Indian Decade

50-50 India?

A top economist says India only has a 50 percent chance of breaking out into economic stardom. Is he right?

Thanks to excerpts I’ve read in Time magazine and the Economic Times, India’s most widely read business newspaper, Breakout Nations: In Pursuit of the Next Economic Miracles is definitely top of my list of must-read books.

Written by Ruchir Sharma, an economist at Morgan Stanley, the book essentially argues that emerging economies can’t be bunched into one homogeneous group, and that each country within this grouping is going to follow a different trajectory, with only some of them coming forward as “breakout nations” with sustained growth. He forecasts there’s a 50 percent chance of India being one of the breakout nations.

Sharma highlights worries over India’s much-touted demographic dividend, crony capitalism and what he calls its “premature welfare state tendencies.” In a blog review, Swaminathan Aiyar, a leading economic columnist, lauds Sharma’s insights enthusiastically. But Aiyar adds: “The book is a bit too pessimistic about India, which probably has more than a 50 percent chance of exceeding 7 percent growth.”

Without a doubt, the book’s timing couldn’t have been more appropriate. There are growing worries that India is fast losing its economic sheen, and needs to shake off the arrogant assumption that the world sees it as the next economic superpower. A perceived policy paralysis and the slow introduction of necessary legislation on key economic issues at the central government level have added to the narrative that India is gradually going off track. Such pessimism has been compounded by the controversy sparked by Kaushik Basu, the government’s chief economic adviser, who was quoted in his address at Carnegie Mellon as saying that major reforms are unlikely before the next general election, due in 2014.

The opposition parties were quick to accuse the government of being paralysed, and Basu quickly “clarified” that he was quoted out of context. He did, though, admit that the political compulsions of a coalition government had led to slower decision-making. Considering that the general election is two years away (and that even afterward, a strong, one-party government seems unlikely to be the result), and with the current government shackled by political pressures pulling it in different directions, could Sharma actually be right?

India’s future really might be hanging in the balance.