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Morgan Stanley’s Sharma on Indian Economy’s Health


Indian states remain meddlesome, he warns.


Ruchir Sharma, best-selling Author and Head, Emerging Markets Equity and Chief Global Strategist, Morgan Stanley Investment Management, has outlined the 10 rules that need to be assessed over a time period of five years to determine an economy’s current and future outlook.

Delivering a special lecture on leadership on 16 August 2017, he said the parameters are politics; role of state; income inequalities; concentration of wealth from a geographical standpoint; investment; inflation; exchange rate; kiss of debt; demographics; and curse of the cover story.

Politics: Sharma said that economic performance of a country tends to deteriorate when those at the helm of politics hold on to power for too long.

It has been noted that reforms tend to be taken up in the initial two to three years of a new government.

Subsequently, the reform momentum slows down. India on this account ranks 6 on a scale of 1 to 10, he said.

Role of state: In India, the state remains meddlesome. The public sector’s presence in the economy is overwhelming, which is holding back the Indian economy.

Citing the example of Indian banks, Sharma said that public sector’s share in the banking industry is two-thirds, which is way above the average of one-third in the emerging markets.

Thus, India has a low rank of around 2-3.

Income Inequalities: According to Sharma, India has fast gained ground as it has lots of ‘good billionaires’, who have made their fortune by creating new businesses, as opposed to those who became ‘bad billionaires’ by multiplying their wealth with the help of the government and political connections.

Therefore, he rates India 7 in this arena.

Concentration Of Wealth From A Geographical Standpoint: Emergence of new cities and urbanization are needed for distribution of wealth.

But in India for the last two to three decades, no new cities have come and there is great disparity in the wealth of states.

Hence, Sharma ranks India at 3rd or 4th place.

Investment: Manufacturing plays a key role in success of a country but a commodity-based economy would do good in the short term only.

In this area, India’s track record has been a mix.

Inflation: High inflation is bad for any economy and India has greatly improved its ranking over the years.

Under United Progressive Alliance (UPA) II, India’s inflation rate was at an all-time high but now that rates have moderated.

Exchange Rate: A currency that feels cheap and competitive is usually one that has been allowed to find its market value and therefore high exchange rate is not favorable for stable investment.

In India, 6,000 domestic millionaires left the country last year as against 4,000 a year before.

However, with foreign investments on a rise, India stands at a moderate standpoint.

Kiss Of Debt: The growth of private debt is one of the indicators of development and presently India’s debt levels are fine, which offers scope for growth.

Sharma said that sharp increase in debt can be worrisome as is in the case of China.

India, he added, fares well in this regard.

Demographics: India has the demographic dividend with a young working population but it needs to be channelized effectively to make it work in India’s favor.

Curse Of The Cover Story: Any country that ends up on the cover of a leading magazine is likely to have peaked and was bound to have a bad time in the future.

Sharma said that this happens as a positive story makes the leaders complacent as trends do not last for long.

On this parameter, India is somewhere in the middle rank as it is neither gearing towards big bang reforms nor doing poorly.

The lecture of was organized by the Federation of Indian Chambers of Commerce and Industry.

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