India’s renaissance moment
As countries around the world struggle to maintain order amid the pandemic, India is well placed to take charge in these uncertain times.
- The extent of the impact of the coronavirus in India is relatively contained if one were to look at the published numbers in western countries.
- Recent criticisms on China could result in a marked shift in economic flows vis-a-vis China and trigger a trend of long-term social discord within the country.
- Deep structural reforms are the way to go for India to enable entrepreneurship to flourish and pave the way for a new model economy.
The coronavirus pandemic continues to have tragic consequences for the health of the citizens of the world at large. The virus has had a very large impact on the health of those domiciled in countries in Europe and the US, with the extent of the impact on India, thus far, being relatively contained if one were to look at the published numbers.
While very tragic, the health impact of COVID-19 is clearly likely to be just a pinch of that of the Black Death pandemic of the 14th century that wiped out tens of millions of people from the face of the earth. However, the present pandemic could well rival Black Death, when it comes to the change of societal and economic order of the world, in the decades to come.
Imagine a tapestry that lays down the societal and economic development of the world following the advent of the Black Death in the 14th century in Europe, leading up today’s world where the global leadership is set to close borders and nationalise financial markets.
Reflect on where India stands in this picture, with its resilience through generations of exploitation by foreign powers, deep-rooted culture, legacy of thought leadership, diverse and tolerant populace, rich resources, unparalleled demographics, an entrepreneurial culture that has consistently created and executed on opportunities, and importantly very strong leadership. This could well be India’s renaissance moment, one that uniquely takes us back to the roots of doing things right, to take India and the world forward to the societal and economic model for the future.
Trouble in the West
For decades, Europe and the US have seen a combination of extreme debt-led consumerism furthered by governments and Central Banks, followed by an approach where they throw the economic kitchen sink at every possible instance, from the time of the global financial crisis to this pandemic.
This is leading to extreme levels of public debt to an extent where the relative safety of their financial systems could well come into question. They may likely see their consumer spending led economies requiring consistent delivery of helicopter money at record low rates to keep the spending going, with a consequent equity bubble that keeps widening the economic divide.
It’s one large and vicious economic loop, with no clear answer or timeframe on how and when things will normalise. On the other hand, there is also the case for social conflict, and even unrest, as the pre-existent economic divide together with the fallout from the coronavirus pandemic makes people increasingly go up in arms against governments, and the lack of decisive and visionary leadership leading to lack of trust and questioning of authority. The scene in the West, especially in the US, is set for us to even consider the possibility that financial markets could be nationalised – think of the Fed setting up SPVs owned by the Government to fund the purchase of junk bonds of fallen angles – to contain the implosion, while attempting to handle a discordant society.
China faces criticism
China has seen containment from the virus in the past month, while the initial origin was at Wuhan, and the economy has opened once again. There are, however, criticisms on China both from external quarters, and from within.
This could result in a marked shift in economic flows vis-a-vis China, with things right from supply chains to capital controls being revisited, and more importantly trigger a trend of long-term social discord within the country.
If suppressed citizens seek more freedom, with the world isolating China, one could even see significant political upheavals there. All this could prevent China from establishing any real form of global leadership of consequence.
If we contrast all of this with India, where the economy has admittedly underperformed potential for a long time, we could well be at the cusp of a dramatic transformation.
The past five years have seen structural reforms such as the introduction of the bankruptcy code, the GST, and a drive to cleanse corruption. While the country has also been going through a cyclical slowdown, the banking system has been relieving itself of most of its corporate bad loans.
We have also seen the initial wave of positive change in identifying governance lapses in the corporate sector, weeding out of less productive companies, and marked changes to the erstwhile ways of “doing business in India”. India continues to have one of the highest growth rates on a nominal and real basis, for any large economy, with upward sloping and meaningfully positive real interest rates, and moderate inflation. All of this, without really venturing into a splurge in public spending, or initiating our version of QE.
Deep structural reforms are the way to go for India, leveraging where we stand, to enable entrepreneurship to flourish and pave the way for a new model economy. Areas of emphasis include creating policy frameworks for decentralised, state-led economic growth, enabling special economic zones to manufacture for the world, rethinking welfare schemes to bridge the economic divide, significantly enhancing public spending in healthcare and education, reviving public-private partnerships in areas such as infrastructure, leveraging India’s technological advantage to enhance productivity, reforming the agricultural sector to enhance our ability to feed India and the world, creating the basis for a deep and well-governed financial sector, and seriously reforming our bureaucracy.
The rest of the world is in no place to take charge. It’s our opportunity to lose.
B.V. Krishnan is the former CEO of KKR India Financial Services.