Popular Narrative

India has been the world’s favorite country for the last three years. It is believed to have superseded China as the world’s fastest growing large economy. India is expected to grow at 7.5%. Compare that to the mere 6.3% growth that China has “fallen” to.

 

India’s quarterly annualized GDP growth rate since 2008, according to MOSPI (statistics ministry) – click to enlarge.

 

The IMF, the World Bank, and the international media have celebrated this event. Declining commodity prices and other problems in Russia, Brazil and South Africa have damaged the prospects of the BRICs (ex-India) and other emerging markets.

Commodity and currency markets have been very turbulent, and the Arab Spring has not only failed to keep up its pace, it has half-destroyed the Middle East, with fires raging in Syria, Turkey, Libya, etc. Migrant problems in Europe and the uncertain future of the US — as per the current narrative — leave India as the prime candidate to prop up global economic growth.

It seems to be deeply emotionally satisfying to finally see the world’s largest democracy supersede the “communist dictatorship” of China. India’s GDP has also just surpassed that of the UK, its former colonial master. The world is looking toward India as a beacon for the future of humanity. Again, that seems to be the narrative.

 

A WSJ video report on India as the world’s fastest-growing economy

 

Is India the World’s Next Superpower?

Everything cited above is plain wrong and falsifiable by using primary school mathematics. It is little but rationalization for what seems to be emotionally gratifying.

China’s GDP is USD 11.4 trillion (2016; IMF). India’s GDP is USD 2.25 trillion (2016; IMF). These economies are in no way comparable. The Chinese economy is more than 5 times larger. China’s GDP per capita stands at USD 8,260 and that of India at USD 1,718. China’s population (1.37 billion) and the population of India (1.34 billion) are comparable — but China is five times richer on a per capita basis.

 

China’s GDP growth rate has declined from its previous torrid pace – but what does this really mean by comparison? – click to enlarge.

 

Based on these figures, India will add USD 129 in economic output on a per capita basis if it grows at a pace of 7.5%. Similarly, if China grows by 6.3%, its output will increase by USD 520 per capita.

Those who say that India is home to the world’s largest economic growth have not even done primary school math on the situation. India actually needs to grow at more than 30% to outpace China in absolute terms per capita.

It helps to play around with the numbers cited above to understand how erroneous expectations have been. If one assumes that India continues to grow at a rate of 7.5%, and China at a rate of 6.3% from here on out, it will take 127 years before India’s per capita growth will actually begin to exceed China’s.

The problem is that many people confuse “rate of growth” with actual “growth.” They blithely assume that a higher growth rate means greater growth. They assume that a decline in the growth rate is a decline in growth. Perhaps people simply see what they want to see as a result of their ideological preferences.

 

China and India, history of real GDP expansion since 1980

 

In the early 1980s, India was richer on a per capita basis than China — India’s population was much smaller than China’s, but its GDP was of similar size.

If one pores over statements released by international institutions and media reports published over the past 36 years, it was consistently claimed that while India would be slow in getting to this point, it would eventually outpace China.

Not only did this not happen, but as demonstrated above, by now it looks as though it will be virtually impossible for India to outpace China. One should pause to reflect on why so many have been so consistently wrong about India.

 

The Sacred Cow of Democracy

One of the major reasons why the West, its institutions and the upper and middle classes prefer India over China is that India follows the western religion of democracy. They refuse to see that democracy tends not to work in poor countries (it is debatable whether it worked in the West).

One could well say that by the time democracy was introduced in the West, particularly in its present form in which everyone has the right to vote, the West had already reached its intellectual peak.

 

A painting purporting to show the assembly of ancient Athens. The city-state became democratic around 500 BC – it was the first known experiment in democracy. However, only adult male Athenian citizens who had completed their military training had the right to vote. Slaves, freed slaves, children, women and foreigners residents were excluded.

 

The history of democracy’s achievements in the non-western world is particularly bad. Africa, the Middle East, South East Asia and most of South America are riddled with countries that embraced democracy and almost immediately took a turn for the worse. In fact, I cannot think of a single country in these regions that improved after adopting democracy. Nepal, East Timor, and PNG are vivid recent examples.

Non-western countries which have performed better in terms of economic growth and social indexes improved during time periods in which they were for all practical purposes not democratic. To name a few: Lee Kuan Yew’s Singapore, British and now Chinese Hong Kong, Park Chung-hee’s South Korea, Pinochet’s Chile, and Chiang’s Taiwan.

In India democracy never worked, but who need facts when emotions need to be satisfied? If Africa were a country, India would be worse off in terms of virtually every economic and social index on per capita basis. As a proportion of India’s population, the country’s people are among the world’s poorest, most diseased, wretched and malnourished.

48% of Indians don’t even have access to toilets. Similar percentages of India’s population live without electricity, water and other basic amenities. To put this number into perspective again: at a per capita GDP of USD 1,718, India is poorer than Sudan, the Republic of Congo, Laos, Papua New Guinea and many other countries not exactly known for their great wealth.

It is often claimed that India has the largest English speaking population outside the western world. This was true in the past, but it is likely no longer true. China has brought in a large number of native speakers from Canada, the UK and the US to teach English to its students. It seems very likely that there are now more English speakers in China than there are in India – and they speak better English.

 

Population growth and demographics of India incl. projection

 

India certainly appears to be in an advantageous position in terms of demographics. While China’s society is aging and the number of young people is declining, more than 50% of Indians are below the age of 29. Alas, this is likely to turn into a liability, as the vast majority of them are unskilled and incapable of participating in the modern economy.

There is a net increase of 12 million Indians joining the workforce every year, but India continues to exhibit job-less growth. While their expectations are increasing — for they all watch American TV — they lack wealth-generating capabilities. As a result, crime is on the rise.

India’s institutions are often highlighted as the reason for the country’s superiority over China or other non-democratic systems. The reality is that in the last 70 years, Indians have systematically destroyed the institutions left by the British. Today’s judiciary, legislature and executive are not comparable.

Today none of these institutions are run for the benefit of the country’s citizens. They operate for the glorification of the State, in which citizens are mere cogs. These institutions have mutated on account of India’s underlying tribalism totalitarian tendencies.

Unless one is a criminal, one doesn’t visit a police station in India. The tyranny of the police, up to and including killing innocent people in fake encounters, has a long history. Court cases can drag on for decades. Regulations and laws are mere pieces of paper, with decisions sold to the largest bidder.

It is virtually impossible to get anything done in India without a bribe. Worse, people must grovel and humiliate themselves in front of public servants to get what is rightfully theirs.

Readers will do themselves a service by challenging themselves to find out whether democracy really has any connection with improved governance, stronger institutions of liberty, or faster economic growth.

 

India’s Problems Have Deep Roots

India is an extremely irrational, superstitious, and tribal country. The concept of reason is mainly conspicuous by its absence in much of India. India was long associated with Britain and has imported western institutions, ways of living, technology, etc., over the last 200-300 years, but has failed to import the concept of reason.

The same could be said for Africa, the Middle East, rest of South Asia and most of South America. But we will stick with India here. Without the concept of reason, people can have no understanding of the rule of law, of fairness, or simply of what is right or wrong.

They can only think in terms of might is right, street-smartness and political connections. Such a society cannot have any understanding of the principles of the ten commandments, or have respect for the individual and liberty.

Assimilating the concept of reason hasn’t happened in the last 200-300 years. In Europe it took about 2,000 years after it was discovered by Greco-Roman philosophers. Could it take another millennium or more before India’s society will be able to assimilate the concept of reason?

In the last three decades, India’s economy has grown, but most of this growth can be attributed to significantly improved access to the western world and its technology through the new medium of internet and cheap telephony. The low-hanging fruit from this have been plucked and India is starting to show signs of stagnation.

While India grew economically, government grew at an even faster rate. People and corporations took on debt faster than they could repay it. They imported the lifestyle and a generous helping of consumerism from the West, mostly its entertainment aspects. Reason fell by the wayside.

All evidence indicates that Indians were actually disincentivized from developing critical thinking, creativity and reasoning skills. Why bother when one could become rich without them?

Indian manufacturing plants or offices, including those in the private sector are chaotic, wasteful and incapable of planning and following a system as a result. Labor costs appear cheap, but India’s chaos ensures low productivity.

Given a chance, Indian companies prefer to move their factories to China. Indian cities and villages are packed with Chinese good, even very basic ones. The way Indians drive mirrors how Indian manufacturing and service industries operate:

 

Indian motorists in action

 

What Will India’s Future be Like?

It shouldn’t be too difficult to abandon the idea that India will be the next China. India’s much-celebrated growth of 7.5% is too low to make any real impact on the world economy. But even this is under massive threat, once considers the country’s institutional and cultural problems.

As mentioned earlier, the low-hanging fruit from importing western technology have been plucked by now. India has failed to cultivate critical thinking and hence the ability to develop its own technology.

India has been a massive beneficiary of the fall in oil price, as oil is by far its biggest import. This was a one-off gain, a benefit for growth that will trail off again. Indian exports are already showing signs of strain and are falling, partly losing out to other countries which continue to improve their competitiveness, such as China and the Philippines.

 

Growth in Indian exports has turned negative in early 2015 – click to enlarge.

 

Members of India’s middle class have become remarkably arrogant, thinking that there must be something special about them that made them so much richer, but they were merely lucky beneficiaries of western technology. This arrogance has boosted nationalism, which is spreading like wildfire.

In a society lacking in rationality, nationalism is not perceived to be about human values but is a mere geographical, tribal concept. Hindutava (Hindu-nationalism) has been on the rise. The BJP, the party representing this ideology, has come to power two and half years ago, with Narendra Modi as the prime minister.

Under Modi’s reign, as the institutions which the British left continue to get destroyed, liberties are falling, taxes are going up without any improvements in public service, and the regulatory burden has increased significantly. The country is getting increasingly centralized as well, and brought under Modi’s command. He believes he has to do more of all these things to ensure India remains on a path to growth. This is a recipe for disaster.

On 8th November 2016, Modi announced a ban on banknotes affecting 86% of the monetary value of currency in circulation. This has been another example of his dictatorial policies, as the decision was not even discussed by his own cabinet. Even the central bank did not know about the ban until the very last moment.

Readers should reflect on the fact that Modi took a decision crippling the economy by robbing it of its life-blood, depriving people of the medium of exchange they needed for performing transactions, without worrying in the least about checks and balances.

 

Conclusion

It should be easy to see that India is not the next China. There is no point in holding out much hope for India. Rather, it is ever easier to conclude that it is on the way to becoming the next banana republic, similar to neighboring countries such as Pakistan, Bangladesh, Sri Lanka, Myanmar or Nepal.

Intellectuals should engage in some self-reflection on why they have been consistently wrong about India. It is China that exhibits continued economic and social growth. China keeps coming out with innovative products. In China’s book shops one can find Chinese translations of many of the best foreign books. I’m worried that India could rapidly become a backwater by comparison.

 

Charts by: Bloomberg, TradingEconomics, Economist

 

Chart and image captions plus editing by PT

 

Jayant Bhandari grew up in India. He advises institutional investors on investing in the junior mining industry. He writes on political, economic and cultural issues for several publications. He is a contributing editor of the Liberty magazine. He runs a yearly seminar in Vancouver titled Capitalism & Morality.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

8 Responses to “India: The World’s Fastest Growing Large Economy?”

  • Kiran123:

    Jayanth,

    Glad you agreed with earlier comment in an earlier article that liberal democracy was the main reason for failure of countries like India, bangaladesh, Nigeria etc. You still seem to have some hesitation when it comes to west. But i beleive it failed there too.

    Also I have seen you all over twitter/facebook saying one of the reasons of west downfall is that it is importing too many immigrants. You couldnt be more wrong. No western country other than usa has non-white immigrants more than 10%. And even in USA their influence in matter of culture etc is zero. They have close to zero opportunity to impose their culture in west even on the left.

  • whartonone:

    I have to say I haven’t come across an article in quite awhile that flows logically for a bit than simple careens off the road – I could barely get thru it past this sentence – truly questioning the author’s most basal understanding of the efficacy of various forms of economic governance – ” … They refuse to see that democracy tends not to work in poor countries (it is debatable whether it worked in the West). …”.

    You may want to do some basic research (on “history” as well as simple economic data) from OECD, etc. on the correlation between economic freedom and economic income (GDP per capita).

    Democracy may not have worked??? The story that is the United States is the paragon of it having “worked”.

    “You don’t make the poor richer by making the rich poorer.”
    – Winston Churchill

  • private321:

    The painting is of Ancient Rome, not Greece. That’s Cicero and Catiline in the Roman senate.

  • Solon:

    Thank you, Jayant for another article typified by your usual high quality information and education.

    However, people rarely comment unless to complain and the same is true for myself, lol…

    Mentioning The Ten Commandments as an example of “Reason” really does a disservice to your article.

    In what way does a series of rules–some of them irrelevant–allegedly given by Divine Intervention (or so the story goes), relate to Reason?

    Far better to have mentioned the Greek Philosophers of Antiquity or Mills’s Harm Principle or at least boiled down the relevant commandments to Contract Law:

    “It is wrong to take the property of others.” … Whether that be their goods, their reputation, their health, their rights, or their Life.

    The God of Judaism wasn’t particularly noted for his brevity, his incisiveness, or his willingness to follow his own rules. Nor are the Major Superstitions equated with Reason. Morality cannot be a matter of Faith.

    • Kenny:

      The Ten Commandments was given by God to be the foundation stone of the Nation of Israel. From the Nation of Israel and by inspiration of God Almighty the greatest civilizations in this present time were established. Would it be foolish to think that if India incorporated the moral teachings of the bible into their belief system that correct moral reason would flourish?

      • Solon:

        “From the Nation of Israel and by the inspiration of God, the greatest civilizations in this present time were established.”

        Huh? Do you have any evidence of a causative relationship? Or any evidence that things would be worse otherwise?

        It would be easier to prove that civilization has slowly gained ground it has in spite of these antecedents.

        Or do you have any evidence that such morality began with the Bible?

        Any evidence that one cannot teach or learn morality without the Bible?

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • How to Make the Financial System Radically Safer
      Preventing the Last Crisis Clear thinking and discerning rigor when it comes to the twisted state of present economic policy matters brings with it many physical ailments.  A permanent state of disbelief, for instance, manifests in dry eyes and droopy shoulders.  So, too, a curious skepticism produces etched forehead lines and nighttime bruxism.   The terrible scourge of bruxism and its potentially terrifying consequences. Curious skepticism can lead to the darnedest...
  • The One Promise Trump Can Keep
      Broken Promises POITOU, FRANCE – “We live in a slow-growth world,” summarized a canny friend, “but with high-growth debt and high-growth asset prices.” Today, we turn to a report on Zero Hedge for further precision. But we’ll get to that in a minute. First, let’s begin with less precision. The promise of the Trump administration was, in a nutshell, that it would look ahead and improve the future before we got there. How?   President Trump: so far the future...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • S&P 500 Index: A Single Day Beats the Entire Week!
      Recurring Phenomena Many market participants believe simple phenomena in the stock market are purely random events and cannot recur consistently. Indeed, there is probably no stock market “rule” that will remain valid forever. However, there continue to be certain statistical phenomena in the stock market – even quite simple ones - that have shown a tendency to persist for very long time periods.   This chart illustrates a “rule that changed” - for eight decades...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com