Is Indian economy a ‘one-eyed king' or a ‘calm island'? It's both

On Monday, in an interview given to The Economic Times, Jes Staley, the chief executive of UK-banking major Barclays, described India as an ‘island of calm’ in a world engulfed by turbulence. He also said prime minister Narendra Modi is a ‘source of stability’. Staley is not the first to endorse India and the PM. Praise is something the former Gujarat chief minister is so used to ever since he emerged as the national leader post the 2014 general elections with a record victory. There were other known faces in the global business world, including Microsoft CEO, Satya Nadella, who praised Modi for his efforts to make ease of doing business in the country. [caption id=“attachment_2914192” align=“alignleft” width=“380”]  Reuters[/caption] Separately, a survey among 4,000 respondents in 15 states by Centre for Media Studies showed that 70 percent of the respondents wanted Modi to return to power in 2019 but 50 percent said there has been no change in the condition of the country since Modi took over and 15 percent said the situation has actually deteriorated further. The point of citing these findings/ comments is that largely there is still fan following for Modi both in India and abroad as the agent of change in Asia’s third largest economy and India continues to be a favorable destination in a slowing world economy. Now, see this against the controversial comment of Reserve Bank of India (RBI) governor Raghuram Rajan, who said India is like a ‘one-eyed King in the land of blind’. (Rajan later apologised to the visually impaired saying he didnt mean to hurt them with his comments.) Rajan antagonised many in the Modi government with his comment. Now, cut to the present and see how Rajan’s comment goes with what Barclays Bank when the latter said India is an “island of calm” in a world beset by turbulence. In fact, both are saying the same thing but in two ways. Both mean India continues to be a better option for global investors when Europe is going through its share of problems, the mighty US is fighting its way to come out of the near-zero interest era amid yet-to-be seen economic recovery, no one knows what is brewing inside China and other emerging markets such as Indonesia. Only that Rajan landed himself in trouble (part of the reasons why he decided not to continue for a second term is the government’s lack of interest) by stating the truth choosing a not-so-pleasing metaphor to describe the state of Indian economy. Rajan actually meant that India’s economy is indeed better than most other countries but the country still needs to sort out its domestic problems. Rajan’s penchant for catchy one-liners and his habit of calling a spade a spade made the difference for him. In other words, Rajan paid the price for his blunt talk that eventually forced him to accept a painful exit. There isn’t an iota of doubt on how better India is positioned to emerge as a major economic power in the world. Its big positives lie in the facts the economy has the benefit of demographic dividend, improved fiscal health, strong foreign exchange reserves and record FDI inflows. But, the fact remains that a good part of the fiscal health is attributed to the low crude oil and commodity prices (which constitute 80 percent of India’s import Bill) and slowdown in other competitive markets. But, the blind ‘eye’ Rajan spoke about is still there. It is reflected in the still continuing threat on high inflation, pain on economic recovery, the banking sector mess and infrastructure woes. A strong revival in the economic growth on the ground remains evasive as reflected in the industrial production. Private sector investments continue to be elusive and much of the growth is funded by public investments and private consumption, meaning that no fresh money is coming in, which is much required to fund long term sustainable growth. Also, the country needs to progress a lot on the reforms front. The big reform areas — tax, land and labor — are still a work in progress with no definite success yet. Both the International Monetary Fund and the World Bank have warned that India will have to pay a price if it fails to progress on the reforms front. One can keep debating the progress the Modi government has or has not achieved so far. But, the short point here is that at this stage India is both a ‘one-eyed King’ (a better economy but with own problems) in the land of blind (a world grappling with economic woes) and, in the same sense, a safe Island in choppy waters.