At an e-Adda held this week, Ruchir Sharma, Head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment Management, spoke on India’s economic future, the government’s
response to the pandemic and his new book, The 10 Rules of Successful Nations
Ruchir Sharma, Head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment Management
On why India couldn’t become a breakout nation
In Breakout Nations (2012), my main thesis was that, at that point in time, the emerging markets, collectively known as BRICS, are way overrated. And I had said that India will not be able to grow at a sustained pace of about 7 per cent. In fact, in my list, India was not mentioned as one of the breakout nations. I said, at best, we have a 50 per cent chance of being able to get into the club of breakout nations this decade. And the true emerging nation in the world is the United States, because the book ended on the note that technology is the key to long-term progress.
This is the point I had made in my last book — Democracy on the Road (2019). There have been about 30 instances when a state’s economy has grown at a pace of about 8 percent over the chief minister’s five-year term, but the probability that the CM gets reelected, after delivering a growth rate as high as that, is still only 50 per cent. That is a very telling statistic. In this country, the link between politics and economics is very loose, and the Prime Minister probably has figured this out. If you look at other countries, especially in the West, the right-wing parties tend to be business-friendly or market-friendly. In India’s case, unfortunately, we don’t have such a party because everyone believes in socialism and statism.
On whether the corporate sector’s leverage over the government has increased
This pandemic has taught us that the role of the state has increased further. In India, look at the way the state had to turn more intrusive in the way it has dealt with the pandemic. We are still dealing with a maze of bureaucratic laws — when you can open a factory, or not. India typically reforms but has its back to the wall. I don’t think that the corporate sector in India has any more leverage over the government than it did in the past.
On the time to make bets on India
In India, one of the things I’m finding a bit underwhelming is that the choices are getting more and more limited. A unique strength of India, for many years, was that the number of good quality companies that you could invest in was always very large, compared to other developing economies. Unfortunately, in the last three to four years, that number has shrunk a lot, either because some of the corporates have been too leveraged and they’ve been forced to do what they can to get out of that leverage, or as I said, a lot of the wealth being created in the so-called new economy, is really happening at two ends.
On whether democracy is better for growth
If you look at the very fast-growing economies in the world, after World War II, the economies which achieved a growth rate of more than 6-7 per cent were largely authoritarian regimes, whether it was China or before that, in the case of Korea and Taiwan. But the downside is this: if you look at the biggest basket cases in the world, they were also authoritarian regimes, whether it was in Africa or Latin America. Under authoritarian regimes, you get extreme outcomes. If the leadership at the top gets the formula correct and is prioritising economics, they can end up creating very high economic growth, because they can get a lot done. On the other hand, because the leadership at the top often lives in an echo chamber and in a bubble, if they get something wrong, there’s no one to criticise them, and they have the power that they can really take the country down the tubes. Under democracy, you get much more smooth outcomes, you will not get explosive growth because you don’t have the political capital to push through that very hard growth. On the other hand, you also don’t get complete basket cases because democracy provides some checks and balances in a system.
On the demand by economists to spend more
I am much more sympathetic to the government’s stance, which is on the fiscal front, than to what the experts are saying, because I find that in India’s case — this is a line that I’ve borrowed from one of my favourite movies, Top Gun — that our ego keeps writing cheques, which our body can’t cash, which is why we keep thinking we have lots of money. If the US is doing stimulus of X per cent and the UK is doing stimulus of Y, why can’t we do a similar stimulus? And my point is that we are still a developing country. But one thing we do know is that high inflation, for sure, kills economic prospects… and I think that the government is wise to junk such advice that they could just print their way out of trouble.
On the new farm bills
In principle, what the government is trying to do in terms of freeing up the agricultural sector, you can argue that it is a positive step. But the method in which it’s done has really rankled a lot of people. I’m glad that the word reform is back in the governance lexicon, but whether it should have been done this way, and the method is something that a lot of people are debating.
On India’s growth prospects in the foreseeable future
As far as India is concerned, the line that I’ve always used and I don’t feel compelled to change it, is that this is the country that consistently disappoints the optimists and the pessimists. That’s how it’s going to be. The short answer is that I don’t think India is going to grow at a pace of more than 5 per cent on a sustained basis for the foreseeable future, because growth is coming down across the world, and for a developing economy with a per capita income of less than $5,000, if you’re able to grow at even 5 per cent, that’s going to take a lot in an era where you have the globalisation, but you already have high debt levels. I think that’s going to be quite a challenge.
On identity politics and polarisation the world over
The extent of polarisation in the US is unparalleled. In fact, a friend of mine described it as Civil War Lite. Because I’ve never seen such polarisation in America, and the data bears it out that 90 per cent of Republicans back (Donald) Trump; in the past, that number was never as high. On the other hand, more than 90 percent of Democrats hate Trump. You never had numbers like this in American political history. And it’s been systematically getting more polarised over the last four years. This is a bit worrying because even economic facts are now subject to political ideology.
On the upcoming US elections
The single best indicator that I look at on a daily basis are the betting odds. So, the betting market today, I think, is about 56 per cent for Biden and 44 per cent for Trump. That is the best indicator on how to read what’s going on.