India’s premature maturity

Remember BRIC?

If not, you’re not the only one. In hindsight, it seems like a big marketing ploy.

The acronym was coined in the last decade to highlight the rise of four awakening giants – Brazil, Russia, India and China – destined to dominate the global economy by the end of this decade.

They have grown, for sure, especially China and India. But, in the process, growth has laid bare embedded problems. These are creating a jagged transition in their growth trajectories.

China is caught in a tit-for-tat tariff dispute with the US that is escalating into a technological arms race and a beggar-thy-neighbour currency war.

Russia is reeling under Western sanctions. Brazil is mired in a massive corruption scandal.

For its part, India has lot going for it. Growth, at a healthy clip of 7% in recent years, looks impressive. Yet, problems continue to dog its economic model.

One of them is crony capitalism under which corruption dominates political and business life. The infamous “licence Raj” under which politicians and their officials sold trading permits for personal gains is alive and well on the ground, despite high-level initiatives.

The other problem is corporate governance. Listed companies tend to be large family-owned businesses where the dividing line between ownership and management remains blurred. Family takes precedence over shareholders.

The most worrying problem, however, has centred on the veracity of official data on key variables like gross domestic product and unemployment. The former chief economic adviser to the prime minister, no less, has publicly voiced his concerns.

Growth has generated new wealth, which has found its way into mutual funds at a rate that will turn India into a key source of new funds in the next decade.

But it will not be a destination for funds from the West, unless it takes big strides towards cleaning up its political and business culture.

Rapid growth has caught the attention of yield-hungry foreign investors. But they don’t like what they see under the bonnet.

If you are interested in more details, and are a subscriber to the FT, please see my article in today’s FTfm (7th October 2019).


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