India's Get-Rich-Quick Scheme

India's Get-Rich-Quick Scheme

Why you should care

Because as goes India, so go plenty of other countries.

For more than a few Indians, 2015 is all about one thing: the money. That’s true especially of India’s new prime minister, Narendra Modi, who campaigned on a platform of opening up India’s long-protectionist markets, putting new life into the economy, and getting India’s millions of young people joining the workforce each month much-needed jobs.

Though all this might signal a bold, new direction for the country, Modi’s view is that it’s a return to the good old days — “acche din” — when, after a round of bold economic reforms in 1991, India burst on the global scene as a true, emerging economic superpower alongside China. But that grand entrée soon diminished, and India was in danger of a swift exit from the global stage: a growth rate of less than five percent, evaporating jobs and low foreign investment. So can Modi pull it off? This is the question asked by journalist Mihir S. Sharma in his new book, Restart: The Last Chance for The Indian Economy published by Random House India (available on Amazon). Sharma, an editor at the Business Standard newspaper, chatted with OZY about the gears making India’s economic machine work — and whether India’s new prime minister can get them moving again.

OZY:

Your book points out that 13 million Indians will enter the labor market each year without employment. What’s going wrong, and why aren’t there jobs in sight?

Mihir Sharma:

I think the biggest problem is that we don’t have the factories or companies that could employ them. And even if we did rustle up the kind of investment that would put up the factories required, it turns out that the people who are leaving school or going into the job market just don’t have the skills that those factories would need. So these are the twin problems that we are facing; we don’t have a manufacturing sector that could possibly take in so many people every year, and even if we somehow did develop a manufacturing sector, the guys and girls emerging from the educational system just aren’t, in many ways, skilled enough to work in basic factory jobs.

OZY:

So how do we fix those troubles?

M.S.:

An Indian economy that is based on manufacturing will be an economy that’s better integrated with the world. It’ll be something which is not so dependent upon us spending money, as it is currently. We’ll be able to start selling goods to other people across the world, which is something absolutely every country, particularly in Asia, has done in order to develop.

We have somehow convinced ourselves that we will be able to develop without selling goods to the outside world, and pretty much no country has ever done that … You need to make really major changes in order to try and repair the Indian economy, and I don’t think the government has started on these, yet. I’m not even sure that the government is convinced of their importance.

Until we are able to get labour into those factories and until we are able to get capital to invest in those factories, we simply won’t be able to develop a manufacturing sector. So the first and giant step which this government will have to take is to liberalise these factor markets.

Excerpted:

Go, today, to a small Indian town. There are only three places where you see vibrant activity — queues, discussion, energy. One is the alcohol shop. The second is the newsagent, who will also sell application forms for public-sector jobs. And the third is the guy who sells lottery tickets.

This tells its own story, of desperation and of hope. And it raises three questions.

First: Where did all of these young people come from? Second: Why do they have nowhere to go? And third: Why aren’t they making something of themselves?

Here’s the answer to each question.

First: Many of them, perhaps most, came from farms, and they really don’t want to go back. Indian agriculture is a dead end — until something changes.

Second: In other countries, at other times, they would have been soaked up by a vibrant manufacturing sector. India hasn’t got one — unless something changes.

And third: They don’t have the skills for white-collar jobs, or even the few blue-collar jobs that are available — and something will have to change.

Restart: The Last Chance for The Indian Economy, by Mihir S. Sharma

OZY:

So can Modi pull off such an overhaul?

M.S.:

I’m not sure Narendra Modi is convinced that anything other than his own presence in power is necessary in order to revive the Indian economy. And when he realises that it will require a lot more than talking the economy up, then I think we might see some change.

OZY:

Get us up to speed on what went on in 1991. Some consider the reforms to be some of the best things to have happened to India. But you also write about how it wasn’t all sunny stuff.

M.S.:

I think the 1991 reforms were conducted in a piecemeal fashion. Some of the more important reforms never got carried out, and we’re still waiting for them to happen … One of the big negatives of the 1991 reforms is that in the 1980s and early ’90s, India had a large and vibrant manufacturing sector that just shut itself down. The second problem about the 1991 reforms is that they were never sold politically as an actual project. They were always talked about apologetically — “We are being forced into doing this.” That was Prime Minister Narasimha Rao’s idea as to how reforms could be made feasible, to lie to the people about them.

This interview has been edited and condensed for length and clarity.

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