Is India Rising Or Falling? Ruchir Sharma Talks To Prannoy Roy
Every day, every hour, every moment we are blasted with information, data, views, opinions and forecasts on the economy. It's difficult to tell the difference between fact and fiction - between reality and noise. What makes one nation rise and another nation fall? What leads to success and growth - and what leads to failure and stagnation? In this world of constant change - will India rise or will India fall? Author Ruchir Sharma - whose new book has hit the New York Times best sellers list - looks at 10 key factors that make the difference between success and failure. Does India have what it takes to be a winner? In this special show, Prannoy Roy questions Ruchir Sharma: among all the nations across the world - Is India Rising or Falling?
Here are the highlights:
Prannoy Roy: Is Brexit out of the ordinary or is there a pattern in that?
Ruchir Sharma: If you look at the world, it was severely disrupted by what happened in the global financial crisis in 2008 and even though that is eight years in the rear view window, we are still feeling the consequences of that. Brexit in many ways is something that is biggest manifestation of the trends that have come to dominate this decade.
Prannoy Roy: Is Brexit part of a global revolt?
Ruchir Sharma: There's a huge anti-establishment wave. People want change and whoever comes in the way is being swept away.
Prannoy Roy: The world is turning inwards, countries are looking inwards. The GDP growth rates have fallen from 3.5% to 2.5%. Countries are looking inwards. Is that also what England is doing?
Ruchir Sharma: The new word is deglobalisation. We all grew up in the 1980s, '90s, 2000s thinking the world is going to be more integrated. What we are seeing now is exactly the opposite - that the trade has collapsed. It is now growing at much less than global GDP which has not happened in a generation.
Prannoy Roy: Before the 2008 crisis, there were over 1,000 billionaires in the world. After the crisis, where you think things have slowed down, the number of billionaires has doubled.
Ruchir Sharma: Income inequality has been rising steadily since 1980s but it has been turbocharged after the global financial crisis.
Prannoy Roy: The population growth rate has dropped over the last 50 years. At the same time, the world GDP growth rate has dropped from 3.5% to 2.5%. So, population slowdown is affecting growth rates?
Ruchir Sharma: Yes, because there are two drivers of economic growth in any country. One is the increase in labour force and the second is the increase in productivity. The working age population is shrinking across the world. In 30 countries across the world, working age population is shrinking, led by China.
Prannoy Roy: In India, the share of billionaire wealth is 30% from corruption prone where you need government contact, licences, while the world average in 25%.
Ruchir Sharma: It is the decline in crony capitalism in India which is happening at the margin.
Good billionaires are the kinds who create their wealth in industries such as technology, manufacturing, pharmaceuticals. The so called 'bad billionaires', those are industries which are more corruption prone - often it can be real estate, it can be mining. Every country is going to have some billionaires from all these sectors but the balance is key. India was badly out of balance at the turn of this decade but in the last few years, the balance is once again turning at least towards good billionaires.
Prannoy Roy: Crony capitalists, finally, are not doing well. Between 2010 and 2015, the stock market has gone up 50% but the value of the crony capitalist companies has gone down 50%.
Ruchir Sharma: In India, there has been a big rush towards quality companies over the last decade. That's what investors are backing now.
Prannoy Roy: In India, the share of the Public Sector Banks in the overall banking system is 70%, the highest in the world. The average for emerging markets is just 33%.
Ruchir Sharma: The entire problem here is that this is the worst case scenario for these public sector companies. Because this is privatization by malign neglect. All these public sector companies are losing market share whether it has got to do with telecom, airline, even the banking sector.
Prannoy Roy: The creation of new cities is very important in the development of a country. India just has no new cities. In China since 1985, 19 new cities with over a million population have been created while in India, just two.
Ruchir Sharma: Those two are also in Kerala because of the redrawing of the district map. India needs to learn that as we get a much better urbanization, we need to get a much better spread of urbanization.
Prannoy Roy: Private sector manufacturing investment is not picking up in India. Is Make In India an answer to this?
Ruchir Sharma: It is. Even though India's investment as a share of its economy is in a healthy zone, close to 30 per cent, if you look at all the successful stories in terms of how well the economy would have done, the sweet spot tends to be between 25-35%.
Prannoy Roy: In the last 2-3 years our inflation has come down to the emerging market average inflation rate. Thanks to Raghuram Rajan?
Ruchir Sharma: Yes, finally India adopted some sort of inflation target. One thing I find about India is that we are wary of following or adopting rules... When investment is strong, the supply side is well taken care of and you don't feel those bottlenecks. Whereas in India, we have this myth that if inflation is going up, it's a sign that demand is strong.
Prannoy Roy: Where the average foreign investment into a country is 1%, India is at 1.8%. That's almost double the global FDI numbers.
Ruchir Sharma: FDI is one success story in the recent years so far. The second worrying part for India was that a lot of local people were taking their money out, through gold or other sort of means to take money out. That process has also started to reverse itself.
Prannoy Roy: How is debt really the cornerstone of growth?
Ruchir Sharma: Both debt and economic growth are the two arms of the same story. When you're growing, you must take some debt out.
Prannoy Roy: When a country does well, you say it takes a long time for people to realise it. The minute there's hype about it, 66 per cent of the country's growth starts declining. Media just wakes up too late?
Ruchir Sharma: No, it's a representative of consensus thinking. Once a country gets too carried away by the hype, leaders get too complacent and then too much money comes in looking for high expectations, and then expectations turn into disappointment.
The expectations from India are very high today. The standard line used by people is that 'India's fundamentals look good'. I am very wary of consensus thinking.
Here are the highlights:
Prannoy Roy: Is Brexit out of the ordinary or is there a pattern in that?
Ruchir Sharma: If you look at the world, it was severely disrupted by what happened in the global financial crisis in 2008 and even though that is eight years in the rear view window, we are still feeling the consequences of that. Brexit in many ways is something that is biggest manifestation of the trends that have come to dominate this decade.
Prannoy Roy: Is Brexit part of a global revolt?
Ruchir Sharma: There's a huge anti-establishment wave. People want change and whoever comes in the way is being swept away.
Prannoy Roy: The world is turning inwards, countries are looking inwards. The GDP growth rates have fallen from 3.5% to 2.5%. Countries are looking inwards. Is that also what England is doing?
Ruchir Sharma: The new word is deglobalisation. We all grew up in the 1980s, '90s, 2000s thinking the world is going to be more integrated. What we are seeing now is exactly the opposite - that the trade has collapsed. It is now growing at much less than global GDP which has not happened in a generation.
Prannoy Roy: Before the 2008 crisis, there were over 1,000 billionaires in the world. After the crisis, where you think things have slowed down, the number of billionaires has doubled.
Ruchir Sharma: Income inequality has been rising steadily since 1980s but it has been turbocharged after the global financial crisis.
Prannoy Roy: The population growth rate has dropped over the last 50 years. At the same time, the world GDP growth rate has dropped from 3.5% to 2.5%. So, population slowdown is affecting growth rates?
Ruchir Sharma: Yes, because there are two drivers of economic growth in any country. One is the increase in labour force and the second is the increase in productivity. The working age population is shrinking across the world. In 30 countries across the world, working age population is shrinking, led by China.
Prannoy Roy: In India, the share of billionaire wealth is 30% from corruption prone where you need government contact, licences, while the world average in 25%.
Ruchir Sharma: It is the decline in crony capitalism in India which is happening at the margin.
Good billionaires are the kinds who create their wealth in industries such as technology, manufacturing, pharmaceuticals. The so called 'bad billionaires', those are industries which are more corruption prone - often it can be real estate, it can be mining. Every country is going to have some billionaires from all these sectors but the balance is key. India was badly out of balance at the turn of this decade but in the last few years, the balance is once again turning at least towards good billionaires.
Prannoy Roy: Crony capitalists, finally, are not doing well. Between 2010 and 2015, the stock market has gone up 50% but the value of the crony capitalist companies has gone down 50%.
Ruchir Sharma: In India, there has been a big rush towards quality companies over the last decade. That's what investors are backing now.
Prannoy Roy: In India, the share of the Public Sector Banks in the overall banking system is 70%, the highest in the world. The average for emerging markets is just 33%.
Ruchir Sharma: The entire problem here is that this is the worst case scenario for these public sector companies. Because this is privatization by malign neglect. All these public sector companies are losing market share whether it has got to do with telecom, airline, even the banking sector.
Prannoy Roy: The creation of new cities is very important in the development of a country. India just has no new cities. In China since 1985, 19 new cities with over a million population have been created while in India, just two.
Ruchir Sharma: Those two are also in Kerala because of the redrawing of the district map. India needs to learn that as we get a much better urbanization, we need to get a much better spread of urbanization.
Prannoy Roy: Private sector manufacturing investment is not picking up in India. Is Make In India an answer to this?
Ruchir Sharma: It is. Even though India's investment as a share of its economy is in a healthy zone, close to 30 per cent, if you look at all the successful stories in terms of how well the economy would have done, the sweet spot tends to be between 25-35%.
Prannoy Roy: In the last 2-3 years our inflation has come down to the emerging market average inflation rate. Thanks to Raghuram Rajan?
Ruchir Sharma: Yes, finally India adopted some sort of inflation target. One thing I find about India is that we are wary of following or adopting rules... When investment is strong, the supply side is well taken care of and you don't feel those bottlenecks. Whereas in India, we have this myth that if inflation is going up, it's a sign that demand is strong.
Prannoy Roy: Where the average foreign investment into a country is 1%, India is at 1.8%. That's almost double the global FDI numbers.
Ruchir Sharma: FDI is one success story in the recent years so far. The second worrying part for India was that a lot of local people were taking their money out, through gold or other sort of means to take money out. That process has also started to reverse itself.
Prannoy Roy: How is debt really the cornerstone of growth?
Ruchir Sharma: Both debt and economic growth are the two arms of the same story. When you're growing, you must take some debt out.
Prannoy Roy: When a country does well, you say it takes a long time for people to realise it. The minute there's hype about it, 66 per cent of the country's growth starts declining. Media just wakes up too late?
Ruchir Sharma: No, it's a representative of consensus thinking. Once a country gets too carried away by the hype, leaders get too complacent and then too much money comes in looking for high expectations, and then expectations turn into disappointment.
The expectations from India are very high today. The standard line used by people is that 'India's fundamentals look good'. I am very wary of consensus thinking.
