Growth and Greenspan’s “irrational exuberance”…

I managed to get my hands on an Indian business newspaper this morning. In spite of having been away from India for a mere 2 months, I found the content pretty surprising in that it was virtually unanimous in content and tone.

The celebration of India’s continuing rise as an economic power: IT has been good for years now, pharma has followed up the IT success story, telecommunications is flourishing and manufacturing is starting to find its feet too. Retail looks all set to explode, even if the government hasn’t yet given the go-ahead for foreign direct investment. Still, local players look set to kick-start this, albeit probably in a duopoly mode. The financial markets are generally perceived as sound and viable, although reforms in the banking sector are overdue.

Great stuff, all of this! It certainly made me feel proud, but alas, a trifle curious as well. Curious about how sustainable this growth is; curious about the “economic value” being added; curious about the effects of this on all strata of society. Well, that last point we know: a majority of Indians have not benefited from this growth, but let’s be realistic for now. These things take time and in all probability, this prosperity will start to trickle downward soon. Granted.

Tucked away in the corner of the daily lay a transcript of a brief interview with the Chief Economist of the Asian Development Bank, Ifzal Ali. Overall, the man echoed the same sentiments I was reading elsewhere, but he seemed seriously concerned about the sustainability of this growth, given our creaking public infrastructure. Its not the conditions of our roads, electricity, water, etc that concerns him as much as the fact that there is a lack of political will to solve these huge issues. And given the capital-intensive nature of these investments, it is only the government who can make a difference here. I suppose coalition politics and our infamous “anti-incumbencey” factor, an unwritten rule (at least at the state level) that the 2 leading parties always swap positions at each election, put pay to real progress in this direction.

If his fears seem implausible, consider this: in my first 2 months at INSEAD, no less than half a dozen fellow students from around the world have approached me with a single-pointed question: Will India’s infrastructure improve in the immediate future? Not to judge anything by what people say, but as the COO of my previous company always used to say: perception is reality.

So what thereof? Its hard to see a Ford-like endeavour occurring wherein private entities go out and clean things up themselves. Shareholder concerns are paramount nowadays unlike in the 1930’s, and any chairman looking to make such a move would be voted off the board before he could say “Crikey”.

Which brings us to the point of whether we are in a state of “irrational exuberance”? I’m not sure. I reckon that’s being a tad too cynical. Still, given our collective penchance for over-estimation, I think the press ought to probe these issues further. We’re all aware of this, but awareness is not the point here. The Indian media, particularly in recent years, has acted as a catalyst for social and political reform. I believe it is one of our democracy’s functional entities. Pressure builds more pressure and pressure for change begets change. Turn the screws and we might yet quell Mr. Ali’s and my fears!