Indian economy: Myth and reality

Abstract

Dr. R Vaidyanathan, Professor of Finance, IIM-Banglore and Dean, Centre of Economic Studies at Vivekananda International Foundation (VIF), delivered a perceptive talk, titled ‘Indian Economy: myth and realty’ on 30 June 2015, under the aegis of VIF’s monthly Vimarsha series of lectures. As part of the opening remarks, General NC Vij, Director, VIF, presented an interesting walkthrough the first year of Modi-led NDA government at the center. Summing up the performance of the Modi government in its first year, the Director said it has been a mixed bag of success and hiccups. While the government has performed exceedingly well on the foreign front (Pakistan being perhaps the only exception to this), its performance on the domestic front is yet to translate into real success, although he did mention the e-auctioning of coal mines has brought all round praise for the government. General Vij, however, said keeping in view people’s high expectations from this government as also the enormous challenges that lie before the government, especially in terms of creating employment for millions of youth every year, improving the quality of education, health etc. it would be prudent to wait and watch rather than rush into any hasty judgment on the performance of the government.

Prof Vaidyantahan, an expert on the Indian model of economics, started off by giving his impression of the impending crisis in the Eurozone, triggered especially by the Greece debt crisis, and its implications for India. He said while all global crises emanated from Europe over the last 1500 years, the present sovereign debt crisis facing the Eurozone is largely on account of declining household savings. He also forecast the end of economic dominance of G-20 countries by 2020. With global economic power increasingly shifting to the east, India is well poised to emerge as the most favoured destination of private equity and overseas pension funds, the professor said in his speech, laced with liberal doses of sarcasm and humour.

Prof Vaidyanathan busted several myths surrounding India’s economy amid bouts of laughter from the audience. As against the popular belief that corporate sector is a major factor in our economy, the professor said the real drivers of India’s economy are the vast multitude of self-employed in the unorganized sector whose contribution by way of household savings is enormous. Therefore, it is this class the ease of doing business needs to be targeted to. Similarly, it is wrong to assume the stock market as the real barometer of India’s economy. The stock market absorbs only a small fraction of the savings while the bulk of it is absorbed by other financial institutions. Prof Vaidyanathan’s incisive talk on India’s economy covered a broad range of issues - the nature of India’s economy, the role of FDI/FII, the structure of our savings, the role of gold, the need to fund Uninc, market access and political linkages, among other complex issues, were explained in a very simple and lucid manner.

The speaker also had a word of advice for the current government. Terming the great deal of hoopla surrounding the Land Bill as unnecessary, Prof Vaidyanathan advised the government to drop the controversial legislation. He said it is best left to the state governments to decide what incentives they need to give to land owners to attract investments in their respective states. The states which give better incentives will attract more investments, while others will follow suit. A lively interaction followed the talk by Prof Vaidyanathan.