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Business Commentary/Dilip Thakore

The hidden virtues of the Indian economy

Distance lends perspective. At a time when the monitors and captains of Indian industry are down in the dumps because of a prolonged demand recession and rising inflation, the unexpectedly good response from overseas for the Union government' Resurgent India Bonds is a rousing vote of confidence in the future of the Indian economy.

I must admit it. When the new foreign currency denominated bonds bearing modest (by Indian standards) 7.75 per cent interest were offered to non-resident Indians by Union Finance Minister Yashwant Sinha as a component of his forgettable, lukewarm Budget (1998-99) proposals, I smirked into my moustache, metaphorically speaking.

Subsequently, when under compulsion to exhibit a dash of machismo to the domestic electorate the BJP-led coalition government went overly nuclear by exploding five nuclear bombs in the Rajasthan desert and Moody's Investor Service downgraded India's credit rating, the RIBs disappeared from the radar screens of most monitors of the Indian economy.

True one came across the unconvincingly corny ads and photo news reports of grey bureaucrats of State Bank of India marketing RIBs in exotic locations abroad. But one got the impression that they were just going through the motions. After all, that's what they are paid for and they had nothing to lose. My estimate was that the finance ministry would be lucky if it raised $ 1 billion after spending a quarter of the amount on publicity and promotion.

In the event I have had to eat the proverbial humble pie and suffer the jeers of those to whom I had voiced my scepticism. The NRI response to the bond issue has surpassed all expectations raising an estimated $ 4.16 billion from over 74,000 corporate and individual NRIs.

Obviously the pictures of contemporary India which NRIs see are more colourful and inspiring than the depressing monochromes that we get to see back home. And distance does lend perspective while familiarity breeds scepticism if not contempt.

Actually if one looks at the Indian economy objectively and with a bird's rather than a worm's eye view, one might appreciate that the NRIs who backed their confidence in India with their savings, may see a big picture which most of us back home don't.

For a start, though for indigenous monitors of the economic scene the democratic system of government is much too slow, there is no gainsaying that the democratic system of government has its advantages. Though there is no doubt that corruption is pervasive in this country which is appropriately numbered among the most corrupt in the contemporary world, crony capitalism and ruling family monopolies of the type that characterised Indonesia under the 32-year reign of President Suharto are an impossibility in this country, given its fairly well-established democratic traditions characterised by a fearless opposition and a genuinely free and competitive press. The fact that the democratic system has struck firm roots in post-Independence India makes this nation a good bet for long-term investment. And this perspective is clearer from abroad than it is back home.

Secondly, there is no doubt that a broad all-party consensus on the need for a rightward private sector oriented economic reforms programme has struck deep roots in the political class as a whole. There is a certain inevitability about the dismantling of the nation's inefficient loss-making public sector enterprises which dominate the infrastructure industries and which are a drag on industrial and agricultural development.

Also there is widespread awareness abroad of the entrepreneurial abilities of India's businessmen and their sound knowledge of the domestic market. The imminent privatisation of the public sector --however slow and hesitant -- cannot but bode well for the Indian economy. And it is easier to see this picture from abroad than from ground zero.

Moreover, the fact that the Indian economy is still on the growth path at a time when the hitherto wonder economies of South-East Asia are actually contracting (GDP in Indonesia in the current year is expected to be 20 per cent less than in 1997) is surely a factor which has weighed with NRIs and prompted them to subscribe to the RIBs. Though the Indian economy has slipped out of the high-growth 7 per cent plus annual GDP growth orbit in which it has been sailing for the past three years, the most pessimistic forecasts predict a 5 per cent GDP growth in the current year ending March 31, 1999. Despite being a significant slippage, a five per cent rate of annual economic growth is a marked improvement on the 3.5 per cent 'Hindu rate of growth' in which the Indian economy was mired through the '60s and '70s and right upto the mid-'80s.

That several monitors of the indigenous economic scene (including your correspondent) have pilloried the government for policy failures which have prompted this slippage, is an indicator of the higher threshold of annual growth which is now expected of the economy.

Nor should one discount the confidence-building weightage of the unparalleled transparency of India's reforms process. This nation's reforms programme is being vigorously debated by hundreds of genuinely learned world-class intellectuals in a language (English or more accurately Inglish) which is universally understood. The sheer transparency and vigorousness of the debate which clarifies and crystallises India's economic reforms programme provides a sharp contrast to the reforms programmes of the southeast Asian nations characterised by under-developed democratic systems, and those development debates are inadequately conveyed to the international community of investors via distorted and delayed translations.

But while India's democratic system with its increasingly effective checks and balances, the already emerged consensus on private-enterprise oriented reform and the sustained growth of the economy not to speak of the transparency and high quality of the nation's development debate are positive factors which inspire the foreign investor, the prudence with which the Union government utilises the proceeds of the RIBs will be carefully monitored not only by NRI investors but by the international community of investors in general.

The government has to deliver on its promise to invest this money in building infrastructure projects which have to assume form and dimension quickly as also with confidence-inspiring transparency. If good and true account of the massive sum of $4 billion plus invested in the RIBs is not rendered, there is a danger of a loss of nation's credibility.

And inspiring -- and sustaining -- investors' confidence and building national credibility is a factor of vital importance as the beleaguered hitherto wonder nations of South-east Asia are learning the hard way.

Dilip Thakore