Dispatches - The Indian Miracle? (2007)

[indushek]

What do u expect a country united yet divided and subjugated to foreign rule for almost 900 years?? While the some of them plundered and went back some stayed and imposed their will while the british destroyed the societal norms completely. This is the reason why i am saying even under these circumstances we are moving forward may be at a snail's pace, but there is realization among the younger generations now and two to three generations down the line we will leave these differences behind. I believe in that, it is the old gaurd that is the problem.

 

[RobbieS]

Should be part of the reason. India's problem too much, you even can not take a clear resolution.

Well it is one of the causes, but not the be all and end all.

I wont go into the caste system and in what form it manifests itself into the current Indian society. I will probably waste a lot of bandwidth heading into that direction.

With respect to the topic, India has lagged behind in creating social equality. And it seems like economic liberalizations has further increased the gap. The spectrum has widened. For the farmers, devoid of urban amenities and the opportunities, manual labor remains the only means of livelihood when a crop fails. But again, I guess China has faced something similar. But why the landless Indian farmer is only able to do menial jobs is a lack of manufacturing sector big enough to absorb the unskilled.

The govt. has woken up to the issue, and schemes like NREGA are a step in that direction. I hope Jean Dreze, the economist who acted as advisor to GoI is correct in his assessment of NREGA's impact. For me, the schemes and the plans were never a problem. The implementation and the inefficiencies in the system though remain a tough nut to crack.

 

[CardSharp]

Well, It might not be up to the mark, but it does portend a far bigger economic growth for India when it gets some of the infrastructure deficiencies alleviated.

With Indian planning to invest nearly 1-1.5 Trillion $ on infrastructure over the next decade, the true potential for growth will be unleashed from the shackles which hold it back today. Indian economy is indeed a miracle because it it the second fastest growing economy "in spite of" all the infrastructure challenges it faces.

India, at long last has realized that it lags behind in infrastructure and has taken concrete steps to rectify this problem. For example, as an economist pointed out; India lays more road (in Km's) per day today than it averaged for an entire year about 15-20 years ago.

Is there a lot to be done? yes. Has progress in the thorny issues been slow? yes But now with momentum building; and if the past few years are any indication; India is actually poised to take off in yet another economic miracle that might dwarf its accomplishments of the past decade or so. By the time its infrastructure handicap is rectified, India could easily pass the 10% growth mark. And this is not a piepedream but in fact a rather conservative forecast as it already maintains a 8-9% growth

I don't doubt India will likely experience ~10% growth in the next few years but I don't see this coming from manufacturing/export lead growth no matter how good India's infrastructure becomes.

There was debate a couple of months ago when China raised its min. wage of whether manufacturing is going to go places like India or Vietnam and the consensus from the panel of economists was No. Here are some of the response

Adjusted for product mix, Chinese labour is still cheap
Ricardo Hausmann wrote on Jul 19th 2010, 19:59 GMT
THIS is not a question that can be answered without taking into account what products are being considered. Chinese wages may be going up, but the Chinese export package is also becoming more sophisticated. In 1985, China had a GDP per capita of just $292 in current prices. By 2005 it had gone up to $1,761. Since then, GDP per capita has pretty much doubled. By contrast, the average GDP per capita of the countries with which China was competing in 1985 was $5,337. By 2005 (the latest date for which I could make the calculation) it was $11,215 dollars per capita. This means that while wages in China may be going up, the wages of the countries with which China is effectively competing on a product-by-product basis have also been going up because the export package has become more sophisticated. China might have become expensive for many simple garments, but it may be still quite cheap for semiconductors, cars and software development.

Rising labour costs are transitory
Guillermo Calvo wrote on Jul 18th 2010, 15:12 GMT
GIVEN its size, China is an incredibly open economy. Its exports/GDP ratio is close to 40%, and about 70% of exports go to advanced economies. Thus, a major threat to the continuation of China's high-growth performance is the projected low growth in the US and Europe. However, there is hope that China will succeed in redeploying output towards its domestic market. The unprecedentedly large recent fiscal stimulus program, directed towards local governments and state-owned enterprises, was an important step in that direction. The activities spawned by this effort are likely more labour-intensive than those in the tradable sector, which may partly explain the reported strain on the labor market

Chinese wage convergence has a long way to go
Stephen Roach wrote on Jul 18th 2010, 21:35 GMT
NOTWITHSTANDING all the hype over surging Chinese wages, it is entirely premature to declare an end to the global labour cost arbitrage that has long worked in China’s favour. Actually, the recent outbreak of minimum wage hikes is, in large part, going according to script as stipulated by China’s 2004 labour reforms, which required local governments to raise minimum wages at least every other year. In the depths of the Great Crisis in late 2008, when Chinese exports were under severe downward pressure, the government ordered a deferral of scheduled increases in minimum wages in an effort to combat mounting recessionary risks. In the face of a more stable global climate and impressive resilience in the Chinese economy, that emergency policy is now being relaxed. In that important respect, recent increases in minimum wages are a catch-up from previously slated hikes that had been foregone in the crisis.

Nor do the data on international wage comparisons point to dramatic deterioration in China’s wage advantage. According to research published in the Monthly Labour Review of the US Bureau of Labour Statistics in April 2009, compensation of Chinese manufacturing workers was only $0.81 per hour in 2006—just 2.7% of comparable costs in the US, 3.4% of those in Japan, and 2.2% of compensation rates in Europe. While these figures are now out of date by nearly four years, they underscore the magnitude of the gap between China and the developed world—and how difficult it would be to close that gap even under the most excessive of Chinese wage inflation scenarios.

And the one dissenting opinion on the panel, though I can't really understand the technical jargon.

Politics and demographics indicate a turning point is at hand
Arvind Subramanian wrote on Jul 19th 2010, 13:27 GMT
A POSSIBLE explanation of China’s “undervalued exchange rate” from a development perspective is simply that the Arthur Lewis effect has trumped the Balassa-Samuelson (BS) effect. The BS effect arises when productivity growth leads to commensurate real wage growth, which increases the domestic price of non-tradables. Since the price of tradables is fixed internationally, the increase in price of non-tradables is equivalent to a real exchange rate appreciation. But if real wages are fixed (i.e. the supply of labour is infinitely elastic), for example by subsistence, as postulated by Lewis, then the BS effect is attenuated: productivity growth does not lead to domestic price increases. One macroeconomic manifestation is an undervalued exchange rate; another is a rising share of profits in GDP at the expense of the wage share. Especially since the early 2000s, both these manifestations are evident in Chinese data.

However, there are nascent signs that the BS effect is finally asserting itself. Real wages have been rising recently for cyclical reasons; China’s large policy stimulus combined with substantial capital inflows is putting upward pressure on wages and prices. But two key structural factors—politics and demographics—are becoming increasingly important in ensuring that sooner rather than later Balassa-Samuelson will trump Arthur Lewis.

Economics: Is the era of cheap Chinese labour over?

 

[CardSharp]

Another question is given the natural trajectory of Indian grow, when it experiences above 10% growth will the GoI have the same element control that China did to stop the economy from overheating?

 

[huzihaidao12]

Well it is one of the causes, but not the be all and end all.

I wont go into the caste system and in what form it manifests itself into the current Indian society. I will probably waste a lot of bandwidth heading into that direction.

With respect to the topic, India has lagged behind in creating social equality. And it seems like economic liberalizations has further increased the gap. The spectrum has widened. For the farmers, devoid of urban amenities and the opportunities, manual labor remains the only means of livelihood when a crop fails. But again, I guess China has faced something similar. But why the landless Indian farmer is only able to do menial jobs is a lack of manufacturing sector big enough to absorb the unskilled.

The govt. has woken up to the issue, and schemes like NREGA are a step in that direction. I hope Jean Dreze, the economist who acted as advisor to GoI is correct in his assessment of NREGA's impact. For me, the schemes and the plans were never a problem. The implementation and the inefficiencies in the system though remain a tough nut to crack.

Chinese farmers do not have this problem, now, in addition to some western regions with harsh natural conditions. Others, too complicated, India's problem is not one, two, but in the system, all negative factors to struggle together, so complex, it is even more detrimental to solution.

 

[huzihaidao12]

As for China, you do not need to worry, our advantages in the manufacturing sector can not be shaken in 20 years.Of course, if China does not need, so to transfer the excess production, it is possible, but that is because China's initiative.


Cardsharp, good reference.

 

[RobbieS]

Another question is given the natural trajectory of Indian grow, when it experiences above 10% growth will the GoI have the same element control that China did to stop the economy from overheating?

By that do you mean if GoI would be able to exercise control? Yes.

But I dont think it needs to even if we hit above 10%. The Chinese did it after constantly hitting 10% for a decade or so. We havent even hit it once!

 

[CardSharp]

By that do you mean if GoI would be able to exercise control? Yes.

But I dont think it needs to even if we hit above 10%. The Chinese did it after constantly hitting 10% for a decade or so. We havent even hit it once!

That sort of is my point. China was able to sustain 30 years of 10% growth only because it was able to control runaway expansion of capacity. India growth has been in large part as a result of deregulation, and as it let's go more and more of the regulatory mechanisms, is it going to be able to control growth when it gets red hot.

 

[true_indian]

That sort of is my point. China was able to sustain 30 years of 10% growth only because it was able to control runaway expansion of capacity. India growth has been in large part as a result of deregulation, and as it let's go more and more of the regulatory mechanisms, is it going to be able to control growth when it gets red hot.

I would think India would implement capital controls and raise the interest rates as and when needed to avoid that to happen..

India's RBI is very proactive in that regard.. I have full confidence in my government..After all India is blessed with some of the best economists in the world..

Also India is not deregulating all at the same time..they are doing it in phases..I would think it is because of the very thing you said and to protect local industry..

 

[ThatDamnGood]

The CPI is in Kerala and not in Tamil Nadu.

I do have this tendency of treating the southern Indian states are Tamil/Dravidian areas.

How Kerala diverged from Tamil Nadu - Sri Lanka

Kerala & Tamil Nadu were part of one area known as Tamilakam, and therefore shared the same language, culture and ethnicity.

Malayalam, Kerala`s main native language, believed to be originated as an offshoot of Tamil, the principal native language of neighboring Tamil Nadu]. However the language also has some peculiar similarities with Costal language of Karanataka. Malayalam (Derived from the local words: mala(means Forest) and aalam (means Kingdom)) as a composite phrase means the living/inhabitants of Forest Kingdom. This phrase, which in earlier times implied the geographical location of the region, was later replaced by Kerala.Kerala and Tamil Nadu diverged into linguistically separate regions by the early 14th century. The ancient Chera empire, whose court language was Tamil, ruled Kerala from their capital at Vanchi Karuvur (modern Karur in Tamil Nadu). Kerala at that time was composed of two Koduntamizh (deviant Tamil) regions, Venadu (later called Travancore) and Kuttanadu (Malabar). Allied with the Pallavas, they continually warred against the neighbouring Chola and Pandya kingdoms. Until the Bhakti age, the Sangam Tamil Cheras of the Kongu Nadu region in Tamil Nadu controlled both these regions. History says that (recorded im Mackenzie records) a Chozha princess was married to the Chera of Karur and he got a dowry of 48,000 agriculturists from the Chozha country. These people were settled in the then forested region of Venadu and Kuttanadu and thus the first agricultural settlements arose in what is called Kerala today.

A Keralite identity, distinct from the Tamils and associated with the Kerala Varmans empire and the development of Malayalam, subsequently evolved sometime during the 8th 14th centuries. Meanwhile, both Buddhism and Jainism reached Kerala in this early period. As in other parts of ancient India, Buddhism and Jainism co-existed with early Shaivite beliefs during the first five centuries. It was only after the Sangam period that Kerala saw large-scale immigration of Brahmins from the north. These influxes may have coincided during the Kalabhras, Rashtrakuta, Chalukya, Pallava and Hoysala invasions. By the 8th and 9th centuries, 2nd Chera kings inclined to Vaishnavism and some of them wrote great literary works in the stream of Vishnu Bhakthi. When Hinduism was revived by intellectuals like Shankara and by Bhakti movements all over India, Buddhism and Jainism merged into their mother religion.

EVOUTION OF THE MALAYALAM LANGUAGE AND LITERATURE
With Tamil, Kota, Kodagu and Kannada, Malayalam belongs to the southern group of Dravidian languages. Its affinity to Tamil is the most striking. Proto-Tamil Malayalam, the common stock of Tamil and Malayalam apparently disintegrated over a period of four of five centuries from the ninth century on, resulting in the emergence of Malayalam as a language distinct from Tamil. As the language of scholarship and administration Tamil greatly influenced the early development of Malayalam. Later the irresistable inroads the Brahmins made into the cultural life of Kerala accelerated the assimilation of many Indo-Aryan features into Malayalam at different levels.

The earliest written record of Malayalam is the /vazhappaLLi/ inscription (ca. 830 AD). The early literature of Malayalam comprised three types of composition. The earliest extant prose work in the language is a commentary in simple Malayalam, Bhashakautaliyam (12th century) on Chanakya`s Arthasastra. Malayalam prose of different periods exibit degree of influence of different languages such as Tamil, Sanskrit, Prakrits, Pali, Hindi, Urdu, Arabi, Persian, Syriac, Portuguese, Dutch, French and English. Modern literature is rich in poetry, fiction, drama, biography, and literary criticism

In the early thirteenth century /vattezhuthu/ (round writing) traceable to the pan-Indian brahmi script, gave rise to the Malayalam writing system, which is syllabic in the sense that the sequence of graphic elements means that syllables have to be read as units, though in this system the elements representing individual vowels and consonants are for the most part readily identifiable. In the 1960s Malayalam dispensed with many special letters representing less frequent conjunct consonants and combinations of the vowel /u/ with different consonants.

Malayalam now consists of 53 letters including 20 long and short vowels and the rest consonants. The earlier style of writing is now substituted with a new style from 1981. This new script reduces the different letters for typeset from 900 to less than 90. This was mainly done to include Malayalam in the keyboards of typewriters and computers.

 

[RobbieS]

I do have this tendency of treating the southern Indian states are Tamil/Dravidian areas.

How Kerala diverged from Tamil Nadu - Sri Lanka

Kerala & Tamil Nadu were part of one area known as Tamilakam, and therefore shared the same language, culture and ethnicity.

Malayalam, Kerala`s main native language, believed to be originated as an offshoot of Tamil, the principal native language of neighboring Tamil Nadu]. However the language also has some peculiar similarities with Costal language of Karanataka. Malayalam (Derived from the local words: mala(means Forest) and aalam (means Kingdom)) as a composite phrase means the living/inhabitants of Forest Kingdom. This phrase, which in earlier times implied the geographical location of the region, was later replaced by Kerala.Kerala and Tamil Nadu diverged into linguistically separate regions by the early 14th century. The ancient Chera empire, whose court language was Tamil, ruled Kerala from their capital at Vanchi Karuvur (modern Karur in Tamil Nadu). Kerala at that time was composed of two Koduntamizh (deviant Tamil) regions, Venadu (later called Travancore) and Kuttanadu (Malabar). Allied with the Pallavas, they continually warred against the neighbouring Chola and Pandya kingdoms. Until the Bhakti age, the Sangam Tamil Cheras of the Kongu Nadu region in Tamil Nadu controlled both these regions. History says that (recorded im Mackenzie records) a Chozha princess was married to the Chera of Karur and he got a dowry of 48,000 agriculturists from the Chozha country. These people were settled in the then forested region of Venadu and Kuttanadu and thus the first agricultural settlements arose in what is called Kerala today.

A Keralite identity, distinct from the Tamils and associated with the Kerala Varmans empire and the development of Malayalam, subsequently evolved sometime during the 8th 14th centuries. Meanwhile, both Buddhism and Jainism reached Kerala in this early period. As in other parts of ancient India, Buddhism and Jainism co-existed with early Shaivite beliefs during the first five centuries. It was only after the Sangam period that Kerala saw large-scale immigration of Brahmins from the north. These influxes may have coincided during the Kalabhras, Rashtrakuta, Chalukya, Pallava and Hoysala invasions. By the 8th and 9th centuries, 2nd Chera kings inclined to Vaishnavism and some of them wrote great literary works in the stream of Vishnu Bhakthi. When Hinduism was revived by intellectuals like Shankara and by Bhakti movements all over India, Buddhism and Jainism merged into their mother religion.

EVOUTION OF THE MALAYALAM LANGUAGE AND LITERATURE
With Tamil, Kota, Kodagu and Kannada, Malayalam belongs to the southern group of Dravidian languages. Its affinity to Tamil is the most striking. Proto-Tamil Malayalam, the common stock of Tamil and Malayalam apparently disintegrated over a period of four of five centuries from the ninth century on, resulting in the emergence of Malayalam as a language distinct from Tamil. As the language of scholarship and administration Tamil greatly influenced the early development of Malayalam. Later the irresistable inroads the Brahmins made into the cultural life of Kerala accelerated the assimilation of many Indo-Aryan features into Malayalam at different levels.

The earliest written record of Malayalam is the /vazhappaLLi/ inscription (ca. 830 AD). The early literature of Malayalam comprised three types of composition. The earliest extant prose work in the language is a commentary in simple Malayalam, Bhashakautaliyam (12th century) on Chanakya`s Arthasastra. Malayalam prose of different periods exibit degree of influence of different languages such as Tamil, Sanskrit, Prakrits, Pali, Hindi, Urdu, Arabi, Persian, Syriac, Portuguese, Dutch, French and English. Modern literature is rich in poetry, fiction, drama, biography, and literary criticism

In the early thirteenth century /vattezhuthu/ (round writing) traceable to the pan-Indian brahmi script, gave rise to the Malayalam writing system, which is syllabic in the sense that the sequence of graphic elements means that syllables have to be read as units, though in this system the elements representing individual vowels and consonants are for the most part readily identifiable. In the 1960s Malayalam dispensed with many special letters representing less frequent conjunct consonants and combinations of the vowel /u/ with different consonants.

Malayalam now consists of 53 letters including 20 long and short vowels and the rest consonants. The earlier style of writing is now substituted with a new style from 1981. This new script reduces the different letters for typeset from 900 to less than 90. This was mainly done to include Malayalam in the keyboards of typewriters and computers.

History aside, dont ever tell a Keralite he's no different than a Tamil. They wont like it one bit. You have to take my word for it.

 

[RobbieS]

That sort of is my point. China was able to sustain 30 years of 10% growth only because it was able to control runaway expansion of capacity. India growth has been in large part as a result of deregulation, and as it let's go more and more of the regulatory mechanisms, is it going to be able to control growth when it gets red hot.

As somebody pointed out before me, the govt. exercises strict monetary control via the RBI. An increase in duties, an increase in profit tax or an increase in repo rate; the RBI has several ways to control an overheated economy. Because the Indian economy is still very savings focussed, banks would have no problem squeezing money supply.

 

[jayron]

History aside, dont ever tell a Keralite he's no different than a Tamil. They wont like it one bit. You have to take my word for it.

Thats true. Malayalam and Tamil are more like dialects of the same language. The Tamils started a puritan movement to remove sanskrit elements from Tamil while Malayalam retained them. Malayalees prefer to claim Sanskrit to be their origin because it is a language not in use and no group can claim it while Tamil is still living . So ego doesn't allow Mallus to accept it. But I understand since we Tamils have a huge ego and no one should feed it anymore. Anyway, its off topic.

 

[Water Car Engineer]

Thats true. Malayalam and Tamil are more like dialects of the same language. The Tamils started a puritan movement to remove sanskrit elements from Tamil while Malayalam retained them. Malayalees prefer to claim Sanskrit to be their origin because it is a language not in use and no group can claim it while Tamil is still living . So ego doesn't allow Mallus to accept it. But I understand since we Tamils have a huge ego and no one should feed it anymore. Anyway, its off topic.

No we do not. And this is off topic.

 

[TenjikuKensei]

I don't doubt India will likely experience ~10% growth in the next few years but I don't see this coming from manufacturing/export lead growth no matter how good India's infrastructure becomes.

That might be the case, especially in the manufacturing sector, but in the end it does not really matter. Right now the reason for the massive investment in infrastructure is

1 To reduce the overhead (time lost while stuck in traffic, due to flooded roads etc etc) which takes a very noticeable toll on Indian manufacturing capacity.

2 To better connect centers of commerce and manufacturing and also open up new places for manufacturing parks

As of now (even though they are improving at a breakneck speed) the state of Indian infrastructure has a definite retarding effect on the nation as a whole. For example, if the roads were improved/more roads laid; people would spend less time stuck on the traffic and more on work. The main benefit India would gain from its infrastructure modernization/expansion would be in the area of lost man-hours.

even though I'm not a fan of simplistic math; lets do a thought experiment. Lets say that these infrastructure modernization saves a person 30 mins a day (this is surely a conservative estimate). This would translate to about ~3 hours per week per person.

3* population*number of weeks = 187 200 000 000 Man hours

A whopping 187 Billion man hours per year is lost due to the current deficiencies (keep in mind that this is a VERY conservative estimate as I only take into account the traffic/traffic related) issues and not stuff like the time it takes to say...fix an aging water-pipe...or to wait out a power-cut in the neighborhood, and so on)

This alone is nearly a 2% productivity gain for the nation as a whole; the actual gains would be considerably higher as this would trigger a compound effect in other areas of development as well. One could liken this to taking off the 20 kilo dumbbell one is chained to.Unless it is taken off, a person can still function; but at the cost of reduced efficiency as it affects pretty much everything the chained person who drags around the weight will do.


The real positive of a domestically induced growth is that it results in the growth of domestic manufacturing sector. In the long run it is always beneficial to be less reliant on foreign imports experts for economic growth as these things are harder to control. The housing bubble bust in America adversely affected China because a huge % of Chinese economy and ergo growth is tried to exports. India was not affected to the same extent as it growth is domestically driven.


Also the Indian stocks have been performing quite surprisingly well compared to their Chinese counterpart for the past two years. Even though stocks do not necessarily reflect economic growth (as a lot more factors play into this) they are instrumental in bringing in(or keeping out) foreign investment

http://www.theglobalguru.com/images/Shanghaicompositevsbsesensex8-3-10.JPG

Another important advantage of the Huge Indian investment in Infrastructure is the amount of foreign investment it could lure. Already a lot of foreign companies are chomping at the bit to invest in this venture. More investment (either domestic or foreign) would result in more work for Indians. Thus not only would the nation and its economy benefit from the improved infrastructure, but many jobs will be created as an added benefit.

There was debate a couple of months ago when China raised its min. wage of whether manufacturing is going to go places like India or Vietnam and the consensus from the panel of economists was No. Here are some of the response

I really do not know much about Chinese manufacturing policies vis-a-vis that of their neighbors so I cannot really make any predictions about this.

however, Nations like India who have a decidedly larger% of domestic demand would fulfill their needs by domestic production. Even though It would be great for India to find a manufacturing niche on the global market as it has done on the BPO/IT field, It has a huge market right at home...a potential 1.2 Billion customers. Hell...its a potential market(especially so in the long term) than the markets of America and Europe put together. Thus India does not really "have to" export in in order to grow...as long as it takes adequate measures to ensure the progress of its people and its economy, it will in turn be creating a market(albeit a homegrown one) for itself.


The benefits of this homegrown market can only be seen maybe 10-20 years in the future, in the meantime the way for "quick bucks" is obviously exporting to the wealthy nations of the west.Furthermore we should not lose sight of the long term vision...especially when the possibility exists that, faced with the swansong of their era, the western nations will bring about tighter and tighter import policies/taxes. Already we can see the clamor for "protectionism" growing in the west. One has to have a healthy separation between one's economy and that of the West if we are to survive their impending (economic) decline a few decades from now. As they say...it is definitely not good practice to put all eggs in one basket.