Why The Indian Economic Bubble Burst ?

Components of economic growth (Saari 2006)
Components of economic growth (Saari 2006) (Photo credit: Wikipedia)

Adapted from a feature article by Ranjit Goswami, Dean 

Institute of Management Technology (IMT), Nagpur.

Published by East Asia Forum

Source : http://www.economywatch.com/

I always felt it was a case of deteriorating values, when moral erosion was far too offset in the public mind by the gyrating rhetoric of the popular song, Phir Bhi Dil Hai Hindustani. Through the much-touted reform years of the 90s, the ebullience after a sad decade of empty values could brook no caution. Not unlike the high effect ponzi schemes have on people before they burst.

Reforms are projected with the broad aim of improving the economic efficiency of the nation. They naturally gain the affirmation of the elites and ryots but, as it was, for different reasons. It turns out that India’s particular brand of economic reforms were quite like the con jobs that leave so much grief in their wake. Sure, they came with the mention of “freedom” in our ear and that did not fail to induce a swooning effect upon us. We could see the dazzle and were awash with feel good waves.

Now though, in 2013, as we wade through the puddle of our burst economic bubble, it might be possible for us to view what actually happened, in between the heady lines.

  • Every year, state-owned enterprises and public assets were privatised in the name of asset reallocation, at throwaway prices.

  • Every year tax-breaks or subsidies amounting to nearly US$ 100 billion were handed out to private industries in the name of reform or liberalisation. A small part is then recycled to the citizens in the name of social welfare.

  • Though India officially reported an unemployment rate of less than 4% during the growth years, about 95% of employment was at jobs that paid poorly, in low productivity informal sectors.

  • During 1994–2000, organised sector employment grew at 0.53 per cent whereas overall employment grew at 0.98 per cent, both at a much lower level than the increase in the labour force.

  • Data from 2004-2010 show near zero employment elasticity, at 0.01.

  • Clearly, where most nations chase growth as a means of generating employment, in India growth has been an end in itself.

  • in spite of economic growth, there is evidence of an average Indians living on a lower food intake than before, in terms of calories.

  • With increase in size of the Indian middle class, the calorie intake by poor Indians has worsened since the 1990s. In all likelihood, the increased per capita consumption at one socio-economic level is resulting in scarcity at the lower level.

  • India’s export competitiveness has fallen. As a percentage of imports, we now export less than the pre-reform days.

  • India’s current account deficit is now worse than that of the US as per cent of GDP, with the obvious difference that the US has a strong global currency whereas Indian Rupee is literally on the wobble.

  • Set up to boost export, the Special Economic Zones (SEZs) are a mere euphemism for land grab.

  • It needs to be reiterated : India’s current account deficit is worse than pre-economic reform years ! After two decades of ‘reform,’ the sad un-development cannot be blamed entirely on the post-2008 global economic adjustments.

  • And busting that first myth : India’s GDP growth story did not start from 1991, but in the 1980s.

  • The high, near double digit growth rate in parts of last decade was more due to global factors like unparalleled global liquidity, rather than domestic ones. It was therefore not sustainable on our own steam.

India needs growth. That is not in question. There are, and were, alternatives all along; but the Ponzi reformists have simply been emboldened with too much unsustainable growth too soon. Easy money power, created in the last decade by global liquidity binge, and the low inflation-environment, generated by the Chinese expansion of productivity, have also helped to keep the propaganda for pro-Ponzi-style Indian reforms alive.

But the entire Indian economic and financial structure, spent as it is on motivated greed of the few and slavery of some, is not sustainable. It never was, without its roots in agreed moral imperitives, social values and political direction. 

Have you heard of a successful Ponzi scheme ?

Related : The Broken BRIC –

Why India’s Economy Is Underperforming

by Raghuram Rajan,

Current Economic Advisor to Govt of India

Indian Coverlet, Embellishment
Indian Coverlet, Embellishment (Photo credit: cobalt123)


3 thoughts on “Why The Indian Economic Bubble Burst ?

    1. Economics everywhere has increasingly been turned into more about financial metrices than social values, for the convenience of global capitalists – a regressive subversion that facilitates continuation of feudal instincts and structures in the society.

      That’s how it seem to me, in historical terms. A wonderful opportunity that had the efforts of thousands and aspirations of billions behind it has been consistently hijacked.

      I am glad you could connect.

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