The newspapers read that India’s growth is at 8 percent, but have you ever wondered whether there is any truth to the same, or if there exist a bunch of unknown variable factors beyond those sweet digits? The answer to that requires much more than an article, but what is known is that a lot of times figures and statistics can be distorted, especially when individuals, governments, organizations have hidden agendas.
This is largely because economic statistics are clothed in government agendas, and the few statements which reach the common man are distorted and out of context.
It is in this setting that Ruchir Sharma, an equity fund manager who travels the world looking for the right market to invest in, made an in depth study of the true nature of these markets, and how the claims in short term booms actually match up with actual long term planning and innovation.
In the last decade or so, the relevance of economic forecasting took centre stage, especially with the world reaching a high note, in an operatic rendition that was and is globalization. Developing countries jumped on the bandwagon of spewing economic figures, like it is open seasoning in hunting plains.
An analogy maybe drawn to the dotcom bubble of the late 20th century, but at first a bit of perspective – economies as a whole are now traded like commodities. Economies are no longer systems which the government regulates, or a systematic arrangement of the various economic activities, they have become avenues for investors to invest. The capitalist cowboys of the Midwest, to the Russian barrons and the oil rich sheikhs all want a piece of the pie. The looming question therefore, which pie and how am I supposed to grab it the fastest?
This is one side of the story, the other side is the above mentioned economic numbers, which are essentially beyond a point simply sales pitches. Consider the dot com bubble, during the mid and the ate 1990s the zeal to invest in the newer companies was considered to the way forward for most players on Wall Street. This was largely founded on the belief that these were the companies that were building cutting edge portfolios, and to an extent this belief was not unwarranted. The investors from this school of thought were those who hit a home run with Microsoft, apple and IBM. They used and propounded the same formula, even when the variables were drastically different. This is where the snag in the formula takes centre stage. The countries where these companies are located are nothing to write home about, and to top it off they function as outlets for large scale outsourcing.
This brings me to my next point, the Indian Inc success story: Infosys though boasts cash flow statements that can be the envy of most corporate companies. I am sure that if someone asks about the work of the company, there is little to write about. Now this is where it is pertinent to look into the flip side of the argument, these economies contribute in large chunks to the national economy. Irrespective of the so called quality contribution in terms and services, these companies have and will contribute considerable amounts to the national economy, and not to mention the transfer payments from foreign countries.
Fast forward a couple of years and governments are ready to use these indications as the core of their success story. This is where the analysis made by Ruchir Sharma is apposite – he masterfully identifies trends. On identifying these trends he pointed out that the countries which experienced this short bursts of growth, used this flash in the pan to paint their canvas in favourable shades. This is exactly what transpired in India and the political class and the so called intellectual class ate up the same without thinking twice. Hop across the national boundary lines and we stumble upon a similar situation. The Chinese played similar cards, and the gains were larger and the eventual fall even steeper. The Chinese played a dangerous game, by opening the floodgates to their economy, the world accessed the Chinese workforce, where men were hungry for 100 dollar an hour pay jobs, and were ready to kill themselves over 90 hour work weeks. This coupled with some ingenious moves by the Chinese government, the government racked up a high purchasing power parity. Things seemed to be very hunky dory until the point when the domestic force began depleting as people left for better pastures abroad.
A similar impasse can be seen in the current state of things in the Indian economy, where barring a few exceptions, the IT market is walking on a tightrope which will sway according to visa regulations. A couple of years ago, the head of an Indian software company vehemently said that H1B and no modern globally integrated economy will take a stand against it, but sentiments seemed to have changed and anyone can sense the shift in trade winds, the winds which favour those sails where innovation and quality products and production drives the crew of the ships.
Thus what is truly a breakout nation? And what makes economic phenomena economic miracles? The simple answer is constant reinvention, where focus is on quality production and quality services, both in the private sector as well as the government sector where emphasis is on developing a core competency and extensive specialization in a niche field.
It is to be understood that no country can be an overnight success, and there cannot be contrasting watershed moments in the development of a country’s economy, what counts is constant re innovation by all the stakeholders. This alone can and will lay strong economic foundations.