Another Bric on the Fall

Maybe there’s a reason economists are shifting from BRICS (Brazil, Russia, India, China and South Africa) to CARBS (Canada, Australia, Russia, Brazil and South Africa) as the benchmark-nations for sustainable growth. The former represent just strong economic growth, while the latter are countries with solidly-in-demand natural resources and the market mechanisms to generate the necessary underlying revenues. Ostensibly missing from the latter list are India and China (even though the latter is rich in “rare earths” that are necessary components in many manufacturing processes, especially automotive and electronic). These two nations have developed strong economies based on the ability to manufacture efficiently (read: cheap, but skilled, labor) or handle outsourced service functions. Unfortunately, as the global economy has plunged, so too has the demand for manufactured goods and outsourced services.

I’ve already blogged about China’s “statistics” (Math Debaters posted June 27^th), and even her posted “official” projected annual growth rate has slipped from 9.1% to a current 7.7% (and falling). The huge pile up of inventory and the unused coal sitting outside PRC power plants as manufacturing demands less electricity suggest the numbers may well be lower.

But the “other” country that failed to make the transition from BRICS to CARBS is India, and the economics in this South Asian nation may just bring down the government. Despite the fact that we perceive a unified central government in India that speaks for all in the nation, India is almost entirely a product of fiefdoms (called “states”) run by powerful governors (called “chief ministers”) that follow the local scene almost entirely at the expense of national priorities. The Prime Minister, an Oxford economics PhD (he also attended Cambridge) and a man who has done a great deal to align India and the United States, is teetering in his second term.

“Under [Prime Minister Manmohan] Singh, economic reforms have stalled, growth has slowed sharply and the rupee has collapsed. But just as damaging to his reputation is the accusation that he looked the other way and remained silent as his cabinet colleagues filled their own pockets… [T]he image of the scrupulously honorable, humble and intellectual technocrat has slowly given way to a completely different one: a dithering, ineffectual bureaucrat presiding over a deeply corrupt government.

Every day for … two weeks [in late August and early September], India’s Parliament has been adjourned as the opposition bays for Singh’s resignation over allegations of waste and corruption in the allocation of coal-mining concessions… Singh finally did open his mouth… to rebut criticism from the government auditor that the national treasury had been cheated of billions of dollars after coal-mining concessions were granted to private companies for a pittance — including during a five-year period when Singh doubled as coal minister…

“The story of Singh’s dramatic fall from grace in his second term in office and the slow but steady tarnishing of his reputation has played out in parallel with his country’s decline on his watch. As India’s economy has slowed and as its reputation for rampant corruption has reasserted itself, the idea that the country was on an inexorable road to becoming a global power has increasingly come into question.” Washington Post, September 4^th.

Manmohan Singh, a member of the Sikh minority, is one of the longest serving PM’s in India’s history, but he is perceived as a technocrat who lives under the giant shadow the Gandhi family that hovers above him. He moved from Finance Minister to PM when his economic expertise seemed to be the solution India needed. But even his own Congress Party has dealt with him as a second class citizen, and his own self-confidence seems to have plunged from the in-fighting that has surrounded his days in power. Resented for his efforts to deescalate tensions with traditional enemy Pakistan, Singh seems to have withdrawn into a shell, just when his country seemed to need economic guidance the most. A huge power outage in August – rendering 600 million people without electricity – seemed to be an exclamation point in a nation with no one at the rudder.

“Singh became even more quiet at his own cabinet meetings, to the point of not speaking up for the sort of economic changes many thought he ought to be championing… ‘His gut instincts are very good, but sometimes he suffers from doubts about the political feasibility, about getting things done,’ said Jagdish N. Bhagwati, a Columbia University professor who has been friends with Singh since their Cambridge days… Singh will go down in history as India’s first Sikh prime minister and the country’s third-longest-serving premier, but also as someone who did not know when to retire, [political historian Ramachandra] Guha said.” The Post.

Still, the Indian economy seems destined to fall further. Corruption and a legendarily-difficult bureaucracy, coupled with exorbitant real estate costs that make housing and office space increasingly unsustainable, have led more than one western investment bank to reduce its local staffing and downsize local investing as “too difficult.” Other multinationals also view the investment opportunities in India as decreasingly attractive, withdrawing funding in favor of more hospitable international opportunities. India need a B-12 shot fast or this economic miracle could just result in a very-long-term disaster. As one of the world’s great democracies, and a friend to the United States, India is a country we need to see succeed… and sustain that success as a model to the rest of the developing world.

 I’m Peter Dekom, and the economic realities in South Asia will have a very real impact on our own economic growth.