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Hopefully, we will be able to learn lessons from other countries and not repeat the mistakes they made

In the Chinese language, the word ‘crisis’ is written using two Mandarin characters – one meaning ‘threat’, the other ‘opportunity’.

The more one attempts to understand the impact and implications of the current financial tsunami sweeping across the world, the more one is thankful that India will, to some extent, be protected from the worst ravages of what is arguably the biggest-ever crisis that has confronted international capitalism.

Paranjoy Guha Thakurta

If the troika of Prime Minister Manmohan Singh, Finance Minister P Chidambaram and Deputy Chairman of the Planning Commission Montek Singh Ahlulwalia had had their way, the Indian economy would have at present been far more vulnerable to the vicissitudes of the international economic crisis than it is at present. Why? If the liberalizers would have had their way, the following changes may have taken place in the functioning of the country’s financial sector.Parliamentary approval would have been obtained to raise the cap on foreign direct investment in Indian insurance companies from 26 percent at present to 49 percent

• A new regulator for pension funds would have been created to break the monopoly of the Employees’ Provident Fund Organization
• More pension funds would have been invested in stock markets
• The Union Government’s equity holding in public sector banks would have come down below 50 percent; and
• The cap on the voting rights of foreign investors in Indian banks, which is currently 10 percent irrespective of the size of their shareholding, would have been lifted

If all these moves had fructified and if the country had moved closer towards full convertibility of its currency on the capital account, India’s financial system would have been more intimately integrated with the rest of the world, and the US in particular. This would have intensified the impact of the world financial crisis on the country. So, we in India are a bit better off. But in the globalized economic environment we live in, we are not insulated.

Foreign institutional investors have run away with their funds resulting in the exchange rate of the rupee crashing from under Rs 40 to one US dollar in June 2007 to almost Rs 50 for a dollar in the third week of October. The sensitive index of the stock exchange at Mumbai took nearly two years to go up from 10,000 to nearly 21,000 in early-January; it took barely nine months for the Sensex to plummet below the psychological barrier on October 17.

Given all the gloom and doom, is there reason for optimism? India was supposed to have a mixed economy, one that assimilated the best elements of both capitalism and socialism—at least that is what our first Prime Minister Jawaharlal Nehru wanted. More than six decades later, many Indians believe we took the worst of both worlds. How then can the world’s largest democracy show the way to the rest of the world?

Currently coexisting in India is a wide range of political and economic systems including different forms of feudalism, capitalism and socialism. It is often argued that private capitalist enterprise in the country was, until the 1990s, constrained by excessive bureaucratic controls. Simultaneously, the government was unable to provide basic health-care and elementary education to the bulk of the people in the manner socialist countries (from the former Soviet Union to Vietnam and Cuba) were able to.

The one generalization, it is said, that can be made about India is that no generalization can be made about this subcontinent of over a billion people. The most commonly used cliché about India is that this is a country of crazy contrasts. We, as the world’s second most populous nation-state, are very rich and very poor, extremely educated and extremely ignorant. The fact that India has remained undivided is significant since this is arguably the world’s most heterogeneous, and at the same time deeply divided, country—a nation that categorizes its peoples not only along traditional lines of class, race, region, religion and language but also (uniquely superimposed on the other divisions) on the basis of an ancient and oppressive caste system.

A report prepared in April 2004 by US financial services bigwig Goldman Sachs observed: “India is often characterized as a country of contradictions. This idea is exemplified by the popular phrase that India accounts for close to a third of the world’s software engineers and a quarter of the world’s undernourished.” The last mentioned proportion is reportedly now closer to one-third, if recent reports of United Nations organizations are to be believed.

We in India drew a spurious differentiation between the ‘public’ and the ‘private’ sectors. Thus, public sector undertakings were ‘public’ only in name and often served as the personal fiefdoms of politicians and bureaucrats in power. The state thus became the ‘private’ property of the privileged few who wielded authority. At the same time, private corporate groups prospered, thanks to a generous infusion of funds from government-owned banks and financial institutions while promoter groups and families would invest barely six percent or eight percent of the total equity capital of companies whose managements were controlled by them. Not surprisingly, the losses of the public sector got translated into the profits of the private sector.

It is easy to be pessimistic and believe that the status quo would, by and large, continue. Yet there is still hope that future generations in India may still be able to learn lessons from other countries and their economic systems and not repeat mistakes made by others. With the ongoing economic crisis, more and more countries are realizing the virtues of a balanced approach.

The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.

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