Author and equity market strategist Ruchir Sharma says that he applies ten parameters to diagnose an economy's current and future outlook. These ten rules need to be assessed over a period of five years. He has rated India on each of these parameters.
The first one of is politics. "Economic performance of a country tends to deteriorate when those at the helm 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. Subsequently, the reform momentum slows down. India, on this account, ranks six on a scale of one to 10", says Sharma.
The role of state comes second. In India, the state remains meddlesome. The public sector’s presence in the economy is overwhelming, which is holding back the Indian economy. Citing the example of Indian banks, Mr. Sharma said that public sector’s share in the banking industry is two-thirds, which is way above the average of one-third in the emerging markets. Thus, India has a low rank of around 2-3.
Income inequalities: According to Sharma, India has fast gained ground as it has lots of "good billionaires", who have made their fortune by creating new businesses, as opposed to those who became "bad billionaires" by multiplying their wealth with the help of the government and political connections. Therefore, he rates India 7 in this arena.
Concentration of wealth from a geographical standpoint: Emergence of new cities and urbanisation are needed for distribution of wealth. But in India, for the last two to three decades, no new cities have come and there is great disparity in the wealth of states. Hence, Sharma ranks India at third or fourth place.
Investment: Manufacturing plays a key role in success of a country but a commodity-based economy would do good in the short term only. In this area, India’s track record has been a mix.
Inflation: High inflation is bad for any economy and India has greatly improved its ranking over the years. Under UPA II, India’s inflation rate was at an all-time high but now that rates have moderated.
Exchange rate: 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 favorable for stable investment. In India, 6000 domestic millionaires left the country last year as against 4000 a year before. However, with foreign investments on a rise, India stands at a moderate standpoint.
Kiss of debt: 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. Sharma said that sharp increase in debt can be worrisome as is in the case of China. India, he added, fares well in this regard.
Demographics: India has the demographic dividend with a young working population but it needs to be channelised effectively to make it work in India’s favor.
Curse Of The Cover Story: Any country that ends up on the cover of a leading magazine is likely to have peaked and is bound to have a bad time in the future. Sharma said that this happens as a positive story makes the leaders complacent as trends do not last for long. On this parameter, India is somewhere in the middle rank as it is neither gearing towards big bang reforms nor doing poorly.
Sharma was delivering a special lecture on leadership organised by FICCI to commemorate its 90th anniversary.
