Is it something to do with the Indian psyche that we invariably feel much worse than we actually are? For instance, foreigners are showing far greater confidence in our economy even as domestic constituents indulge in endless self-flagellation. How else do you explain the Sensex crossing the 18,000 mark on Thursday amid so much gloom generated by the scam-ridden political and business elite. The persistent gloom is particularly fuelled by the utterly unhappy middle class, which has a tendency to imagine the worst. Since foreigners dominate the stock market investments, it can be said that they are seeing an opportunity where domestic players don?t. India?s stock market has been the best performing among all the emerging economies this year, having grown about 16% since January. The Shanghai Composite Index, a benchmark for Chinese stocks, has shown negative growth so far this year. However, the Pew Global Attitudes Survey says the Chinese people overwhelmingly think positively about the prospects of their economy. Why do Indians think otherwise?
If the stock market is seen as the most reliable indicator of things to come, the India story doesn?t seem all that bad, with all the known problems that we face today on the political and fiscal front. But, for some reason, a general mood of pessimism has gripped the people. Even incorrigible optimists, like ICICI chairman KV Kamath, appear a bit hesitant to speak with the same conviction about the India story as they would have done earlier. So, what is going on?
The Pew Global Attitudes survey has this to say about India: ?The economic euphoria in India over the last few years, inspired by the country?s seemingly inevitable march towards double-digit growth, has suddenly soured. Although still relatively upbeat compared with many other countries, the Indian public?s confidence in their country?s direction and future economic growth has declined significantly compared with just a year ago. In a world where the Americans, the Europeans and even the Chinese have reason to worry about their economies, it is the Indians who have lost the greatest faith in their economic fortunes.?
According to the survey, Indian pessimism stands out because only 45% of Indians think the economy will improve in the next 12 months whereas more than 80% of Chinese and Brazilians think their economies will bounce back by 2013. Even Americans are more optimistic than India about their recovery in the coming year!
Prime Minister Manmohan Singh must really worry about this because he had recently spoken of how the psychology of economic agents (animal spirits) plays a critical role in reviving the economy. If the Pew Survey is to be believed, at least the domestic optimism is waning.
There is a silver lining, though. Some 49% Indians still believe economic conditions are good. The challenge is to expand this segment a lot more. Paradoxically, there appears to be much more pessimism in big cities like New Delhi and Mumbai where the dominant middle class elite has done very well and greatly benefited from the economic boom of the last decade.
I was recently at a two-day seminar on India?s infrastructure development in Goa, where a few hundred participants?ranging from businessmen, company executives, bureaucrats, regulators, lawyers to journos?indulged in a lot of self-flagellation about how the India growth story was suddenly unravelling due to a host of problems faced by the country. A woman from the audience, however, got up and argued that there was really no reason for such great pessimism as was being expressed by participants all round. At that moment, it did occur to me that most of participants in the seminar hall had done quite well for themselves during the boom period until a year ago. So, why are they expressing so much gloom? Maybe the higher base effect psychology kicks in, where those who have done well feel more disappointed that the pace of change is not the same any more.
Conversely, one sees a lot more optimism in small-town India where petty businesses and millions of other aspiring individuals are trying hard to make it good in their lives. It is possible that the 49% in the Pew Survey who feel economic conditions are still good come from this small-town category.
There is optimism among this lot because wages continue to rise across categories such as construction workers, plumbers, carpenters and a whole range of other blue-collar service providers who represent the bulk of the unorganised sector in India. On the other hand, wage expectations have got considerably lowered among the white-collar employees in the financial sector, and the corporate world in general. You ask any researcher or sales person in a brokerage house or a consulting firm in Mumbai and she would tell you the story of wage stagnation in their category. But try and get a good mason, plumber or carpenter for any construction work and you will surely pay 15-20% more than you did a year ago.
So, there are clearly two categories of aspirations and expectations. India will have to bank on the optimists (about 50% as per the Pew Survey) who still think economic conditions are good. When we say the fundamentals of the economy are still intact, we actually talk about the vast majority of the workers in the unorganised sector (the more optimistic consumers) who will fuel future demand. Therefore, policy and institutional reforms must also focus on them, proportionately. The promised India story is embedded there.
mk.venu@expressindia.com