India is no China

104RuchirSharma Ruchir Sharma
  • The advantage that India has today, apart from the demographic, is that, at least in the private sector, our debt levels are manageable

The working-age population growth is down to 1 per cent. This is a big deal. In that regard, countries that are seeing an above-average growth of working-age population have a competitive advantage. Demographic is a necessary but not sufficient condition for high economic growth.

This is just a slow-growth world everywhere. I don’t want to be in this 2030 or 2040 kind of forecasting because I feel that none of us will be here to be accountable for that. I believe in looking at the next five or seven years.

When I look at the rules today, India looks relatively better than many other countries. I break the countries down to good, average and ugly. India ranks more on the good side. I concede that about India. But I say let us keep our expectations about India in check. The tagline of my book [The Rise and Fall of Nations] is that India has consistently disappointed the optimist and the pessimist. So, we have to be careful about that.

When the optimism gets too high, some people ask: With China’s growth rate falling, will India be the next economy to hold the world up? I don’t see evidence of that. We are not the next China. We don’t see any evidence of that. When it happens, we will celebrate. But let us not talk about India being the next China. So, keeping the right perspective and the expectation in check is very important.

The comparative advantage that India has today, apart from the demographic, is that, at least in the private sector, our debt levels are manageable. At a time when the world’s levels have gone up a lot, India’s share of debt as a share of its economy has not gone up much in the past few years. Even our public debt, which is high compared to other countries, has stabilised now as a share of the economy. So, I would say those are two big things as advantages.


The other thing is that our inflation rate is finally under some control. It had become unhinged: the inflation rate was skyrocketing and well above the average of emerging markets. The fact that the inflation rate is now under control is something else I would rank as a positive, as far as India is concerned.

One other thing I think about India is: the more time I spend in Delhi, the more pessimistic I feel about the country; the more time I spend out of Delhi, the more optimistic I feel about the country. At the state level, there is much more action going on. There has been a qualitative improvement in the way states are being run, with much more decentralisation and a much more federal structure. Today, state leaders from Andhra Pradesh to Haryana come to New York to pitch for investment. That is a big change from how things used to be.

I would say that there is definitely better leadership at the state level, where development has increased as a focus, compared to where it was. It has not reached where we want it to be, but I travel India enough, I do these election trips every year with a whole bunch of people, and I see the evidence that there has definitely been improvement, that the importance of development has improved relative to caste in India.

I was in West Bengal. I went for the elections there and saw an improvement as far as development is concerned. West Bengal was like the backwater of development, but now its growth rates have shot up meaningfully. They clearly used that as a plank to come back.

No Indian election is fought on one factor, other factors are used. In India’s case, we are seeing that, in the north and in the east, things have improved. And, in the south, some of the states have fallen back—Tamil Nadu being the classic case. This state was at the forefront of the development process for many years. I travelled to West Bengal and Tamil Nadu and I felt that Tamil Nadu had clearly fallen back in the growth sweepstakes. I would say states like West Bengal and Bihar are where the pickup has happened. Even in Rajasthan and Madhya Pradesh, growth rates have picked up from where they were 10 to 15 years ago.

I am optimistic about India and the entire south Asian region, which is looking better than other regions. That is partly because growth everywhere else has really slowed down.

Sharma is head of emerging markets equity team at Morgan Stanley Investment Management. His most recent book is The Rise and Fall of Nations.
As told to Mandira Nayar.

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