, India was on the verge of a
sovereign default. Prudent fiscal management since 1991 and a large forex
deposit, however, ensures that the government does not face any such crisis
today despite a raging global recession far worse than 1991. But the government
does not command this economy any more. It’s the private sector and household
consumption that drive this large economy (in 1991, India’s GDP was a paltry
$320 billion, today it stands at $2.7 trillion). Battered by this unprecedented
lockdown most households and corporates now face a serious risk of bankruptcy.
To be honest, there were deep
fissures in our growth story. Politically, 1991 was essentially reform
unleashed under duress. All political parties subsequently refused to extend
reform more meaningfully to other areas, including politics itself. There was steadfast
refusal to invest in public health, education and agriculture. A substantial
segment, perhaps as high as 60% of those who are above poverty line remained
deeply vulnerable in the absence of any social security/safety net. Creaking
infrastructure and unpredictable government policy ensured that there was no
rapid industrialization. For years now, successive governments have failed to
address the banking mess and power sector woes.
Initially, the political class was
ready to give up their discretionary power and create new professional
regulators. Over time, not only they refused to move ahead with more
professionalization but even the robustness of the earlier institutions have
eroded. The most worrying is of course a precipitous decline in competition –
state monopoly has withered away but today in many critical areas of Indian
economy there are only 2/3 players left. Telecom, once a great sunrise sector, is
today a prime example of this unfortunate trend. In last decade or so, we have
hardly seen a single new enterprise comparable with Infosys or Sun Pharma or
Bharti.
And who pays for it? If the state
does not invest in infrastructure or public health, citizens suffer. When
competition shrinks, consumers are forced to pay higher prices for poor
products and shoddy services. The lower you are in the pyramid, more you stand
to lose.
Any crisis of this magnitude – from
medieval Plagues to more recent World Wars – also presents great opportunities.
In fact, India’s response in 1991 itself is a great example of that. But
whether an economy is able to take advantage of a crisis or not, that depends
largely on policy response. Probably our greatest weakness today lies therein.
The stellar team that was responsible for drafting the economic policy in 1991
was mostly around in 2008 (Manmohan Singh, P Chidambaram, Montek Singh Ahluwalia
and C Rangarajan) and they did a commendable job of saving India from recession
in 2008 (as a recent book shows, Indian economy was dealt a more fatal blow by
the Mumbai terror attacks in the same year, which led to the removal of
Chidambaram from the Finance Ministry. Pranab Mukherjee, a politician with
pre-reform mindset took his place and failed to sustain the momentum). There is
a whole host of globally acclaimed Indian economists today but the government
does not seem to be interested to profit from their knowledge. And neither the
lessons of liberalization nor the spirit of competition has anyway affected the
bureaucracy.
Blue sky, nearly empty neighbourhoods,
families huddling together in front of television to watch Ramayan/Mahabharat,
sharing home cooked Maggi instead of Domino’s Pizza – this idyllic picture of locked
down India brought back memories of our childhood in late 1980s. Except that we
could not go out for cricket/walk. Except that the apartment blocks where we
are cocooned today do not look anything like government/PSU/railway colonies or
university campuses some of us were privileged to grow up in. Our parents
aspired to build a modest house before their retirement with savings of their
lifetime. A lucky guy got posted/sent on tour abroad and brought sneakers/jeans/Walkman
for the youngsters. We spent half the month with a landline lying dead (and
called girlfriends in another city through astronomically priced STD calls in
tiny booths). Power invariably went off during an important cricket match or
Chitrahaar, during hottest summer afternoon or midnight. I wrote about it almost a decade back (http://thetimeriver.blogspot.com/2011/07/bis-sal-baad.html), but
honestly today hooked to my mobile, used to the convenience of net
banking/Makemytrip/Amazon Prime/BigBasket/Zomato, even I find it difficult to
imagine that life.
We have entered a dark tunnel. We
will eventually come out of it but it would be a very different world. 8% plus
growth will not come back on a sustainable basis for a very long time. And now
the world would be far less globalized, deep recession always breeds insularity
and authoritarianism (Great Depression of 1929 led to the rise of Hitler and
Mussolini). By 2030, India’s demographic dividend will be largely over. This
way, it seems, India has fallen into that dreaded Middle Income Trap, from where hardly any economy has ever
recovered. Still, most of our gains in middle class India are unlikely to
disappear. But even our lot will struggle with a serious job squeeze, stagnant/falling
income and asset erosion. It would be much worse for those entering the job
market now. Eventually perhaps both the demand for formal education and supply
of steady jobs would decline. Along with landline telephones, morning
newspapers, lifelong pensions, sari-clad mothers/teachers, a long list of
things/habits/practices are about to go out of our lives.
Living through a period of momentous
historical event is often a traumatic experience. Today we might find the
French Revolution (1789-99) a great inspiration or watching a Second World War
(1939-1945) movie very exciting but those, who lived through those cataclysmic
events had suffered unbearable pain and deprivation.
For decades now, we have not seen
absolute poverty rising in this poor country. In fact, lifting millions out of
abject poverty has been one of the most important gains of 30 years of
liberalization. This picture, no doubt could have been far better but even this
achievement largely melts away now. Assuming a population of 15-20 crores below
official poverty line at the beginning of 2020, by the end of this year itself,
perhaps this number would double to 40-50 crores. This will be an absolute catastrophe
and, no doubt, will have very serious socio-economic ramifications, especially
in poorer and more populous Northern states.
Since the late 1990s and till
almost recently, a large proportion of Indians have truly believed that they
can significantly improve their own economic prospects. Curtain comes down on
that generation of hope. They would now be happy merely to latch on to the
gains of last two decades. And it would be an uphill battle for those who are
now going to arrive at the scene. We, globalized children of 1991, scattered
from New York to New Delhi, Boston to Bangalore, would look back at these
glorious decades now with a tinge of nostalgia and hope that those golden years
come back in our life time.
