Kick the Tyres, Light the Fires
Meanwhile President Obama, across the Atlantic, is trying to get the US Congress to permit the raising of the American sovereign debt ceiling, because otherwise the US will run out of money in a matter of days. This in turn could set off a global debt crisis of unprecedented proportions with cascading defaults and runaway interest rates, while causing a crisis of confidence in international trade and a tsunami of damage in the real economies around the globe.
But, as in India, there’s party politics afoot, rather than the urgent bipartisan cooperation required. The Republicans don’t want higher taxes if they agree to raise the debt limit. And the Democrats, want to do something about reducing deficits already at stratospheric heights, before they permit their President to raise the debt ceiling.
President Obama, skilful politician that he is, is trying to give both sides a little of what they want, playing off short-term considerations in favour of the Republican position, while bargaining for long-term strategies to bring down the national deficit to please his own side. Being a President who has been managing one crisis after another, mostly of an economic or military nature, from the first day that he stepped into the Oval Office, I have no doubt that he will succeed in the immediate sense.
But afterwards, the US and Europe will have to make more substantive changes to the way they deal with the global order, because the very engines of growth have shifted.
India has debt too, and much of it born of inefficiency and the taking of policy soft options for populist reasons; and yet it’s nothing like what they have in the West. This is partly because we have simply not been able to borrow as much internationally, or on the terms that the Western nations have been able to give themselves. And partly because of an innate conservativeness of approach.
But now, the West doesn’t have growth either, because they’ve already completed that economic cycle through the post WWII era for several prosperous decades; and now, there is too much and duplicated capacity in largely out-of-date manufacturing facilities, and not enough customers for their “rust-belt” goods.
Of course, things are fine in pockets of excellence, such as defence production, sophisticated engineering and aviation, and in those higher reaches of software and IT, even entertainment, where America still holds the commanding heights, along with the likes of Russia, Israel, Britain, France, Germany, Japan, and yes, China.
India is many leagues behind the big powers in this and most other regards. Ours is still an economy of want and obscene disparities, with bottled-up and unmet needs from years of lag. At fewer than two trillion dollars in GDP, we also lack any real size as yet.
India needs more of almost everything- more electricity, more roads, more dams, more schools, more hospitals, more education- it’s a seemingly endless list of considerable magnitude. We don’t have enough of any of these things, neither by way of quantity nor quality, probably because of lazy governance and lack of resources.
India does have domestic demand though, almost endless demand for at least twenty or thirty years of development at an accelerated pace; and probably a half century of it, if we keep trundling on as we are.
We need to pick up speed and go faster than a no doubt creditable 7 to 9 per cent pace of growth currently. Because even this has us falling behind on every planning parameter, with massive cost overruns to boot. And yet, compared to negative growth or a weak percent or two in the West, our growth rates are phenomenal.
Still, given the scale of our requirements relative to the size of our economy, almost every macro-economist agrees that we need to sustain double digit growth in GDP if we are to abolish poverty amongst 400 million of our poorest. But double-digit growth can only come if we take the bold decisions necessary to attract the foreign capital we will need.
Some say, perhaps in apology, that our pace of growth is better assimilated and sustainable precisely because it is not ahead of demand. This, of course, is a self- serving justification. China swiftly and deliberately creates vast and modern infrastructure much ahead of its demand curve.
And yet, use the Indian model or Chinese, it is the destiny of these two Asian nations to take up most of the slack in the 21st century, along with Brazil, Russia, and some think South Africa. The situation in America and Europe will not ameliorate anytime soon without huge structural and policy changes. Their Governments need to engineer a true partnership with the emerging BRICS and other lesser economies, not only in the sharing of opportunity, expertise and natural resources, but political power too. Therefore many international prescriptions will have to be rewritten, many treaties scrapped.
Besides, the very globalisation process that began with the export of low-end manufacturing and service industry jobs, mainly to the cheap labour areas of Asia decades ago, will now have to perforce migrate up the value chain, with greater and greater technology transfer, even-handed cooperation and reciprocity.
Without this, except for those areas where BRICS, and beyond them, the rest of the world, have too large an expertise gap to bridge, Western commerce with the globe will grind down further.
In order to start growing again, as it must, the developed West must jettison its traditional closed-shop style of international bargaining. Just throwing money at its moribund economies won’t work because most of it tends to migrate abroad where the opportunity for profit in commodities and other trades is greater.
It will have to bridge the traditional North-South Divides substantively and proactively, in ways that have never been tried. And yet the exigencies of survival will certainly prompt the change sooner rather than later.
But the truth is, India and China and the other BRICS also need Western expertise, organisational finesse and technology, just as much as they need our markets. They need to be ready to trade the one for the other, but the chances of striking good bargains have only risen sharply of late.
(1,092 words)
21st July 2011
Gautam MukherjeePublished as Leader Edit in The Pioneer on 28th July 2011 as: "Time for India to surge ahead". Also online at www.dailypioneer.com and in The Pioneer ePaper. Archived under Columnists at www.dailypioneer.com
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