Will India’s Red Tape Protect It From Global Recession?

This post is intended as a discussion post, inspired by a recent Tehelka article posted on our news tab, entitled, A Lifeline of Red Tape?. The thesis of the article is this: while India’s stock market may be in free fall (it’s already lost 50% of its value from a year ago), the economic fundamentals of the country remain somewhat solid. The crisis in the global economy may not be devastating across the board, because India’s domestic economy is sheltered from world markets:

For economies such as India, the domestic growth is real and reasonably steady. But the impact of the recession in the US and the global credit freeze has meant that stockmarkets are in turmoil as foreign institutional investors (FIIs) sell equity in domestic stocks to meet liquidity needs back home; companies which had raised funds abroad now see the money supply dry up; and lack of liquidity impinges on Indian banks’ ability to lend. Wharton business professor Mike Useem says this is the world’s worst financial crisis. “Unlike the US, the world will not see an immediate impact on the surface, but the pain will be felt slowly,” Useem told TEHELKA (link)

Unfortunately, after that, the Tehelka article doesn’t really add much more meat to the thesis (though it’s still worth reading). But I think it’s an interesting point to discuss, and it’s one that my friend Rajeev, a software guy who lives in Bangalore, also suggested to me recently when he was visiting: India’s slow path to liberalization/privatization and relatively conservative rules for foreign investors will protect it from the worst of the current global financial crisis.

(Note: that is NOT the same as saying we need a return to 1970s socialism. Rather, the thesis is simply that caution in reforming and “modernizing” the Indian economy seems much more attractive at times like these.)

Obviously, the foreign institutional investors who had been propping up the Indian stock market in particular will be pulling back (they already have, as I understand it). And the IT industry, which is so heavily oriented to the global economy, is going to be feeling pain.

But while those are parts of the Indian economic boom we have been hearing the most about here in the U.S., they actually remain relatively small parts of the broader Indian economy, which is still based, first and foremost, in agriculture. The fact that most Indians owe relatively little (many Indians still prefer to pay for their homes in cash, and do not heavily rely on credit cards) also helps them weather the storm. But is that enough to keep the Indian economy moving forward?

I am less clear on what is happening with the Indian real estate bubble; I have read some things that suggest the market is on the verge of collapse, but anecdotally, friends and family in Delhi and Bombay tell me prices are still quite high. Do readers have any data on this? Also, what impact is the devaluation of the Rupee likely to have?

71 thoughts on “Will India’s Red Tape Protect It From Global Recession?

  1. 50 · Valmiki said

    49 · DesiInNJ said If the caste system economic model was perfect then a highly affluent society like the US or Europe would have emerged in India……..societies that put rank Business people below soldiers, priests or politicians, are doomed to poverty. Hmmm, so you are saying that the brahminical caste system which ranks baniyas like you below priests and soldiers has doomed India to eternal poverty? So why the heck were you defending the same caste system from blame for India’s abject povery just a post ago?? It is hard to reason consistently when you cling to an indefensible agenda, isnt it?

    I will say it again, the excuse of caste system is irrelevant in current Business climate of India. Get over it, communism and socialism lost, babus are becoming irrelevant. While you can nitpick words and make it sound contradictory, the bottom-line is simple, you have no one to blame but yourself if you are poor.

  2. @@ Valmiki http://www.hindustantimes.com/StoryPage/StoryPage.aspx?sectionName=IndiaSectionPage&id=8c0c96a2-87db-4218-b2c8-7a568d59bf98&&Headline=India%2c+anybody+home%3f

    You are quoting Sitaram Yechury, a member of the Communist Party of India(Marxist). Anything that comes out of his pen needs to be taken with more than a pinch of salt. I am not sure what surveys he is talking about, but in cities big and small, the standard of living since 1990 has improved by leaps and bounds. What’s lacking is public infrastructure and public services, not disposable income. I don’t go to villages in India, but folks who do, assure me that things are better there too.

    the Swiss Banking Association Report, 2006, reveals that Indians lead the world with deposits worth a staggering $1,456 billion — more than the combined amounts for the rest of the world.

    I am not sure which Swiss banking association report this guy is talking about.. Here is one, http://www.swissbanking.org/en/d_jb_06-07.pdf I think the only one, and it does not have any such information in it. So much for $1.4 Trillion. That’s 1.5 times the annual GDP of India, btw.

  3. Hogwash. Anyone can see that the best and the brightest in any society do not usually end up as the wealthiest capitalists.

    You don’t need to be the best and the brightest, you just need to be bright enough to know how to handle money. A person with no primary or secondary education isn’t going to invest his money smartly. You’re letting your casteist prejudice get in the way of looking at actual economic facts.

    To allow the business class free reign is to put the fox in charge of the chicken coop. It is an invitation to disaster. The current global financial crisis is a good example of that.

    You don’t have to be a libertarian to think that the license Raj is busted. I’m a pretty liberal Democrat, but Barack Obama would be a far-right fascist in the Indian political context. The economic system there is THAT profoundly busted. So trying to tar anyone who thinks that maybe we shouldn’t be punishing people just for having money is “greedy” or “selfish” is short sighted.

    Tell me, do you honestly think that taking every upper-caste person’s money, loading it up on a plane and papering every podunk village in 500 Rs notes is going to make a difference? Do you seriously think that will help? Get real.

    Like I said, talk about concrete policies to educate the population, stabilize farm incomes, get them access to markets, and access to healthcare services and we can talk. But as long as the level of discourse never rises above “Those greedy [group I don't belong to] are greedy bastards” you’re not going to make any progress. Channel that unfocused dislike of the haves and start thinking of ways to help the have-nots.

  4. 51 · DesiInNJ said

    50 · I will say it again, the excuse of caste system is irrelevant in current Business climate of India.

    It seems that stubborn attachment to your selfish agenda prevents you from thinking logically. Since you affirm that hindu casteism is a recipe for poverty, and since India remains mired in both casteism and poverty, so then on what rational basis do you dismiss as irrelevant the charge that India’s inability to rise out poverty can be blamed to a significant extent on the continued hold casteism has over the Indian psyche especially in the villages and small towns where the great majority of indians live?

    the bottom-line is simple, you have no one to blame but yourself if you are poor.

    This is far worse than being just ignorant or irrational. This betrays a low character, which is a deeper more fundamental flaw. No one with a conscience could possibly blame children like the little girl in the following video for example who are hounded out of school for being “untouchable” by both teachers and classmates, or the millions of indian children who have no access to school at all, for being less successful than someone like you, a baniya born into a wealthy family whose parents (assuming the stereotype here) paid for his expensive english-medium education in a fancy christian missionary school.

  5. 53 · NaraVara said

    Tell me, do you honestly think that taking every upper-caste person’s money, loading it up on a plane and papering every podunk village in 500 Rs notes is going to make a difference? Do you seriously think that will help? Get real.

    This is just a stupid strawman argument. No one here is suggesting papering villages with rupee notes. Only a simpleton would assume that spreading the wealth around means that.

    Like I said, talk about concrete policies to educate the population, stabilize farm incomes, get them access to markets, and access to healthcare services and we can talk.

    This is coming from the guy who just claimed that India is too poor to educate its population properly. I suppose its too poor to even feed its citizens properly, given that India is home to the world’s largest concentration of the hungry and the poorest of the poor. So why is India so much poorer than the rest of the world?

    And how do you implement policies to provide education, healthcare, infrastructure etc without taxes? Heres news for you genius: taxation is spreading the wealth around. If you got such a problem with spreading the wealth around, you got a problem with taxation.

  6. This is just a stupid strawman argument. No one here is suggesting papering villages with rupee notes. Only a simpleton would assume that spreading the wealth around means that.

    Then what exactly are you proposing? Because I haven’t seen any concrete policy proposal besides “THEY NEED MORE MONEY AND THOSE GREEDY UPPER CASTES ARE HOARDING IT ALL!!!”

    This is coming from the guy who just claimed that India is too poor to educate its population properly. I suppose its too poor to even feed its citizens properly, given that India is home to the world’s largest concentration of the hungry and the poorest of the poor. So why is India so much poorer than the rest of the world?

    Does India have enough schools and teachers to teach everyone who needs it? No? Then it’s too poor and needs to build up that capacity. Do you honestly think untouchables would be getting chased out of schools if there were enough schools to go around for everybody? The entire point is that scarcity causes competition and people are going to angle any way they can to monopolize the scarce resource. So instead of building more universities and training more teachers, you end up with policies to grant more and more reservations and quotas for minorities. A completely self-serving and counterproductive strategy.

    And how do you implement policies to provide education, healthcare, infrastructure etc without taxes? Heres news for you genius: taxation is spreading the wealth around. If you got such a problem with spreading the wealth around, you got a problem with taxation.

    Here’s an idea. How about arguing against what I’ve actually said instead of attributing strawmen to me. I never said people shouldn’t pay taxes. I said you unfocused hate against members of particular castes is blinding you to what the country really needs to develop its economy. It’s not a commitment to tax the shit out of the rich just because. Come up with a project then raise enough tax revenue to cover your budget. Don’t just take a bunch of money and look for excuses to fool around with it.

  7. I haven’t seen any concrete policy proposal besides “THEY NEED MORE MONEY AND THOSE GREEDY UPPER CASTES ARE HOARDING IT ALL!!!”

    Whoa there little fella, calm down already! Lol. For someone who claims to be a “liberal democrat” and a volunteer for Obama’s campaign, you sure have a very deep emotional attachment to casteism and wealth hoarding, and a passionate animosity to leveling the playing field. Clearly you are practicing the usual deception casteists are notorious for. For no true liberal or Obama supporter would agree with your arguments.

    Does India have enough schools and teachers to teach everyone who needs it? No? Then it’s too poor and needs to build up that capacity.

    Typically asinine circular reasoning. Its obvious that you are looking for excuses to justify the status quo, not “concrete policies” to change it. The only concrete policy you have is to let the wealthy hoard their wealth. How the heck is that going to alleviate the widespread hunger and illiteracy in India?

    Poverty is not a legitimate excuse for India’s failures to feed and educate its citizens. Its lack of Will. There is enough food rotting in godowns to alleviate the chronic hunger that plagues India, and there is no reason why enough schools cant be built and enough teachers trained to properly educate India’s children. Other poor nations have done just that and succeeded in rising out of poverty. What is stopping India from doing the same? Is it the pernicious, divisive, unjust, callous caste system that has sapped the Will of indians to do whats needed for the nation as a whole?

    Do you honestly think untouchables would be getting chased out of schools if there were enough schools to go around for everybody?

    What a disgusting casteist attitude. Again we see that he is making excuses to justify the indefensible. He actually cant see anything wrong with untouchables getting chased out of schools. Amazing. The level of hate and callousness among hindu casteists is truly mind boggling. What you are essentially arguing is that it is the right of the hindu upper castes to get first digs at education. Why?

    So instead of building more universities and training more teachers, you end up with policies to grant more and more reservations and quotas for minorities.

    How are you going to build more schools and train more teachers by letting the wealthy hoard their wealth? Secondly, low castes, tribals and untouchables are not a “minority” in India. Why do you think the upper caste minority has the right to education but they dont?

    A completely self-serving and counterproductive strategy.

    Thats funny coming from you. All your arguments: let the wealthy hoard their wealth, give the upper caste minority first digs at education etc are what is completely self-serving. And the fact that upper caste domination has been so disastrous for India proves that your self-serving strategy is counterproductive as well.

    How about arguing against what I’ve actually said instead of attributing strawmen to me. I never said people shouldn’t pay taxes.

    What part of my statement “taxation is spreading the wealth around. If you got such a problem with spreading the wealth around, you got a problem with taxation” couldn’t you follow? You seem to have a very emotional stake against spreading the wealth around. Yet you claim to be a “liberal democrat” and Obama volunteer! How about you arguing in good faith with intellectual honesty for a change?

  8. Wow Valmiki. You just felled an entire army of strawmen right there.

    Nicely done.

    Yes, you’ve got me. I hate lower caste people and don’t think governments should lay or collect taxes at all. Your incisive ability to ignore what I’m saying and infer that what I really mean is the exact opposite is astounding. Are you an astrologer by any chance?

  9. Mr Valmiki has made a few pronouncements for us 1. Hinduism is nothing but Brahminism, just as Aztec/Inca religion was nothing but human sacrifice, and the Romans were nothing but Xtian persecutors with a fetish for gladiator tournaments. A worthy alibi for continent scale soul-harvesting as demonstrated adroitly by Cortez. Maybe India won’t be left alone until it suffers its own monotheistic dark age.

    1. All upper castes are evil. That includes Nehru, Amartya Sen, Vishwanathan Anand, and all Nobel Prize winners, yeah

    “And the fact that upper caste domination has been so disastrous for India proves that your self-serving strategy is counterproductive as well.”

    Without upper-castes India would not have been a free state because sorry to say, the representation of the so-called lower castes was near to zero in the freedom struggle. Does anyone know why. Do you know why? The other question it begs – if the progeny of people who were not interested in India’s freedom are enjoying the benefits of reservation in free india, if this is not upper caste sensitivity, what is? Will you guys throw us a rope and start participating constructively in nation building or be cribbers for all eternity?

  10. 60 · general_category said

    Mr Valmiki has made a few pronouncements for us 1. Hinduism is nothing but Brahminism, just as Aztec/Inca religion was nothing but human sacrifice, and the Romans were nothing but Xtian persecutors with a fetish for gladiator tournaments. A worthy alibi for continent scale soul-harvesting as demonstrated adroitly by Cortez. Maybe India won’t be left alone until it suffers its own monotheistic dark age. 2. All upper castes are evil. That includes Nehru, Amartya Sen, Vishwanathan Anand, and all Nobel Prize winners, yeah “And the fact that upper caste domination has been so disastrous for India proves that your self-serving strategy is counterproductive as well.” Without upper-castes India would not have been a free state because sorry to say, the representation of the so-called lower castes was near to zero in the freedom struggle. Does anyone know why. Do you know why? The other question it begs – if the progeny of people who were not interested in India’s freedom are enjoying the benefits of reservation in free india, if this is not upper caste sensitivity, what is? Will you guys throw us a rope and start participating constructively in nation building or be cribbers for all eternity?

    The conventionally accepted reason for the smaller representation of the lower castes in the freedom struggle is generally due to their lack of education and money at the time. Basically, they were too busy feeding themselves to worry about esoteric notions of “freedom” and the like. In truth, all the “free” state of India ever did was replace the White administrators with Brown ones who, though technically Indian, were about as far removed in culture, values, and on-the-ground understanding of the real India as the British were. To be honest, thank the Gods we had Gandhi there. I disagree with him on a lot of policy matters. But he kept the Indian ruling class “real” and if not for him India probably would have ripped itself apart through class, communal, and caste violence.

    But at the end of the day India is poorly served by its leaders. Instead of looking for ways to deploy its resources in productive ways that generate benefits and education for ALL Indians, they spend their time coming up with schemes to take from column A and give to column B. As long as Indians spend all their energy looking for ways to use the power of the state to beggar their neighbors rather than expand services to benefit everyone our country will always remain a third world backwater at the periphery of world events.

    I really don’t understand what was so objectionable in what I said. Is proposing that rather than educating a poor dalit by taking away a poor bania’s spot in school, we should just build more schools so that both the dalit AND the bania can have an equal shot so bad? Am I such an awful person for thinking that instead of punishing the poor upper-castes we should maybe uplift the poor of all castes?

  11. Someone said up the thread…”Don’t feed the troll”…

    So, Valmiki…looks like you’ve got it all neatly figured out. Good for you. You sound suspiciously like religious zealots who know what they spew is garbage. Yechury does!

  12. NaraVara (#61), my apologies, but I must say you make some blanket assertions that seem like lazy opinions. On Gandhi’s role in keeping together, well detractors have an easy response right off the bat – his role in the Khilafat movement and later. I’m not very learned on this myself, but things seem to be rather more complex, as they also seem to be when it comes to the role of ‘lower’ castes in the freedom struggle. I’m thinking Ambedkar and various tribal movements and that’s just what what I can draw upon without google.

  13. NaraVara, I’m sorry, my response in comment 63 should have been addressed to general_category (#60).

  14. The turmoil in the global financial markets has cast its shadow on India’s largest real estate deal. India’s real estate developers, especially the mid-sized ones, have been facing a liquidity crunch since last year. Developers can no longer tap the external commercial borrowing route, while domestic borrowing costs have gone up on account of tight-fisted monetary policy, which is likely to harden further in days to come. In addition, the stock market has taken a beating with real estate stocks falling off their recent highs. Other sources of funding for instance, the London Stock Exchange’s Alternate Investment Market or listing real estate investment trusts abroad are also not feasible in current market conditions.For more view- realtydigest.blogspot.com

  15. India has “enormous potential in all its property investment categories”. Strong population growth, a large pool of qualified workers, greater integration with the world economy and increasing domestic and foreign investment are fuelling demand for office, retail and residential property. India’s burgeoning middle class will drive up nominal retail sales through 2010 by 10% p.a. At the same time, organised retail is becoming more important. At present organised retail accounts for a mere 3% of the total; by 2010 this share will already have reached 10%.India is the prime destination for IT services outsourcing. In the coming five years, at least 55 million m² of extra office space must be completed in the premium office segment alone. Property investments in India are not risk-free. Market transparency is far behind European or US standards. It is therefore vital for foreign investors to have a professional local partner. The lack of liquidity and upward pressure of pricing remain the main concern within the market.For more view- realtydigest.blogspot.com

  16. 30 · San said

    Dirt poor people in India are not affected, but that does not make it a good thing being dirt poor in the first place. Dirt poor people of India have always reaped the fruits of the Hindu Rate of Growth never keeping up with the ever increasing family. Middle class how ever will feel the pinch, but with this argument a large part of the Indian population would have been better off being rural farmers at the mercy of the weather god instead of urban middle class depending on Mammon. I’m not convinced!

    Yes, we all know that when India was growing at 2-3%, it was a “Hindu” rate of growth, but when India grows at 8-9%, that is a “non-Hindu” rate of growth! Perhaps a “secular” rate of growth, Mr. San?

  17. 48 · Valmiki said

    Actually only an idiotic defender of the brahminical caste system would deny that this patently false and unfair system deserves much if not most of the blame for India’s horrifying conditions.

    So, Mr. Valmiki, how is it that this evil Brahminical caste system made India one of the richest countries in the world 2 centuries ago, with a quarter of world GDP? Perhaps it was not “Brahminical” enough back then? Perhaps this “myth” about India being rich in the past is just another “Brahmin-Baniya” conspiracy?

  18. 55 · Valmiki said

    taxation is spreading the wealth around. If you got such a problem with spreading the wealth around, you got a problem with taxation.

    Taxation is theft.

    That it has the sanction of the “state” no more alters that fact, than calling an under-the-table payment a “service charge” somehow makes it less corrupt.

    Only someone steeped in communist/socialist dogma would aver that the power of the state was required to “spread” the wealth around. Instead of paying an exorbitant tax rate, an entrepreneur could use that as capital to finance enterprises that generate employment, and “spread” the wealth in a fairer way than “state-Robinhood” ever can – by creating it for oneself and others. The only role for the state should be to create an environment conducive to such investment and facilitate growth, mostly by staying out of the picture and letting the natural desire of all people to better their own lot take its natural course.

    The “Baniya” state of Gujarat (with the “Maut ka saudagar” at its helm) is currently showing great development. Please find out if this is a result of “taxation to spread the wealth around” or of economic policies aimed at growth.

  19. 70 · Rahul said

    69 · Jayesh said
    Taxation is theft.
    Oye, Jay the plumberwala, hope all the trickling down is bringing the paisas in till fox moves to india.

    Interesting comic, Rahul!

    I didn’t understand your comment, though. Do you dispute my statement you quoted?