Unraveling 1991, yet again

Thirty years ago, on a summer evening in late July, India liberalized its Soviet-style economy in a transformation that eventually pulled about 300 million out of poverty, fueling one of the biggest wealth creations in history. Then came the world’s fastest coronavirus surge which left overflowing hospitals turning away the dying and crematorium smoke darkening city skies.

Years, and perhaps decades, of progress have been unwound in months, as many Indians who had clawed their way out of poverty face grim job prospects and carry heavy debt loads wracked up to get themselves and loved ones through the pandemic. The devastation has highlighted just how much poor health care and infrastructure – often neglected in the boom after liberalization – are holding back the nation and its people.

More than 200 million have gone back to earning less than minimum wage, or $5, a day, the Bangalore-based Azim Premji University calculates. The middle class, the engine of the consumer economy, shrank by 32 million in 2020, according to the Pew Research Institute. That means India will be regressing on vital fronts just as its global importance is growing.

This decade, India is expected to become the world’s most populated nation, taking that mantle from China, which for years drove global growth. But the Indian economy is grappling with big threats even as it becomes home to the kind of young, working-age population that drove lengthy booms in other nations.

“We’re talking about a decade of lost opportunities and setback,” said Arvind Subramanian, a fellow at Brown University and a former chief economic advisor to Prime Minister Narendra Modi’s administration. He also added – “Unless there are some big reforms and fundamental changes in the way economic policy is done, you’re not going to be anywhere close to what we saw in the boom years. A lot needs to happen in order to get back to the 7%, 8% growth that we desperately need.”

Even before the pandemic, cracks had begun to emerge. 

O’Neill said. Yet “the Indian system seems to quite often smother itself, as we’ve seen sadly a few times during the Covid pandemic”, “If we are looking at getting growth — of 8%-10% — back on a sustainable path, we have to think about not just a current revival,” Sanjeev Sanyal, the government’s principal economic adviser, said at the India Global Forum on June 30. The key question for global investors now is whether India will get old before Indians get rich. Netflix is counting on India for its next 100 million customers. Bezos is pouring billions of dollars – and even braving Indian courts – to battle India’s richest man Ambani for a slice of the only open retail market with more than a billion people. “The pandemic has set us back hugely, and we were already on a growth downswing when it happened,” said Indira Rajaraman, an economist and a former member of the Reserve Bank of India’s board.

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