Wednesday, November 4, 2015

The Turn of The Tortoise by T N Ninan [Key Takeaways]

I decided not to review this book and instead learn from what it has to offer. It is a book of details with right amount of back drop, a less theoretical framework and a clear strategy to tackle issues it brings up. 

Where did I get to know about this book? 
The quite popular book launch anchored by NDTV in which Arun Shourie vociferously brought out criticisms of whats ailing the present government efforts, in practice. The arguments during the launch helped the book to go beyond its regular readership and did it more good than bad, in my view. 

Why did I decid to read the book?
T N Ninan has headed one of India's leading Economic Daily, Business Standard which I've been reading for over a year now. Head of a business daily would present a non-academic, slightly non-ideological picture of the Indian Growth and Development. The Book analyses where India stands at the end of the 2nd decade on the 21st century with less of economic prediction and more of a wise take on how to deliver on its expectations. Another reason was to read a book which provides the latest picture, and so I had to read it within a month of its launch to make the best of out it.  As Ninan is essentially a Journalist, I found the book written in form of newspapers editorials. "Facts, Analysis, Facts, Argument, Facts, Criticism, Facts, Hope, End." As facts keep piling up, I wonder why editorials don't stretch beyond one page. :)
Rightly timed manual of policy prescriptions.

The book begins with the present state of Indian economy, interesting details from the past and comparisons with other Asian nations. The expression Turn of the Tortoise also gets explained here. Rapid growth criteria of World Bank, which requires a country to grow at an average of 7% for over 25 years is taken as a base to show how India lagged behind the other early 'hares' Japan, Taiwan, South Korea and China. India during the decades 1988-2010, did grow at and average 6.4% but missed the mark by some .6%. India's per capita income(at $1626) is 1/6th of the global average and is so low that even if it grows at 7% for another decade it is going to reach the next economy, Philippines ($2865). This speed is what the authors refers to as a Tortoise
The book bases its arguments on sounds facts unlike coffee table discussions to show how India has struggled to grow. Take the case of a theoretical comparison between the growth of post war Japan and India, both of whom started their journey at the same time. Though, a common person would neglect the fact that Japan was already a proven imperial expansionist Empire which had capabilities in Aerospace, Ship Building, Automotive and Manufacturing Industries before the second world war, had even defeated Russia in 1905, whereas we only had 2 steel mills at that time ie. a huge starting handicap. Ninan makes an interesting argument of how we have used non-economic measures(also called populist) as our base ideas of growth. Like, setting up a factory deliberately in Backward area and not on the basis of resources/optimization/connectivity. Such measures he calls as Confusion about Objectives.  

As India has maximum number of poor people in the world(will continue to have till atleast 2025) and thus a lot of work to do. However, being a late starter the existing set of available technology and services from around the world, makes it easier for us to 'catch' up with the global growth. The three set analysis which Ninan puts, shows that India has performed well on creating and providing an educated manpower, a growing Indian market but has faltered on Government policy and executive action. The reforms of 1991 focused more on Product markets (like cars, phones, steel, agro-products etc) but failed on the Factor Markets side(land, labour, capital and entrepreneurship/technology).  Lets take Capital for instance, At 4:1 ICOR(Incremental Capital Output Ratio, a metric which shows how much of the capital which was invested has resulted in growth), 32% of the GDP invested should deliver a quarter of the growth, ie. 8% but if the ICOR reduces to 5:1 the GDP growth rate will reduce to 6.4%. Since capital in India is largely infused through Banks, of which 70 % are publicly owned, the govt has a lot of task cut out to make banks more efficient else the cases of bad assets will ensure low growth rates. Of all the factor goods, the government can deliver most on entrepreneurship, which we Indians, naturally have a nag for and where a lot of govt intervention/restriction is present(take the case of permits and licences one needs to start a business here). 
Ninan goes at length to show how Government is involved into activities which it has no business to be in(well yes, Milton Friedman must be very happy to read his book too) like Telecoms, Airlines,Hotels etc thus leaving less room to things it is supposed to good at, Purely Public goods like Law and Order, Public Administration, Justice etc. Such endeavors natually reduces the government's ability to deliver upto its capacity. Ninan critiques the rights approach of UPA, which brought 3 legislations of Education, Food and Employment and was about the bring the 4th, Health(before Modi roared) and suggests the capacity driven approach to inclusion. Well, we know these debates very well, dont we? 

On China (and India):

"Indians talk, while China Chinese do." - Lee Kuan Yew
China had 50% more GDP and a lower per capita during the early 50s, the time when both the giants got unshackled. During 1991, the Chinese per capita equaled India's and its economy became twice of us. 
China has grown at 10+ rates for over 3 decades and has out paced us by giant leaps. Even if India continues to grow at the current pace we will reach what China is today not before 2035 and where will China be then? :-/
Take the case of what India aims in its 25 segments of Make in India campaign, High End Manufacturing of Garments and Electronics, Tourism, Solar Energy, Defence whereas the China now wants to focus on 10 areas such as Robotics, High end machine controls, Ocean engineering, New materials, Bio medicals. They are ahead and they are growing. 
Ninan points out some good arguments about how differently the two nations have progressed. China was always ruled centrally under one emperor, whereas India was mostly an amalgamation of regional feudal lords. Also, post 1947 India owing to its non-violent struggle dealt with various issues in a soft manner, whereas China owing to violent civil uprising had a firmer hand to impose the will of the government. India has not capitalized (well, not completely failed) to copy the SEZs model from the China, wherein we had vociferous critique on land grab and huge farmer unrests.
Focusing too much on services or tech industry is one of the reasons we are not able to deliver what we are good at, labour. Eg. One million jobs are created for every $2 Billion output in Garment Industry but in services sector to create One million jobs, $ 10 Billion output is required. We have a serious employment problem because we failed on this front. 

The period of 2002-2008 saw the interests rates drop to an all time low allowing the newly created enterprise barons in India to tread on an investment spree abroad. A lot of which was miscalculated and resulted in huge loses later.  eg. Tatas put about $16 Billion to buy Corus, Land Rover etc but post 2007-Crises, their debt mounted to $30 Billion, owing to loss of demand and the crises. The failure of Indian domestic enterprise is explained in detail as well. Post 2002 riding on the wave of Public Private Partnerships and cheap-credit, huge investments were made in Infrastructure, (unlike in the 90s when post liberalization, the the investments were made in products), which meant going from B2C to B2B. The B2B policy formulations are subject hugely to policy formulations and government contracts, which suffered from paralysis. Also, the same decade saw large investments in resources, which has political overtones to be kept in mind. Though a lot of good has happened too, like the rise of new breed on entrepreneurs in E-Commerce, the rise of Private sector banks and a lot of Capacity buiiding which has happened due to global acquisitions, eg. Mahindra's utility aircraft buyout in Australia. 

With embarrassing and detrimental cronyism seen in Coal allocations, Spectrum and regionally in Sugar Industry in Uttar Pradesh, walk out of POSCO & Vedanata in Odisha, Illegal Iron ore mining in Kartanaka, the 4 basic tenets of economic policy making formulated by Raghuram Rajan find a suggestive mention in the book.
A. Avoid the concentration of productive wealth in the hands of a few,
B. Create a safety net for the people(not companies) who loose out in the competition 
C. Keep borders open for international competition
D. Keep driving home the benefits of competitive markets to the the public.  

Francis Fukuyamas idea of building high trust societies, Daron Acemoglu suggestions of a country's development directly linked to its intitutional capacity and William Baumol's Bad Capitalism(state driven oligarchies) and Good Capitalism(entrepreneurship driven big firms) all of whom have written bestsellers on these ideas, suggests the importance of the global flow of themes that can help shape our development. 

State of Defence:
Whats ailing?
1. Lack of funds(National Security Advisory Board had suggested the defence spending to be 3% of GDP, but in straddles to .60-1 in practice). A lot of which goes on in salaries (and now pensions) of troops and not in modernization or capacity building in the new age warfare. 
2. Excessive dependence on Imports. We are the largest defence hardware importer in the world and our 60 % defence budget gets spent just on that.
3. Accident prone weapon systems
4. A military brass that thinks traditionally about battles. We have to work in inter services manner and in single command structure. eg. We are dismally prepared for strikes similar to Mumbai or the Parliament.

Way ahead? 
Make in India and subsequent increase in FDI in defence to 49% is a step in the right direction. Two important contracts of Light Attack Aircrafts and Missile systems from Israel were canceled with fresh provisions attached for them to be manufactured in India. 
wrt China which has better positioned army and better equipped Air Force, Indian Navy has been speedily covering ground of the which can choke the Malacca straits thus restricting oil supplies to China, in case a conflict arises. 

The last part of the book deals with India's Foreign Policy:
"Rapid economic growth remains the best foreign policy." 

China has taken pro active measures in creating and maintaining relations with the world. It has used its Security Council position to take great favours(like winning gas contract in Myanmar against India), extended its hegemony in South China Sea, has extended close to $800 Dollars of credit to Africa, Road and Belt initiative which invariably encircles India and continues to act vociferously. Though with India's new engagement with US, Australia and Japan a containment is on the offing but its not a feaseable solution as China continues to be the largest trading partner of every major economy of the world. 
Pakistan has recently scaled up its nuclear arsenal which is siginificant concern for India. India's effort to work on Chabahar port seems to be now a late work as its goal to enter the mineral rich central asia countries with multi modal trasport from Iran to Afganistan has already found the Chinese partners(in Kazakhstan and Uzbekistan).
However, we seem to have played a thought after role in Africa by not running our kleptomaniac-ally after their minerals and instead focused on capacity building of Africa alongside trade. The Chinese however are tough on their contracts and even shipped millions of their people to work in Africa. 

Rating: 7.5/10

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