ON "THE MYTH OF INDIA'S LIBERALIZATION"

GLASS HALF EMPTY

It was the title in quotes above  that caught my eye while reading one of my favorite Indian blogs, "India Uncut", by Amit Varma.  The post that follows is an article that has been published as an op-ed piece in the Asian Wall Street Journal over the weekend, under the title "India's Far from Free Markets" (registration required).  While both are essentially the same article, I like the first title of the blog post better.  An excerpt:

While part of India has benefited from being opened up to foreign products and influences, most of the country is still denied access to free markets and all the advantages they bring. India opened its markets in 1991 not because there was a political will to open the economy, but because of a balance-of-payments crisis that left it with few options. The liberalization was half-hearted and limited to a few sectors, and nowhere near as broad as it needed to be.

Amit then goes on to provide some concrete reasons for this more realistic and pragmatic view, which are conspicuously absent in most rosy economic articles today when it comes to the subject of India as a growth market.

Here's another passage that particularly resonates for me:

Another disincentive to urbanization is how hard it is for poor people to get legal accommodation in the big cities. In Bombay, for example, an urban land ceiling act and a rent-control act make it virtually impossible for poor migrants to rent or buy homes, and they are forced into extralegal housing. The vast shantytowns of Bombay--one of them, Dharavi, is the biggest slum in Asia--hold, by some estimates, more than $2 billion of dead capital. For most of the migrants who live in these slums, India hasn’t changed since 1991.

As Peruvian economist and author Hernando de Soto points out in his thought-provoking book, "The Mystery of Capital:  Why Capitalism Triumphs in the West and Fails everywhere else", the poor in most of the developing world have accumulated a fair amount of wealth collectively.  Most of it lies fallow though, tied up in legal issues, red tape, and institutional inadequacies. 

If some of it can be unlocked, it would provide a "trickle-up" economic effect that could invigorate these economies and provide an opportunity for the broader, much larger poorer segments of these countries like India and China, who thus far have been spectators from the outside looking in, while many of their "chosen" countrymen zoom towards developed world middle class status.  The last major election in India essentially gave that message to the party that has taken credit for India's economic renaissance:  "don't stop the train, but give us a way to get on". 

Ironically, as I've touched on in another post, many in Europe are conveying another message to their political leaders regarding the EU:  "stop the train to global competitiveness...we want to get off for our siesta now".

Returning to the subject at hand, while I believe that Indian and China represent two of the most important growth economies of this new century, I don't think it's going to occur in a nice, straight, "up and to the right" exponential growth curve.  There are going to be setbacks, perhaps big ones, with corrections that will shake the confidence of all but the most stalwart believers. 

Amit's article gives a much-needed insider's perspective on many of the things that could give India's growth and potential some nasty interruptions.  It's a must-read for any one with even a passing interest in global economics and India.  Recommended.

P.S.  Sepia Mutiny, another "must-read" India blog has a take on Amit's article/post here...provides some additional nuance.

Comments

[Edwin]

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