The overwhelming presence of public sector is holding back the Indian economy, Morgan Stanley’s Ruchir Sharma said today. Citing the example of Indian banks, Sharma said the public sector’s share in the banking industry is two-thirds, which is way above the average of one-third in the emerging markets. “In India, the state remains meddlesome. The public sector’s presence in the economy is overwhelming, which is holding back the Indian economy,” he said. The head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment Management said while delivering a lecture on leadership organised by FICCI to commemorate its 90th anniversary. Sharma, a well-known author, outlined 10 rules that need to be assessed over a period of five years to determine an economy’s current and future outlook.
These parameters are what he describes as politics, role of state, income inequalities, concentration of wealth from a geographical standpoint, investment, inflation, exchange rate, kiss of debt, demographics and curse of the cover story. Talking about “Kiss Of Debt”, Sharma said the growth of private debt is one of the indicators of development and presently India’s debt levels are fine, which offers scope for growth.
He said sharp increase in debt can be worrisome as is in the case of China. India, he added, fares well in this regard. On exchange rate, Sharma said a currency that feels cheap and competitive is usually one that has been allowed to find its market value and therefore high exchange rate is not favourable for stable investment.
According to Sharma, the economic performance of a country tends to deteriorate when those at the helm of politics hold on to power for too long. It has been noted that reforms tend to be taken up in the initial two to three years of a new government, he said adding subsequently, the reform momentum slows down.