Great Expectations

I just finished off the web series “The Boys”. Man, the pace of the first few episodes and the premise had me hooked. Not that the season finale was a let-down, but the shock at the end of it all still rankles me after all this time.

Why am I writing about it? I somehow found myself a little rankled when I thought of how India has been kind of like this! We had great expectations from the liberalisation era, only to relapse into a bit of socialism in the mid-2010s. What the market and most of corporate India cheered around 6 years has still not been able to bring second generation of liberalisation reforms, despite 2 back to back strong mandates not seen in 3 decades. I agree that this is no crisis moment, but hey, do we always need a crisis to respond with big bang reforms.

We have had coalition and minority governments delivering reforms in the economic space and we have a muddled economic policy guiding our response to international economic pressures. Ponder on the fact that Bangladesh imports yarn and fabric from India, yet beats India in textile exports. This is partly due to the BD government subsidising a bit of the production cost but is also due to the fact that exports from BD are cheaper due to a devalued currency.

That brings me to my actual point. Nationalism has been the sole guiding factor for our economic policies for the past 6 years. This sells good for the elections but isn’t that great for the economy. The interest rate differential between USD and INR point to at least a 4% devaluation every year in INR levels just to remain at the same competitive levels for exports to grow. The RBI artificially tries to maintain the levels so as the imports don’t get too costly and then once every 5 years or so, they let it devalue at once to let off built up steam (check out USDINR levels in 2008, 2013 and 2018). Now it feels good to know that India has close to 400 billions of USD reserves (treasury bonds, actual currency, account balances) but hey, we are actually subsidising the US consumer when we buy those treasury bonds. Imagine, India indirectly aiding the US economy.

Let’s take nationalism out of our economic thinking. I am not saying that we take a drastic step. Just devaluing our currency by around 8 to 10 % would bring back the competitive levels for our exports. Let’s focus on engineering goods, value added exports and specialty chemicals and not on gems and jewelry, where it is mostly circular routing of money. Let’s use our currency reserves for the actual benefit of Indians and not as a boasting point. Let’s unleash the animal spirits we are so capable of. We would again be the fastest growing economy of the world very soon.

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