Mr. Ruchir Sharma, best-selling Author and Head, Emerging Markets Equity and Chief Global Strategist, Morgan Stanley Investment Management, today outlined the 10 rules that need to be assessed over a time period of five years to determine an economy’s current and future outlook, while delivering a special lecture on leadership organized by FICCI to commemorate its 90th anniversary this year.
These parameters are what he describes as politics; role of state; income inequalities; concentration of wealth from a geographical standpoint; investment; inflation; exchange rate; kiss of debt; demographics; and curse of the cover story.
Politics: Mr. Sharma said that economic performance of a country tends to deteriorate when those at the helm of politics hold on to power for too long. It has been noted that reforms tend to be taken up in the initial two to three years of a new government. Subsequently, the reform momentum slows down. India on this account ranks 6 on a scale of 1 to 10, he said.
Role of state: In India, the state remains meddlesome. The public sector’s presence in the economy is overwhelming, which is holding back the Indian economy. Citing the example of Indian banks, Mr. Sharma said that public sector’s share in the banking industry is two-thirds, which is way above the average of one-third in the emerging markets. Thus, India has a low rank of around 2-3.
Income Inequalities: According to Sharma, India has fast gained ground as it has lots of ‘good billionaires’, who have made their fortune by creating new businesses, as opposed to those who became ‘bad billionaires’ by multiplying their wealth with the help of the government and political connections. Therefore, he rates India 7 in this arena.
Concentration of Wealth from A Geographical Standpoint: Emergence of new cities and urbanization are needed for distribution of wealth. But in India for the last two to three decades, no new cities have come and there is great disparity in the wealth of states. Hence, Mr. Sharma ranks India at 3rd or 4th place.
Investment: Manufacturing plays a key role in success of a country but a commodity-based economy would do good in the short term only. In this area, India’s track record has been a mix.
Inflation: High inflation is bad for any economy and India has greatly improved its ranking over the years. Under UPA II, India’s inflation rate was at an all-time high but now that rates have moderated.