By R Gopalakrishnan*
*The writer is an author. His latest book, JAMSETJI TATA—Powerful Learnings for Corporate Success. Coauthored with Harish Bhat, was published in July 2024. His ID is rgopal@themindworks.me
During the highest growth years of India during the 2003-2008 period, I held the view that India is now unstoppable. My view today continues to be optimistic in the long cycle, but with bumps along the short cycles. Russian economist, Nikolai Kondratiev, had argued that nations move according to the waves of long cycles. People usually think about the shocks and imperatives of short cycles, but these occur within that long cycle.
India liberalized its economy approximately 15-20 years after China and has been less directive with reforms compared to China. How do we compare?
Around 2005, I reckoned that India was about 20 years behind China, based on consumption per capita of shampoo, soaps, electronics, steel, automobiles and so on, rather than macro-economic data. I still think that India is about 20 years behind China.
Twenty years ago, China consumed 220 million tons, and today, India consumes 175 million tons of steel. China now consumes 750-800 million tons of steel, but the per capita steel consumption in China is declining as the build-out of infrastructure has peaked. India’s per capita steel consumption doubled in just the last decade. In two wheelers, China and India are already level. China and India both consume about 18-20 million two wheelers per year. This rise of India is a part of the long cycle of the rise of Asia.
The Long Cycle:
The Russo- Japanese war of 1905 was the start of the Asian long cycle. In 1904-1905, the Japanese definitively defeated the Russians after centuries of western expansionism, colonialism, and mercantilism. The battle of Tsushima is famous because after centuries, an Asian empire defeated a European empire. In the early 1900s, Europe plus America accounted for over two thirds of the global GDP. Since the Russo-Japanese War, the west has declined to about one third, whereas the ‘rest of the world’ has climbed to two thirds! This is what I mean by the long cycle.
The master narrative for Asia changed after 1905 from ‘we are subservient’ to ‘we can overcome.’ Historians trace the influence of this event on litterateurs and intellectuals like Rabindranath Tagore, Bankim Chandra Chattopadhyaya, and Mahatma Gandhi in India, and Lian Chichow, Sun Yat Sen and Chiang Kai-shek in China. After 1905, other Asian nations rose sequentially through the long cycle. First, Japan, then Taiwan and South Korea, followed by the Asian Tigers in the 1970s onwards, followed by China. India has been on the rise over three decades.
A new master narrative was written after India’s independence from being a colonial subject to becoming an independent nation undergoing the challenges of consolidation and staying together. It is a miracle that, compared to other emerging independent nations, our multi-ethnic, multi-lingual, multi-religious India has stayed largely democratic and intact notwithstanding its imperfections. The focus from 1947 till 1991 was to hold together in the face of centrifugal forces. The leaders from 1947 did a superb job of this.
In 1991, with economic liberalization, the Indian master narrative was rewritten. What we are seeing since the 1991 period is the emergent nature of India within the longer Kondratiev cycle of Asian resurgence—growing bigger, showing confidence, and impacting the world. This master narrative is likely to continue playing out for a few decades ahead.
The Short Cycle:
During the last 20 years, the Indian stock market has returned more than 13% CAGR in USD terms, higher than any other large stock market. [1] Considering even the last 30 years’ data, Indian stock market has returned handsomely, and second only to US among the world’s ten largest stock markets.
The growing infrastructure investments within India and, likewise, the growing investors’ confidence both reflect in increased FDI inflows. From about USD 30-35 billion per year in FY 13, net FDI inflows have doubled to about USD 70-80 billion in recent years, representing 2-3% of an increasing GDP.
Over the 30-year period since 1990, corporate tax rates have declined from about 60% to about 25%.
In sum, despite the short cycle analytics and reportage about India’s social and political problems, there emerges a durable story of growth on a consistent basis in the 30 years since liberalization.
It may be noted that the GDP growth highs achieved during earlier years of 1991-2013 have not been matched.
Truth be told, an annual growth of 6-7% will not be sufficient for India to reach the status of ‘developed economy’ in my lifetime. This is so despite a contemporary smugness that India is growing fast compared to all her slowing-down peers.
What remains unfinished in India’s agenda?
Per Capita Income: The focus of India’s efforts must shift from GDP (ranked 5th in the world) to per capita income (approximately ranked 150th in the world). Increase in per capita income can trigger demand increases with several attendant benefits to the national economy.
Social Sectors: India needs a huge uptick into social investments in primary education and public health. Those states that invested more than the national average have forged ahead. Tamil Nadu more resembles the Southeast Asian tigers at the current stage.
Private Capital Investment: Private gross capital formation has lagged public investment. Ministers have harangued Indian industry to ‘release animal spirits’ but corporate action has not followed. It is worth pondering on the reasons.
Job Creation: If the above measures (and many others) are undertaken, there is a good chance that new job creation will match the uneven population growth in the country. Already the south shows signs of importing workers from outside the south.
Uneven Wealth Creation: India is at the phase of hugely unequal wealth creation. The top 5% of the population, numbering 70-80 million people, are on the fast track, while the others are stuck in the slow track.
India is benefitting from the compounding effect over 75 years, not merely recent decades. We have experienced 50 years of consolidation, and 25 years of the economy creating wealth; we now await what our traditional wisdom demands—a phase of upliftment for all.
For this, among other things, India needs several SHE companies—sustainable, humane, enlightened companies. Depending on a few is not good, especially because some wallow in a strong sauce of viscous and perpetual controversy.
[1] Behold the Leviathan, Saurabh Mukherjea and Nandita Rajhansa, Penguin, 2024
